VZCZCXRO6128
RR RUEHCN RUEHGH RUEHVC
DE RUEHGZ #1192 3060709
ZNR UUUUU ZZH
R 020709Z NOV 07
FM AMCONSUL GUANGZHOU
TO RUEHC/SECSTATE WASHDC 6622
INFO RUEHOO/CHINA POSTS COLLECTIVE
RUCPDOC/USDOC WASHDC
RHMCSUU/DEPT OF ENERGY WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHDC
RULSDMK/DEPT OF TRANSPORTATION WASHDC
RUEAIIA/CIA WASHDC
RUEKJCS/DIA WASHDC
RHHMUNA/HQ USPACOM HONOLULU HI

UNCLAS GUANGZHOU 001192 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
EMB BEIJING FOR DOE 
USDOE FOR OFFICE OF THE SECRETARY 
USDOE FOR INTERNATIONAL AFFAIRS 
USDOE FOR FOSSIL POLICY AND ENERGY 
STATE FOR EAP/CM, EB/TRA, INR, AND EB 
STATE ALSO PASS USTR FOR CHINA OFFICE 
 
E.O. 12958: N/A 
TAGS: ENRG ECON EMIN SENV PGOV TRGY CH
SUBJECT: Fuel Shortage in Southern China Leads to Fuel Hording and 
Price Gouging 
 
REF: BEIJING 6936 
 
¶1. (SBU) Summary. China's fuel shortage is hitting the Pearl River 
Delta hard.  High international oil prices have driven wholesale 
prices above government-mandated retail price caps.  The November 1 
increase in diesel and gasoline prices (9 percent) may not be enough 
to restore margins for retailers or refiners.  Gas stations have 
been closing, refusing in particular to sell diesel, and in some 
cases illegally charging higher prices.  End Summary. 
 
¶2. (U) In line with nationwide trends (reftel), south China is 
experiencing a diesel and gasoline shortage.  Long lines are forming 
at many gas stations, and local media coverage is increasing daily. 
The shortage has been caused by rising international oil prices, 
which have made it unprofitable for refiners and retailers to sell 
fuel to consumers at government-capped pump prices (reftel). In 
fact, on a recent Habitat for Humanity Build four hours outside 
Guangzhou, consulate officers had difficulty locating a gas station 
willing to sell them diesel fuel for the return trip to the city. 
They told us that their strategy was to force consumers to complain 
to the State Council about the lack of diesel, thereby driving the 
State Council to undertake corrective action. 
 
¶3. (SBU) Until October 31, China's National Development and Reform 
Commission (NDRC) capped the retail price of diesel fuel at RMB 4.68 
per liter.  However, wholesale diesel prices in Guangdong have been 
allowed to fluctuate more widely, possibly due to lax enforcement at 
the local level of central government controls.  Wholesale prices in 
Guangdong rose higher than the retail cap.  The price in the 
Guangdong wholesale market reached RMB 5,770 per ton -- 
approximately RMB 4.9 per liter -- last week.   It is still unclear 
whether the price increase announced October 31 will be enough to 
restore margins for retailers and alleviate the shortage. 
Complicating the situation further is the apparent unwillingness of 
independent refiners, who account for 12-19 percent of diesel and 
gasoline production, to re-enter the market at the new price level. 
 
¶4. (SBU) Predictably, many gas stations have responded to the price 
situation by reducing supply or merely hoarding it.  Media reports 
indicate that 2,000 gas stations in south China have ceased 
operations, including several hundred stations in Guangdong 
Province.  Some stations have turned customers away in an effort to 
conserve existing supplies; November 2 media coverage indicated that 
in Shenzhen, for example, service stations are holding back sales of 
popular 93 octane gasoline.  State-owned gas stations are still 
supplying diesel fuel and there is some thought that they see the 
crisis as an opportunity to expand their monopolies and drive the 
independents out of business.  However, not all of the "Sinopec" and 
"Petrochina" branded stations are wholly owned by the state-owned 
enterprises.  Gas station co-owners in these joint ventures have 
been forced to shoulder part of their losses. 
 
¶5. (SBU) Prior to the October 31 announcement, some privately-owned 
fuel stations had already begun increasing retail prices, flaunting 
government price caps.  Media reports indicated that some stations 
had been selling diesel for RMB 5.15 to 5.50 per liter.  These 
prices are already as high as or higher than the new price caps 
announced October 31. 
 
GOLDBERG