1. Preface

 

1. The domestic oil product market is dominated by two companies, CNPC and Formosa Petrochemical, and the price of oil products is adjusted by the companies themselves according to the cost of imported crude oil. The government manages it in accordance with the Petroleum Management Law, and in principle does not intervene in oil price adjustments except during emergencies.

 

2. International oil prices soared last year, rising by more than US$70 per barrel at one point in August. Considering economic stability, the government requested CNPC to suspend price increases; in order to reduce the burden on the industry. Afterwards, the international oil price trended down, temporarily lifting the pressure on price adjustment.

 

3. Since January this year, international oil prices have soared again, and CNPC is under pressure to adjust prices due to the expansion of losses. President Xie has not adjusted prices for the time being due to social perceptions; there are polar voices in China that CNPC should not adjust prices or that the government should not intervene in oil prices.

 

4. Oil is the main source of domestic energy supply and has a huge impact on people's livelihood and industrial competitiveness. In view of the possibility of large fluctuations in international oil prices in the future, it is necessary to re-establish the oil price mechanism in order to prevent the government from falling into the dispute over oil price adjustment for a long time, clarify the roles and functions of the government and the industry, including state-owned enterprises and private enterprises in the market, to ensure oil products. normal functioning of the market.

 

2. Changes in international oil prices and their possible impact

 

1. Short-term international oil prices fluctuate frequently

 

(1) In recent years, the international oil supply and demand is still roughly balanced, but the supply and demand variables are very large, especially the unstable oil supply caused by the political fluctuations in oil-producing regions such as the Middle East and Latin America, resulting in abnormal fluctuations in oil prices; the average price of crude oil (WTI) in 2005 A barrel of about 56.6 US dollars, estimated in 2006, a barrel of about 53 to 73 US dollars. It is generally believed that the possibility of a third energy crisis is not high due to the absence of a large imbalance between supply and demand in the short term; however, the possibility of uncontrollable oil prices caused by sudden factors (such as the Iranian oil embargo) cannot be completely ruled out.

 

(2) Short-term oil price fluctuations will inevitably impact the domestic economy and prices, but if the international oil price is within US$70 per barrel, the impact will not be too great.

 

2. Mid- and long-term international oil price trends and impacts

 

(1) If the global oil demand is estimated to grow by an average of 1.5% to 2% per year, the oil demand will increase by about 35% to 49% by 2025; relatively, the oil supply is far behind the increase in demand, and There are also great restrictions on alternative energy sources (the amount of coal is sufficient, but the pollution is high; the amount of natural gas is limited; renewable energy including wind power, hydropower, solar energy, etc. is estimated to be less than 1%), therefore, the international oil price in the medium and long term may rise sharply. Hard to avoid.

 

(2) In view of the long-term upward trend of international oil prices, governments of all countries are actively deploying comprehensive strategies to cope with the rising oil prices, especially the major countries with high dependence on oil imports, including the United States, Japan, China, etc., have more tightly planned long-term energy supply and demand measures, and deliberately Master oil sources around the world.

 

(3) my country relies on imports for 99% of its oil supply. However, due to the long-term low energy prices, the proportion of energy-consuming industries (such as steel and petrochemicals) is relatively high, and the energy intensity continues to rise. If the international oil price is bullish for a long time, it will pose a great threat to the long-term development of Taiwan's economy. A responsible government, in addition to dealing with the short-term oil price issue, must promptly review and plan forward-looking energy policies (including energy prices, energy structure, energy conservation measures, renewable energy development, energy security, etc.), and address related issues including: Conduct a comprehensive review of greenhouse gas emissions and investment in large energy-consuming industries (including Formosa Plastics, Guoguang Petrochemical), and formulate long-term countermeasures.

