China Plans State Pipeline Company in Massive Energy Reshuffle

SINGAPORE (Reuters) – China will announce a plan this year to form a national oil and gas pipeline group combining the long-distance pipeline assets of the country’s state-owned energy companies, in the sector’s largest reshuffle in two decades, said three persons with knowledge of the plan.

The change is designed to open access to China’s pipeline infrastructure to private and foreign energy producers to spur oil and gas exploration. The open pipeline network will allow companies to focus on exploration without any additional costs to move the fuel to market.

China’s economic planner, the National Development and Reform Commission (NDRC), approved the plan for the group last month, including details of assets to be incorporated, and final approval from China’s State Council is still pending, said one of the sources.

The initiative is considered the biggest energy market reshuffle since 1998 when Beijing restructured the entire sector and established China Petroleum and Chemical Corp (Sinopec) and PetroChina.

The new entity will effectively become a fourth state-controlled energy company next to Sinopec, China National Petroleum Corp, the parent company of PetroChina, and China National Offshore Oil Corp.

It is unclear when Beijing will officially announce the plan or when the new firm will be launched, but companies have been preparing for the move, said a second source, an executive at a state-owned oil company. That includes PetroChina relocating its pipeline segment’s management team to a separate office tower in Beijing, the source said.

The sources declined to be named due to the sensitive nature of the matter.

The NDRC did not respond to Reuters request for comment.

“It’s the largest-ever step in (the oil and gas) sector reform. At the core of it, it’s about removing a key bottleneck in the market and allowing producers and consumers equal access to infrastructures,” said Dong Xiucheng, director of energy policy research at University of International Business and Economics in Beijing.

China is the world’s second-largest oil consumer and third-largest natural gas user, but its 82,600-mile (133,000-km) oil and gas pipeline network is less than one- fifth the size of the system in the United States, the world’s biggest oil and gas consumer.

The plan will mainly affect Petrochina, which controls 70% of China’s oil pipelines and nearly 80% of the major gas pipelines. In 2017, the company reported monthly revenue of $537.93 million (3.6 billion yuan) from its main pipeline operations.

Beijing started considering reforming the pipeline sector nearly a decade ago but NDRC finally formulated plans in 2017 while examining China’s natural gas system as part of its plan to replace coal with gas.

“That is why it’s taking so long to happen. The reform means the big oil companies losing part of their competitive edge,” said Lin Boqiang, the director of the Energy Economics Institute at Xiamen University who is also an independent member of PetroChina’s board of directors.

The new reform plan also includes crude oil and refined product pipelines, said two of the sources. This will address access concerns for China’s independent oil refiners and fuel dealers.

It will also set the stage for Beijing to reform Sinopec, PetroChina and CNOOC’s dominance over the exploration sector and let independents explore for oil and gas, said Lin.

Petrochina said in an email that it hopes the reform process will be carried out in “accordance with the principle of marketization” to address its concern about the valuation of its assets that will moved to the new company.

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