Sinopec profits - A sharp contrast to PetroChina's refining losses

Published Date : Nov 06, 2013

Beijing\'s Economic Observer, upon citing the third-quarter results of the two state-run companies reports that the Chinese oil giant China Petrochemical Corp also better known as Sinopec has conducted a good job of reducing its refining losses. Sinopec was compared to China National Petroleum Corp – also known as PetroChina. 


Since, both were compared, PetroChina reported a loss of 5.3 billion yuan (US$869.1 million), whereas, Sinopec’s refinery business gained profits of 6.7 billion yuan (US$1.1 billion) during the first nine months of the present year. However, the paper also shared a view saying, the results stated can contradict the conventional belief and prove that the more refinery work an oil company performs, the greater its loss will be when the crude prices are high. 


This aspect has led to much confusion in the industry. An industry insider also said that the crude oil that Sinopec sources for running its refinery business generally costs more in terms of money and poor in terms of quality. It was cited that last year, Sinopec refined a total amount of 272 million tons of oil while, PetroChina estimated about 153 million tons. 


The paper also added that, the year 2011 can be referred to as the turning point in this discussion, whereas, the present developments of both these companies can be considered as the reflection of their business approaches. 


PetroChina focuses more on excavation and exploration, and thus its percentage capital spending on petrochemical and refinery business is now much lower than that of Sinopec. However, as compared to Sinopec, PetroChina’s approach towards constructing new facilities is more time consuming. On the flipside, Sinopec is doing well because they have been investing majorly in capacity expansion of its refineries. They have also been working to reinforce existing facilities. All this has helped them achieve lower unit costs too.  


Lastly, another reason behind this situation of both the companies is the way the cost of the crude oil is calculated at PetroChina and Sinopec. At PetroChina, a large amount of oil refined is from the own oil fields of the company itself, thus the costs are calculated and set according to the crude market prices. But at Sinopec, the costs are basically the company’s actual purchase prices which are normally lower than the market prices. This is due to the poor quality of the crude oil that Sinopec sources, an insider added.