Diesel Shortage Frustrates Transportation and Industry in China

When the Chinese government set energy-saving standards in a comprehensive conservation effort, many factories responded by purchasing diesel-powered generators to offset the power cuts. The increased use of diesel by manufacturers combined with suspected hoarding by oil companies has created a crippling shortage of diesel in China.

Analysts suggest that oil suppliers are holding back inventory to pressure the communist government into raising retail prices. Diesel demand was already heavy in China’s rapidly expanding and changing economy. Rolling blackouts were mandated in late summer in response to the rising demand created by China’s recent growth in heavy industries including cement and steel production. Concern over greenhouse gas emissions and other pollutants from the industrial boom also contributed to the government’s mandated energy cuts.

The farming and fishing industries demand for diesel also grew in August and September, the same time of year the refineries closed down for maintenance. According to Argus Media Asia energy editor, Tom Reed, “It’s kind of a perfect storm,” creating  “a significant squeeze on the wholesale market.”

The Chinese government ordered the refinery shutdown after a pipeline explosion in July.  C 1 Energy oil analyst Liao Kaishun said the Dalian explosion leaked crude oil into the sea. He estimates a reduction of “at least hundreds of thousands of tons” of diesel fuel in monthly transports from northern to southern China.  Tom Reed said China will have to use imports to temporarily meet demand, and that the shortage would ease when refineries begin to increase output.

Oil industry analyst Zhao Jingmin believes the major oil companies are “stockpiling diesel in an attempt to blackmail”  China’s planning agency into raising prices. Sinopec and PetroChina are China’s largest state-owned oil companies. Retail prices remained steady over the summer, while crude oil rose from $70 a barrel to nearly $90 a barrel currently.

The shortage has left truckers immobile and angry while they wait for hours to buy fuel. Many are stranded overnight, and the backlog of deliveries is in turn angering customers. A dispatcher for  trucking company Tianbang Logistics reported the company’s drivers have been stuck in Shanghai for two days waiting to purchase diesel.

China’s Xinhua New Agency reported that over 2,000 filling stations in southern China had run out of diesel. Truckers are aware that the slowdown is due to pricing. One Internet bulletin board posted an anonymous note reading, “We all know the final result will be a price rise so why not do it directly?” Meanwhile, truckers are finding fuel where they can, often resorting to several stops with long waits to just partially fill their tanks.