 

Participate in the current oil price adjustment mechanism and review

 

1. The current oil price mechanism

 

(1) In the early years, the domestic oil market was monopolized by CNPC. In order to reduce disputes over domestic oil price adjustments caused by fluctuations in international oil prices, CNPC formulated an oil price formula as the basis for price adjustment, which was subject to review by the Funding Rate Review Committee. However, since Formosa Petrochemical entered the oil market in September 2000, the oil price formula of CNPC has been cancelled, and the two companies have adjusted their prices according to the cost of imported crude oil. In addition, the Petroleum Management Law was implemented in October 2001, which stipulates (Article 21) that the central competent authority may implement emergency oil control, price restrictions, safety stock adjustment and utilization, etc. Method).

 

(2) From September 2000 to August 2005, CNPC frequently adjusted oil prices in response to changes in international oil prices (from 2000 to 2005, gasoline and diesel prices were adjusted 8 times, 4 times, 6 times, 9 times, 6 times, and 3 times respectively). times); Formosa Petrochemical roughly follows the price adjustment of CNPC.

 

(3) In September 2005, Formosa Petrochemical raised oil prices, but CNPC suspended the price adjustment due to the request of the Executive Yuan, resulting in a substantial change in the market share of oil products. Subsequently, the Executive Yuan considered reducing the burden on the industry and implemented a 25% reduction in the excise tax on gasoline, diesel and fuel oil from October to December.

 

2. Problems arising from self-defined oil prices by the industry

 

The domestic oil market is a double market (CNPC has a market share of about 70%, and Formosa Petrochemical has a market share of 30%). Based on commercial interests, the industry’s self-determined oil prices will inevitably cause the following problems:

 

(1) CNPC and Formosa Petrochemical have a tendency to jointly set prices.

 

(2) The pursuit of profit by the industry often results in the problem of oil prices rising more or less and making huge profits. For example, in the first half of 2005, the profits of PetroChina and Formosa Petrochemical increased sharply, which became an important basis for criticizing that oil prices should not be raised.

 

(3) The efficiency of CNPC is obviously not as good as that of Formosa Petrochemical and foreign companies, and its blindly adjusting prices in response to rising costs will inevitably lead to severe criticism.

 

3. Problems that may arise from intervening in the market

 

If the government intervenes in oil price adjustment, it will inherently stabilize the economy in the short term, but it also has various sequelae:

 

(1) Distorting the price mechanism. If CNPC is not allowed to adjust the price, CNPC will continue to lose money, which will cause the state treasury to subsidize oil users, and may affect the long-term competitiveness of CNPC. In addition, if the oil price does not cover the cost, it will also have an impact on Formosa Petrochemical, which is not feasible in the long run.

 

(2) Affecting the oil safety stock. CNPC loses money to sell oil. Although its market share may increase, it will inevitably affect the normal stock and have a negative impact on the long-term security of oil supply.

 

4. Factors to be considered when dealing with oil price adjustments

 

1. Institutionalized treatment

 

Oil price fluctuations have become normal. If a system cannot be established to deal with it, the government will not only fall into the whirlpool of long-term disputes, but will inevitably affect the people's perception of the government's handling of problems.

 

2. The dual-occupancy nature of the oil market

 

The liberalization of the oil market is a principle that should be followed, but the domestic oil market is a dual-occupancy market, and CNPC is a state-owned enterprise. Therefore, how to promote market competition and guide the rationalization of domestic oil prices is an unavoidable responsibility of the government.

 

The impact of oil prices on the overall economy

 

(1) The increase in oil prices has adverse effects on economic growth and prices. According to the general econometric model, if domestic oil prices rise by 10%, the economic growth rate will decrease by 0.25-0.35 percentage points, and consumer prices will increase by 0.4-0.5 percentage points. . However, past experience shows that the short-term impact of oil price adjustments may be higher than the theoretical model estimates.

 

(2) my country's oil prices have been low for a long time, and if the price adjustment is not large, the impact on international competitiveness will be limited. However, some people advocate that the adjustment of oil prices should be no higher than that of neighboring countries.

 

(3) If the upward trend of oil prices cannot be changed, even if the price is barely adjusted in the short term, it will eventually be forced to increase the price in response to the cost. At that time, a price adjustment will have a profound and wide-ranging psychological impact on the society.

