by Kosuke Takahashi

17-11-04

Despite one of the most strained cross-strait relations for more than half a century, China and Taiwan have been increasingly trading in refined petroleum products recently.

Competing against Japanese and Western oil traders, China's two largest state-owned oil companies and one trading house have been buying up oil products from Taiwan's two major oil refiners. The trading solves two problems at once: a refining capacity shortage in China and excess capacity in Taiwan.

The issue of growing cross-strait economic and trade relations is not new, especially after both China and Taiwan were approved to join the World Trade Organization in December 2001. China became Taiwan's largest trading partner in 2003, followed by Japan and the United States. Taiwan was the sixth-largest trading partner of China that same year, after Japan, the US, the European Union, Hong Kong and South Korea.

Unlike other commodities, however, oil has been viewed as one intimately intertwined with national strategies. This is why the active fuel trade between the two estranged nations comes across as a bit surprising.

Oil traders in China and Taiwan, however, don't care much about national strategies or hardball politics; all they are interested in are profits. "Business is business," an official at Chinese Petroleum Corp (CPC), Taiwan's largest national oil company, told.
Among active market players from the Chinese side are state-owned oil giants China Petroleum & Chemical Co (Sinopec), PetroChina, and China National Offshore Oil Corp (CNOOC). Besides this trio, Sinopec's Singapore subsidiary China International United Petroleum & Chemical Co (Unipec) and Chinese trading house Sinoying Singapore are also active participants. On the Taiwanese side, CPC and Taiwan's second-largest private oil company Formosa Petrochemical Corp (FPC) are the flag-bearers of the burgeoning oil trade.

China and Taiwan started to nurture and promote ties between their oil companies in January 2003, when the two governments agreed to allow CNOOC and CPC jointly to search for oil reserves in the Tainan Basin, which spans Taiwanese and Chinese waters, in an effort to curb mounting oil-import bills.
Though China has been the world's second-largest crude importer after the US since last year, it has always lacked the necessary refining capacity to produce oil products. This is what drove China to turn to Taiwan, which lapped up the opportunity to sell its excess energy to such a large market.

Most recently, Taiwan's CPC awarded its gasoline sale tender for November loading to Sinopec, while FPC sold a medium-range cargo, about 30,000 tons, of fuel oil to Sinoying for loading in November. CPC sold one medium-range cargo of 0.2 %-sulphur gas oil to PetroChina for loading in mid-December. Also, FPC signed gas-oil supply contracts for the next year with Unipec for the first time.
The political standoff between the two countries entails that cargoes originating in Taiwan cannot go to any Chinese port directly. So whenever a China-bound cargo is loaded in Taiwan, that vessel must stop at Hong Kong or Japan's Ishigaki Island. There, the ship-owner has to document the change of loading-port name from Taiwanese ports to Hong Kong or Ishigaki. According to oil traders, this is not a change of ship ownership, just a change of port of origin. Traders say it takes just one to two hours for this re-documentation, but the unnecessary paperwork is still economically inefficient.

In China, demand for oil continues to grow rapidly. In the first nine months of this year, imports hit 22.65 mm tons, a whopping 23 % rise over the same period a year ago. This is just shy of the record 23.79 mm tons the country imported for all of 2003.
If China's demand continues to grow the way it has been, there is every possibility that even the re-documentation system will be dumped for more direct, efficient trading.

Kosuke Takahashi is a former staff writer at the Asahi Shimbun and is currently a freelance correspondent based in Tokyo.

Source: Asia Times Online