“The oil shortages stemmed from Sinopec’s insufficient production capacity. This led to local refineries running under production capacity because of a crude oil shortage. Thereafter, the NDRC adopted administrative measures requiring Sinopec to distribute emergency crude oil to local refineries.” said Sha Xiangzhang, secretary-general of Shandong chamber of commerce for petroleum industry.

Sinopec has four refinery plants in Shandong province, respectively located in Zibo, Jinan, Qingdao and Dongying, with total production capacity of 20 million tons. “At present, those Sinopec refineries have reached full production. Even so, the output is not meeting market demands,” says Liang.

At the end of 1998, the government reorganized the local refinery industry and the remaining 82 plants-- 21 of them located in Shandong province. This was spearheaded by the State Development Planning Commission (SDPC)-- now called NDRC. Through a decade of development, that number has grown to 27. According to authorities, these local refineries can produce 40 million tons of oil products, double Sinopec.

Early on, the government allocated 1.8 million tons crude oil a year to Shandong's non-Sinopec refineries-- a quota that has never increased. Nevertheless, Sinopec’s supply of crude oil to its Shandong branch refineries has increased 15 percent each year. “The huge gap between the limited oil quota and increased production capacity of Sinopec has forced these local refineries’ to produce at one-third of their capabilities,” Sha Xiangzhang said.

Not Enough to go Around

But not every local refinery can enjoy a portion of the 500 thousand tons of bailout crude. Sinopec distributed the crude oil to fourteen large-scale refineries with hydrocarbon processing equipment, all of which supplied areas that were going through a severe oil shortage.

Due to its proximity to Hebei province, which is also suffering a serious oil shortage, Dezhou Hengyuan Petroleum and Chemical Company received 40 thousand tons of crude oil. One manager there says that company’s processing capacity has reached 1,000,000 tons-- far greater than the 140,000 tons it receives every year under the quota system. He says that with this in mind, the additional 40,000 tons is utterly inadequate.

Changyi Petroleum and Chemical Company’s production capacity has reached three million tons, while it only has access to 100,000 tons a year-- only 3 percent of its production capacity. But because the oil shortage is not serious where it delivers its oil products, it was only given 10,000 tons of the bailout.

The relationship between Sinopec and local refineries is very subtle. They are rivals in the market, but Sinopec also plays the role of industry administrator. Sinopec is their only legal crude oil supplier, and simultaneously in charge of their sales.