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Of the three possible reasons Stratfor raised for the current diesel shortages in China, the primary causes appear to be a temporary structural breakdown caused by the severe energy facility damage during recent snowstorms and temporary changes in the nation’s industrial dynamics. The effects of these problems have been accentuated by Beijing’s continued inability to discipline its major state energy companies.
For the short- to medium-term, China’s efforts to address fuel shortages should be enough to contain domestic social unrest, at least through the Olympic Games. Structural plans have been in motion to address fuel supply issues beyond 2008 (a series of new refineries commissioned over the last few years is due to come online before the end of 2008), but their effectiveness ultimately will depend on global oil prices and on how Beijing responds with adjustments to national fuel price caps.
Though China is not likely to suffer a region-wide refinery breakdown, the recent snowstorms destroyed transportation and power-supply systems as well as oil refining facilities. It will take at least a few months to bring them back to previous production and delivery levels. Stratfor sources say that the provinces of Hunan, Guangdong and Guangxi have been hit the hardest. But refined oil products can simply be brought from overseas, so distribution problems resulting from the snowstorms cannot be the sole reason behind the current shortages.
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