BP is catching up with rival, Shell, in penetrating the Chinese fuel retailing market. With fast growth forecast, the oil majors are all trying to get in on the action. BP hopes to have 1000 sites, putting it ahead of the other international players. Currently BP owns 30 stations and manages a further 100; gaining more than 500 over the next three years seems a real challenge.
China Petroleum & Chemical Corp., or Sinopec, is setting up joint venture companies with Shell, BP and ExxonMobil, allowing them to build or acquire 500 stations in the next three years. For oil majors looking for a large slice of the rapidly growing Chinese market, they have little choice but to form joint ventures with these two local companies. PetroChina and China Petroleum & Chemical Corp own about half of the country's service stations with the rest owned by private companies or local governments.
Sinopec also controls the wholesale fuel supply in the coastal areas of the country, which currently account for 60% of total sales, and the oil majors will be required to sell Sinopec product until 2005.
Shell is to spend $100 million over the next three years to build or acquire its 500 stations in Jiangsu. Sinopec will pay a similar amount as part of the $200 million venture. Shell investment is but a small share of the $5 billion it intends to invest in China's oil and gas market by 2005, with the best part being spent on a natural gas pipeline that will stretch from western to eastern China.
Having trailed Shell initially, BP is catching up and is setting up BP-Sinopec Zhejiang Oil Co Ltd, a joint venture company with Sinopec, with plans to add 150 stations each year, either through new builds or acquisitions. Within the $264 million joint venture Sinopec is expected to own 60% and BP 40%, for an initial operation period.
Given the fast growth in the Chinese market, it's worth BP aiming high in terms of sites to invest in. However, the joint venture companies only allow for 500 sites to be built and it may take BP some time to arrange further ventures to achieve its target of 1,000, with many more than 500 over the next three years seeming a real challenge.
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