Bypassing domestic monopoly giant private oil companies

Saudi Arabia has committed $300 million in investment, but many companies remain cautious, with experts warning that the risks are too high. Yesterday, crude oil prices on the New York Mercantile Exchange surged to $70.80 per barrel at the market open, pushing Chinese private oil companies into deeper uncertainty. On the same day, executives from across China's private oil sector gathered to explore a potential shortcut for securing stable oil supplies — the "equity swap source" strategy. The concept was introduced during the "China Petroleum Industry Investment Fund and China Petroleum Industry International Industry Investment Alliance Briefing Meeting." Cui Xinsheng, chairman of Beijing Minsheng Shanglian International Petroleum Energy Consultant Company, proposed the "equity change oil source plan," calling it a crucial path to addressing China’s energy challenges. The so-called equity swap involves middle- and lower-tier Chinese private oil companies exchanging some of their equity for reliable energy supplies from neighboring and oil-exporting countries, creating a collective investment effect. These companies can invest in their own assets, such as building small to medium-sized oil terminals, transportation systems, storage facilities, refineries, or retail outlets through joint ventures. Cui revealed that the initial oil industry investment fund has formed a structure including a platform (a coalition), an axis (the fund), two markets (domestic and international), and a route (the equity swap plan). The China Petroleum Industry International Investment Alliance is set to evolve into an energy alliance, aiming to secure hundreds of quality companies before the 2006 wholesale rights release. In the coming months, they will collaborate with agencies in the Malacca region to study the “Malacca Strategy” and establish energy partnerships along the Middle East-Malacca-China route. According to reports, the China Fund Forum, Beijing Minsheng Alliance International Energy Consultant, GCCIE, and SAGIA have agreed to form the China Petroleum International Industrial Investment Alliance (CIPIU) and initiate the "China Petroleum Industry Investment Fund (ICCPI)" to advance the "equity swap source" plan. Currently, over 30 domestic private oil companies, as well as numerous energy firms in Indonesia, Malaysia, Gulf states, Singapore, and Australia, have shown interest. Saudi Arabia’s General Investment Agency has also signed an agreement for an initial $300 million investment. “Perhaps it’s more accurate to call it 'market-for-resources,'” said Yang Yuanhua, a researcher at Xinhua News Agency’s World Problems Research Center. He emphasized that the fundamental solution to China’s energy issue lies in taking the market-oriented approach. However, due to incomplete domestic mechanisms, private enterprises face many restrictions in entering the oil sector. Han Xiaoping, executive vice president of China Energy Network, believes that while China’s oil demand remains strong, oil from countries like Saudi Arabia, Brunei, and Indonesia struggles to directly access China’s massive market. Instead, multinational oil giants profit from the middlemen. The equity swap plan allows companies to directly connect with end markets, resulting in a win-win scenario. Despite optimism from most experts, many companies attending the meeting remain hesitant. “The risk is too high,” said Cai Daren, chairman of Shanghai Yadong International Freight Co., Ltd. He pointed out that current oil price volatility makes it difficult to predict return cycles once equity is exchanged. “I’m afraid I won’t be able to get out of the chain.” Yao Tongxin, vice president of China Finance & State-Owned Enterprises Investment Co., Ltd., noted that while the equity swap plan aims to aggregate virtual equity for private oil companies and promote global resource allocation, the integration of private oil assets and the practice of setting up funds abroad remain unclear. Additionally, the definition of “equity swap source” is still ambiguous. Chen Wei, deputy general manager of Beijing Heterogeneous Petroleum Engineering Consulting Co., Ltd., argued that China’s current oil policy is skewed. Even if overseas oil sources are secured, private companies can only sell to PetroChina and Sinopec due to lack of wholesale rights. “Private oil companies aren’t facing a lack of oil; the problem is that the market isn’t open,” Chen said. He questioned what would happen if they managed to obtain foreign oil without proper policies in place. “If the market isn’t liberalized, how can we proceed?”

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