Fuel Shortage in Southern China Leads to Fuel Hording and

UNCLAS GUANGZHOU 001192

SIPDIS

SENSITIVE
SIPDIS

EMB BEIJING FOR DOE
USDOE FOR OFFICE OF THE SECRETARY
USDOE FOR INTERNATIONAL AFFAIRS
USDOE FOR FOSSIL POLICY AND ENERGY
STATE FOR EAP/CM, EB/TRA, INR, AND EB
STATE ALSO PASS USTR FOR CHINA OFFICE

E.O. 12958: N/A
TAGS: ENRG ECON EMIN SENV PGOV TRGY CH
SUBJECT: Fuel Shortage in Southern China Leads to Fuel Hording and
Price Gouging

REF: BEIJING 6936


1. (SBU) Summary. China's fuel shortage is hitting the Pearl River
Delta hard. High international oil prices have driven wholesale
prices above government-mandated retail price caps. The November 1
increase in diesel and gasoline prices (9 percent) may not be enough
to restore margins for retailers or refiners. Gas stations have
been closing, refusing in particular to sell diesel, and in some
cases illegally charging higher prices. End Summary.


2. (U) In line with nationwide trends (reftel),south China is
experiencing a diesel and gasoline shortage. Long lines are forming
at many gas stations, and local media coverage is increasing daily.
The shortage has been caused by rising international oil prices,
which have made it unprofitable for refiners and retailers to sell
fuel to consumers at government-capped pump prices (reftel). In
fact, on a recent Habitat for Humanity Build four hours outside
Guangzhou, consulate officers had difficulty locating a gas station
willing to sell them diesel fuel for the return trip to the city.
They told us that their strategy was to force consumers to complain
to the State Council about the lack of diesel, thereby driving the
State Council to undertake corrective action.


3. (SBU) Until October 31, China's National Development and Reform
Commission (NDRC) capped the retail price of diesel fuel at RMB 4.68
per liter. However, wholesale diesel prices in Guangdong have been
allowed to fluctuate more widely, possibly due to lax enforcement at
the local level of central government controls. Wholesale prices in
Guangdong rose higher than the retail cap. The price in the
Guangdong wholesale market reached RMB 5,770 per ton --
approximately RMB 4.9 per liter -- last week. It is still unclear
whether the price increase announced October 31 will be enough to
restore margins for retailers and alleviate the shortage.
Complicating the situation further is the apparent unwillingness of
independent refiners, who account for 12-19 percent of diesel and
gasoline production, to re-enter the market at the new price level.


4. (SBU) Predictably, many gas stations have responded to the price
situation by reducing supply or merely hoarding it. Media reports
indicate that 2,000 gas stations in south China have ceased
operations, including several hundred stations in Guangdong
Province. Some stations have turned customers away in an effort to
conserve existing supplies; November 2 media coverage indicated that
in Shenzhen, for example, service stations are holding back sales of
popular 93 octane gasoline. State-owned gas stations are still
supplying diesel fuel and there is some thought that they see the
crisis as an opportunity to expand their monopolies and drive the
independents out of business. However, not all of the "Sinopec" and
"Petrochina" branded stations are wholly owned by the state-owned
enterprises. Gas station co-owners in these joint ventures have
been forced to shoulder part of their losses.


5. (SBU) Prior to the October 31 announcement, some privately-owned
fuel stations had already begun increasing retail prices, flaunting
government price caps. Media reports indicated that some stations
had been selling diesel for RMB 5.15 to 5.50 per liter. These
prices are already as high as or higher than the new price caps
announced October 31.

GOLDBERG