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China advances reform with new oil&gas pipeline firm unveiled

December 12, 2019


Abstract : China moves further in reform of oil and gas operations with China Oil & Gas Piping Network Corporation (PipeChina) officially established on December 9 in Beijing.

BEIJING, Dec. 12 (Xinhua) -- China moves further in reform of oil and gas operations with a new centrally-administered state-owned enterprise (SOE), the China Oil & Gas Piping Network Corporation (PipeChina)officially established on December 9 in Beijing.

PipeChina could form a nationwide pipeline network, realize better control of pipeline transportation and provide a fair and open market for more players to participate, according to industry analysts, noting that separating (oil and gas) transportation from sales conform to international practice.

This marks a reshape of the domestic natural gas market, and is likely to accelerate pipeline related infrastructure constructions thus drive equipment demand, predicted analysts with Zhongtai Securities, noting that market size for related equipment is likely to exceed 300 billion yuan.

-- Nationwide pipeline network

PipeChina will carry out investment and construction of the country's trunk pipeline networks, gas storage and peak shaving facilities. It will also be responsible for connectivity among pipelines, transport of crude oil, petroleum products and natural gas, operation and scheduling of pipelines across the country, and regular public reporting of remaining transport and storage capacity of the pipelines to make the oil and gas infrastructures accessible to all qualified users in a fair way, according to a senior manager of the new pipeline company.

The establishment of PipeChina will make an enormous difference in various aspects, a senior manager with the new company said.

First, it could separate pipeline transportation from production and sales, while promoting the fair opening-up of oil and gas infrastructure to third parties, which will help boost market competition, improve the efficiency of resource allocation, further promote market-oriented reform of the oil and gas pricing mechanism, and stimulate market vitality.

Second, it will promote the interconnection of pipe networks and realize better allocating of oil and gas resources nationwide as well as guarantee their safe and stable supply.

Third, through overall planning, construction and operation of the national pipeline network, repeated investment and waste of pipeline resources could be reduced and construction of the pipeline network would be accelerated thus to enhance the oil and gas transportation capacity.

-- Assets management to capital management

PipeChina marks a transition from asset management to capital management in the ongoing state-owned enterprise (SOE) reform, according to China Energy and Petrochemical Industry Development Report 2019 by Sinopec Economics & Development Research Institute, noting that after asset transfer completes, the new company would seek capitalization, securitization and public listing for bringing in more social capital.

The new company will mainly be engaged in oil and gas transportation and will not participate in competitive transactions of upstream resources and downstream markets. Its revenue will not come from transactions and the spread between buying and selling, said Liu Manping, chief analyst with price monitoring center with the National Development and Reform Commission.

Separating (oil and gas) transportation from sales improves competition and conforms to international practice, said Liu Yijun, professor at China University of Petroleum.

The move will force existing oil and gas titans in China to focus more on exploration and mining. In the meantime, other market players will stand a chance of entering the field of oil and gas exploration and exploitation as the pipeline network opens up to the market, thus improving the overall production and supply capacity of natural gas in China, said Fu Shaohua, director and deputy general manager of Shanghai Petroleum and Natural Gas Exchange.

-- RMB300 billion market

PipeChina is expected to form a “X+1+X” system, with multiple supplies of oil and gas resources in the upper stream, unified and high-efficient transport in the middle stream, and fully competitive sales market in the lower stream.

Insiders generally believe that with the establishment of the pipeline company, coupled with the seasoning winter supply, gas-related investment opportunities in the fourth quarter could be explored.

PipeChina is expected to drive the development of the natural gas sector. Three related fields in the industrial chain will benefit from it, including pipeline and exploration and mining equipment engineering companies, unconventional natural gas companies and high-quality urban gas companies, according to analyst with Everbright Securities.

PipeChina will benefit urban gas enterprises in the long run, which can better control gas source costs and diversify profit sources through developing gas sales and comprehensive energy services, according to research report of Huatai Securities.

Zhongtai Securities estimated that the construction of natural gas pipeline network is expected to drive a market size for related equipment of more than 300 billion yuan.

Specifically, from 2019 to 2020, the total market value of natural gas pipeline materials, natural gas pipeline compressors, mechanical seals for natural gas pipeline pumps will reach 120.7-166 billion yuan, 60.4-90.5 billion yuan, and 896 million yuan, respectively, predicted Zhongtai Securities. (Edited by Niu Huizhe, [email protected])

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Keyword: oil-gas reform

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