 

4. CNPC's surplus and long-term competitiveness

 

(1) In 2004, CNPC had a surplus of 24.88 billion yuan. In 2005, the accumulated surplus fell to 9.599 billion yuan due to the policy not adjusting prices, a decrease of 15.281 billion yuan, which was also lower than the statutory surplus of 12 billion yuan.

 

(2) At the beginning of this year (2006), the international oil price rose sharply, and CNPC incurred a loss of about 5.1 billion yuan in January. It is estimated that the average oil price this year may be higher than that in 2005, and the loss of CNPC is estimated to reach 30-60 billion yuan.

 

(3) The continuous loss of CNPC will affect the long-term market competitiveness; if Formosa Petrochemical is unwilling to bear losses or convert domestic oil products to export, it may also distort the market structure and cause more sequelae.

 

5. Principles and actions to improve the oil price mechanism

 

1. Principles

 

(1) The government must establish a system to deal with the oil price issue and handle it in accordance with relevant laws and regulations.

 

(2) Considering the dual-occupancy nature of the oil market and the fact that oil prices are closely related to people's livelihood and industrial competitiveness, the government should make appropriate interventions to promote market competition and reasonable oil prices.

 

(3) CNPC is a state-owned enterprise and the largest supplier of oil products in the market. Therefore, the competent authority should give administrative supervision to urge it to fulfill its responsibilities as a state-owned enterprise.

 

(4) The short-term oil price adjustment of CNPC should be based on the principle of appropriately reflecting the increase or decrease of variable costs; in the medium and long term, CNPC should enhance its overall competitiveness, reduce production costs, and promote the rationalization of oil prices; the competent authority should also Fulfill your supervisory responsibilities.

 

(5) In order to reduce the impact of oil price changes on the industry and people's livelihood, the government will take appropriate measures to stabilize oil prices and related prices when necessary.

 

(6) In response to the long-term upward trend of international oil prices, the government will actively plan and review long-term energy policies and oil price policies with reference to the conclusions of the National Energy Conference.

 

Second, as a specific

 

(1) The government's management of the market price of oil products shall be handled in accordance with the Petroleum Management Law. The government will only intervene in the oil products during the emergency period when the oil supply is insufficient or the oil price fluctuates greatly, which may affect the stable supply of domestic oil or national security. Market prices are limited.

 

(2) The competent authority shall give the following specifications to the oil price adjustment of CNPC:

1. Oil price adjustment should refer to reasonable international oil prices (such as spot FOB price or untaxed price of neighboring countries, etc.), and be supervised by the competent authority.

2. When the international oil price fluctuates abnormally, in order to stabilize the domestic price, the profit target of CNPC can be adjusted appropriately.

3. When the international oil price falls, it should be reflected in the oil price adjustment in a timely manner, so as to avoid giving the outside world the impression of "rising more and falling less" or "only rising but not falling".

4. CNPC should fully disclose relevant financial information in comparison with listed/over-the-counter companies.

5. CNPC shall not have any joint actions with Formosa Petrochemical, and shall strive to strengthen market competition.

6. CNPC should formulate plans and specific goals for improving operating performance and reducing costs to ensure reasonable oil prices.

 

(3) Instruct relevant agencies to perform their management and supervision responsibilities

1. The relevant competent authorities shall strictly supervise the production and sales of petroleum in accordance with the Petroleum Management Law and the Fair Trade Law.

2. The Ministry of Economic Affairs shall conduct regular assessments on CNPC, and if there are serious violations of the above-mentioned norms or non-compliance with expectations, it shall be punished or the person in charge shall be replaced.

 

(4) The Economic Development Association should continuously observe and evaluate the impact of oil prices on prices and economic growth, and propose necessary financial measures in a timely manner to stabilize the economy.

 

(5) The Executive Yuan will integrate relevant decision-making mechanisms within the hospital, comprehensively review and plan long-term energy policies and related industrial structure adjustment policies, and guide energy conservation and related policies accordingly, so as to cope with the advent of the era of high energy prices.

 

Reference text: Executive Yuan Information Bureau http://info.gio.gov.tw/ct.asp?xItem=28172&ctNode=919