The Problem with Chinese Gas Prices

Consumers Bear the Brunt of the Costs

Implementing higher fuel standards in order to reduce air pollution is a good thing. But the “Big Two” oil companies who control the petroleum industry—Sinopec and CNPC—should take responsibility for the increased cost. Consumers already pay huge sums of money to the petroleum industry when they buy gas—why should they be called upon to bear so much of the cost of the new fuel standards?

Fuel consumption data for the past twelve years show that with the implementation of the China IV and V emissions standards, every year Chinese consumers are paying an extra:

For most private vehicle owners, the increase is manageable. But for the long-distance trucking industry, the rise in diesel prices presents a significant cost.

Increases in the cost of diesel fuel don’t just affect the trucking industry, they have repercussions at every step of the supply chain.

It’s clear that consumers are paying a lot more because of new fuel standards, but how much of the increased cost is due to infrastructure upgrades by the “Big Two” remains a mystery.

For us consumers, the whole thing is pretty inscrutable. It’s not that we’re unwilling to shoulder costs associated with protecting the environment—we just resent the fact that the account books are hidden in a locked vault somewhere.

Crying About Losses While Making Millions

How CNPC Makes its Money

Though the oil refining business continues to be a money-losing operation, this hasn’t stopped CNPC from becoming China’s “most lucrative state-owned enterprise.” In 2010, CNPC reported the highest net profit of all state-owned enterprises—$18.37 million—while Sinopec clocked in fourth at $10.67 million.

If the companies aren’t using these profits to pay for higher fuel standards, then what are they using them for?

Oil companies get subsidies, and the real costs get passed on to the consumers?

The oil drilling and refining companies operated by the “Big Two” keep independent accounts and settle their accounts independently against the world oil price. The government subsidizes whichever one is losing money, and therefore the “Big Two” will always turn a profit. So, even though they make a ton of money, the “Big Two” receive substantial subsidies.

This explains why CNPC and Sinopec are always asking the government for more money.

Conclusion: Oil companies should be willing to bear the costs associated with higher fuel standards. But the “Big Two,” even while they reap enormous profits, complain that they are losing money. So the government subsidizes them, while at the same time consumers are asked to bear 70% of the cost increase created by higher fuel standards. We need clean air, but bad things are sometimes committed with good intentions. Before they raise the price of gas, shouldn’t oil companies come clean about what the new fuel standards actually cost them?

Translated by Austin Woerner.