Sinopec-CNAF Merger Could Boost Aviation's Green Transition, Lead to Fuel Price Cuts, Analysts Say

(Yicai) Jan. 9 -- The merger between China Petroleum and Chemical, better known as Sinopec, and China National Aviation Fuel Group could help the aviation industry achieve its carbon reduction goals and may create room for a reduction in fuel costs, according to analysts.The Sinopec-CNAF merger, announced by the State-Owned Assets Supervision and Administration Commission yesterday, following approval from the State Council, the country's cabinet, is a landmark event in the latest round of state-owned enterprise reorganization, said Li Jin, chief researcher at the China Enterprise Research Institute. It is a proactive response to global competition and green transformation, he noted.In addition, it is a crucial step in optimizing core business operations, which could catalyze more specialized integration among state-owned enterprises, Li pointed out.The merger is expected to unlock significant potential in aviation's green transition. CNAF is Asia's largest aviation fuel service provider, integrating procurement, transportation, storage, testing, sales, and refueling, focusing on aviation fuel, petroleum, logistics, international business, and general aviation, while Sinopec is the world's largest refining firm and second-largest chemical company, ranking sixth in the 2025 Fortune Global 500.Sustainable aviation fuel is crucial for the green transition, Li noted. Sinopec's SAF production tech, combined with CNAF's distribution channels, could accelerate the fuel's commercialization, helping the aviation industry meet carbon reduction goals and integrate green fuel into regular flights, he pointed out.China's aviation fuel consumption will likely top 75 million tons by 2040 from 39.3 million tons in 2024, according to a forecast by S&P Global Ratings.CNAF holds a virtual monopoly in the Chinese aviation fuel market, supplying all domestic and international airlines operating in the country, while also building or managing fueling facilities at most airports. However, the firm does not produce the fuel, sourcing it mainly from Sinopec, PetroChina, China National Offshore Oil, and overseas markets through its Singaporean subsidiary.The merger will provide CNAF with more stable upstream resources while expanding Sinopec's sales channels. It could also reduce intermediary steps, potentially lowering aviation fuel prices.The Sinopec-CNAF merger aims to optimize state capital allocation and prevent redundant competition, said Zhou Lisha, a researcher at the China Enterprise Reform and Development Research Association. CNAF occupies a crucial downstream position in the aviation fuel supply chain, with a sales network covering national airports and airline customers, so the move creates a "refining-distribution" system that could enhance supply chain stability and bargaining power, she noted.However, actual price cuts depend on changes to domestic aviation fuel pricing mechanisms, industry insiders told Yicai. The "comprehensive procurement cost" combines factory prices with certain discounts, they said.Factory prices are negotiated between suppliers and buyers, not exceeding the Singaporean market import prices after tax, which are announced monthly by the National Development and Reform Commission, incorporating international oil prices, exchange rates, and taxes, the insiders pointed out.Some industry observers suggest that if the Sinopec-CNAF merger creates an integrated "production-supply-sales" chain, airlines that lack pricing power might find themselves in an even weaker position.Editor: Martin Kadiev