Oil transportation still mainly by tankers?

Owing to its advantage in large volume and low freight, marine shipping has become the first choice for oil transportation. To ease the supply shortage of diesel in China, both PetroChina and Sinopec Corp. have increased the imported amount of oil products. According to customs statistics, China's imported amount of crude oil was 163.2 million tons in 2007, an increase of 12.4% over 2006. In the massive import of crude oil, the amount shipped by domestic tankers only accounts for 10% of the total crude oil marine shipment. The transportation of imported oil depends heavily on foreign tankers.

Hidden hazards

1. Ninety percent of imported oil is transported by foreign tankers

China has become the second biggest oil consumer and the third biggest oil importer in the world. In nearly a hundred million tons of imported crude oil a year, 50% comes from the Middle East, 22% comes from Africa and 12% comes from Southeast Asia. The import of crude oil from these 3 regions not only has a long distance but also almost totally depends on foreign tankers for transportation. Due to the inadequate number and capacity of domestic tankers, 90% of imported crude oil has to depend on foreign tankers for transportation and the amount shipped by domestic tankers only accounts for 10%. Generally speaking, oil importers have to sign charter parties with shipping companies before they sign oil purchase contracts with oil companies. When the oil price increases, oil importers usually have to pay a higher cost in leasing tankers.

Most of the marine oil transportation in China's 3 major oil companies (CNPC, Sinopec and CNOOC) is undertaken by tankers leased from foreign oil tanker companies including Uni-World Shipping Ltd. and Hyundai of Korean.

2. Leakage of crude oil

Due to the long shipping route, the long round-trip time and the im pact from adverse weather such as ocean current, typhoon and seismic sea wave, safety and environmental protection risks in marine shipping and especially ocean shipping are much more than those in land transportation. As marine shipping has no quick and convenient supportive facilities as land transportation does, in case force majeure natural disasters or other accidents cause oil leakage the collection and the treatment of oil will be much more difficult and the area of spread and endangerment will also be much larger.

Countermeasures

1. Transportation undertaken by domestic tankers

In terms of cost, marine shipping has irreplaceable advantage over railway and highway transportation.

Large ocean shipping companies in China are expanding the number and capacity of its tankers. It is expected that 50% of imported crude oil and oil products in China will be shipped by domestic tankers after

2010.

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According to experts, the expansion of domestic tankers can not only reduce the import cost of oil and but also promote the all-round development of iron and steel production, trade and finance in China.

2. Standards for safety and environmental protection

One of the reasons for the frequent happenings of accidents in oil tanker marine shipping is the lack of effective and unified standards for safety and environmental protection in global marine shipping. Good experiences gained by some companies can hardly be shared by other companies.

Experts appeal to relevant departments to issue standards for safety and environmental protection in marine oil shipping and adopt forceful measures to avoid major marine accidents.

Prices of Chemical Futures in China as of January 28th, 2007

Product           Contract month     Close (RMB/t)

LLDPE            0803 (March 2008)      13 770
                 0805 (May 2008)        13 870
Fuel oil         0803 (March 2008)       3 812
                 0805 (May 2008)         3 865
Natural rubber   0803 (March 2008)      22 740
                 0805 (May 2008)        23 400
PTA              0803 (March 2008)       7 426
                 0805 (May 2008)         7 618

Source: CNCIC