Strategic considerations for the restructuring of Sinopec and AVIC Oil

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　　The State-owned Assets Supervision and Administration Commission of the State Council announced recently that, with the approval of the State Council, Sinopec Group Co., Ltd. and China National Aviation Fuel Group Co., Ltd. have been merged. 　　The “historic handshake” between the two major state-owned enterprises in the oil and gas sector is not only a landmark event in a new round of restructuring of such enterprises, but it also reflects China’s strategic efforts to strengthen its energy security safeguards and seize the lead in the process of green transformation amid complex international circumstances. What significant impacts will this restructuring bring? 　　The aviation fuel industry is more competitive. In today’s world, the energy landscape is undergoing unprecedented turmoil and transformation. The focus of global energy competition is acceleratingly shifting toward gaining dominance in the clean energy industry chain. Geopolitical conflicts and market fluctuations combine to pose ongoing challenges to China’s energy supply chain. As China’s consumption of refined oil gradually reaches its peak, aviation kerosene will become the only source of growth. A stable supply of aviation fuel is directly related to the smooth operation of the transportation system and the security of **strategic routes. For a long time, China’s aviation fuel industry has featured a separation between production and sales; there is a lack of close coordination between upstream refining companies and the terminal supply systems. As a result, the overall competitiveness of the industry chain is insufficient when facing international giants. 　　This restructuring happens to resolve this structural challenge. Sinopec is China’s largest producer of refined oil and aviation fuel, and it is the world’s largest refining company as well as the second-largest chemical company. China National Aviation Fuel is Asia’s largest enterprise providing integrated aviation transportation services, encompassing the procurement, transportation, storage, testing, sales, and refueling of aviation fuels. Sinopec’s strengths in upstream production and refining complement China Aviation Fuel’s capabilities in aviation fuel supply and logistics network, thereby creating a complete industrial chain that spans from crude oil refining to airport refueling. This integrated model has proven successful internationally. Currently, the major international aviation fuel suppliers are primarily integrated petrochemical companies, which operate under a model that combines production, supply, and sales. The merger of Sinopec and AVIC Oil can enhance global bargaining power and risk resilience through scale and synergy, thereby creating a truly internationally competitive energy **team**. 　　The green transformation of the aviation industry is better secured. “The 15th Five-Year Plan period is the first five-year span during which China will fully shift to a dual-control system for carbon emissions, and green and low-carbon development has become an essential requirement for all sectors. As an industry under significant pressure to reduce emissions, sustainable aviation fuel (SAF) is recognized as a key pathway to achieving low-carbon development. The world’s major economies have set clear targets for the proportion of aviation biofuels to be used, meaning there is a vast market potential for SAF. 　　Against this backdrop, this restructuring has created a unique combination of \"technology + use cases\" advantages. As a leader in the research, development, and production of SAF in China, Sinopec has achieved industrial-scale production of biojet fuel and its use in domestic aircraft, boasting solid technical capabilities ； AVIC controls the airport storage, transportation, blending, and refueling systems, representing the final hurdle for SAF to enter the market. The deep integration of the two creates a complete chain from the factory to the aircraft, which helps to reduce the high initial research and development costs as well as infrastructure investment requirements in the SAF industry. This accelerates the transition from pilot projects to large-scale application, thereby providing strong impetus for the green transformation of the aviation industry. 　　Aviation fuel supply is more economical and reliable. Jet fuel prices are closely linked to the costs in the aviation industry. For a long time, the fragmented supply chain structure has made these prices vulnerable to fluctuations in the international market. Through internalized transactions, restructuring reduces intermediate steps and optimizes resource allocation; it is expected to help stabilize price fluctuations, make travel costs more predictable for consumers, and alleviate the profit pressures on airlines. 　　More importantly, the restructuring has enhanced China’s ability to ensure self-sufficiency in aviation fuel; even in the face of extreme international situations, it helps mitigate disruptions to the supply of aviation fuel and ensures the stable operation of the civil aviation transportation network. From a broader perspective, as a key strategic material, the secure supply of aviation fuel is directly related to important areas such as emergency response and military transportation; this restructuring undoubtedly adds significant weight to energy security. 　　Of course, the restructuring of central state-owned enterprises is by no means a simple matter of merging them together; its success ultimately depends on whether deep integration can be achieved. Two large state-owned enterprises with different development histories will inevitably have differences in terms of values and management approaches. Efforts are needed to avoid a situation where they are integrated yet not function effectively together, and to ensure that everyone is aligned in thought and effort. 　　At the same time, the market also has legitimate concerns regarding the competitive landscape after the restructuring: how to balance scale effects with market vitality? Will there be monopolistic price hikes? These issues test the wisdom of governance after the restructuring. In the future, it is necessary to take advantage of the scale advantages of leading enterprises while also ensuring fair participation for other companies, in order to prevent any one company from dominating the market ； Regulatory authorities need to strengthen market oversight and establish sound price monitoring mechanisms to ensure that the benefits of restructuring truly reach society. (Author: Wang Yichen)