Cheap gas in China likely gone after Olympics

SHANGHAI, China — While consumers in much of the world have been reeling from spiraling fuel costs, China has kept the retail price of gasoline at about $2.60 a gallon, up just 9 percent from January 2007.

During that same period, average U.S. gas prices surged nearly 80 percent, to about $4 a gallon.

But Chinese consumers are bracing for a big jump in pump prices after the Summer Olympics in Beijing end in late August.

"Everything will change after the Olympics," said Tang Yao, a real-estate businessman, as he waited to fill up at a service station in a Shanghai suburb.

Most people think the central government doesn't want to risk doing anything upsetting before the Games, which open Aug. 8. China is grappling with inflation running at an annual pace of more than 8 percent, mostly because of higher food costs.

"Before the Olympics, stability is paramount," said He Jun, an oil analyst at Beijing Anbound Consulting. Last month's earthquake in Sichuan province drove that point home, he said, and large supplies of fuel are being diverted for reconstruction there.

China is the world's second-largest consumer of petroleum, behind the United States. The nation's robust demand for oil, to support its booming economy and rising standard of living, has contributed to higher global prices and prompted Beijing to scour the world for energy resources.

China relies on imports for roughly half its oil use, which is growing at about 7 percent annually. Global oil topped $139 a barrel last week, double a year ago. But China raised pump prices only once in the past year, in November, by a little more than 9 percent.

Refined oil prices in China are half of international levels, leaving Beijing to shell out $30 billion in subsidies in 2007, according to China International Capital Corp. (CICC), a Beijing investment bank.

The tab this year and next will be more. Some analysts predict oil could hit $200 a barrel next year, partly because of constrained supplies.

But even worse than their draining effect on China's government coffers, its price controls create market distortions and disincentives for consumers and businesses to reduce consumption, many analysts have long argued.

The transportation industry uses about half of the gasoline and diesel in China, while ordinary motorists accounted for 7 percent in 2006, according to CICC. But the number of car owners is growing rapidly.

The market distortions are significant.

State-owned PetroChina and China Petroleum & Chemical, called Sinopec, supply 90 percent of the gas and diesel sold through some 88,000 stations nationwide, researchers say.

They also produce, refine and import oil. They buy crude at global prices but must sell at government-set levels. Although they are state-owned, their officials are loath to sell at such a huge loss.

The upshot: They're holding back supplies until the government lets prices rise, some analysts say.

But Gong Jinshuang, a senior researcher at Sinopec in Beijing, said the two big firms actually have been increasing supplies recently, in part to meet the demand caused by rebuilding in the quake zone.

Motorists, he says, might be feeling a supply crunch because Sinopec and PetroChina, which also operate most of the filling stations, might not be delivering as much fuel to nonaffiliated gas stations outside the quake zone. As a result, some gas stations have closed temporarily.