Sinopec to Merge with China National Aviation Fuel... Birth of an Oil Empire

"Ensuring Energy Security and Enhancing Competitiveness in China's Aviation Industry"

Sinopec, the world’s largest oil refiner, will merge with China National Aviation Fuel Group (CNAF).

On January 8 (local time), China Central Television (CCTV) and Xinhua News Agency reported that the State Council had approved the restructuring of the two companies. After the restructuring, the companies plan to leverage their strengths in various areas, such as the aviation fuel supply assurance system, to streamline intermediate processes and reduce supply costs.

Sinopec. Reuters Yonhap News

Additionally, they stated that by combining their advantages in technological research and development, industrialization capabilities, transportation and storage, and international trade-especially in the field of sustainable aviation fuel (SAF)-they aim to help reduce carbon emissions in the aviation sector and promote high-quality development of the industrial network.

Sinopec is the world’s largest oil refiner by production capacity and the largest producer of aviation fuel in China. CNAF is the largest aviation fuel logistics and service provider in Asia, integrating procurement, transportation, storage, inspection, sales, and refueling. Sinopec produces petroleum products such as aviation fuel and supplies them to CNAF, which manages the airport refueling network within China.

The South China Morning Post (SCMP) explained that although authorities have not disclosed specific details of the asset restructuring between the two companies, asset restructuring among Chinese state-owned enterprises is synonymous with mergers.

Previously, in November of last year, Bloomberg reported that, as travel demand recovered following the COVID-19 pandemic, Sinopec was in talks to acquire CNAF in a government-led move.

Wang Feng, Chairman of financial services firm Yelang Capital, stated, “Authorities are pursuing more mergers to strengthen financial resources and operational efficiency in key industries,” adding that this merger will result in “a more vertically integrated oil empire.”

Tian Yuanyu, a professor at China University of Petroleum, commented, “This will firmly guarantee energy security for China’s aviation industry,” and added that it will help enhance the international competitiveness of China’s aviation fuel sector.

Recently, the Chinese government has urged state-owned giants in heavy industries such as coal, steel, and power to reduce excess capacity and inventories in order to improve manufacturing capabilities and the quality of state-owned assets.

The number of companies managed by the State-owned Assets Supervision and Administration Commission of the State Council has now dropped to about 100, down significantly from 170 in 2009. In 2024, China announced the merger of China State Shipbuilding Corporation (CSSC) and China Shipbuilding Industry Corporation (CSIC).

Meanwhile, SCMP noted that this merger also comes amid heightened concerns over China’s supply of Venezuelan crude oil following a U.S. airstrike in Venezuela. China is the largest buyer of Venezuelan crude oil.