China Market Insider China Smashes Pipeline Monopoly and Opens Up to Foreign Companies
China has recently launched the biggest reform of its oil and gas industry in the last twenty years. Last week, the newly formed state-owned company Pipechina began purchasing the Chinese gas pipeline network. According to the Chinese state media, the company, also known as the "China Oil and Gas Pipeline Network", is acquiring Sinopec's Yulin-Jinan pipeline for 47.9 billion euros.
Beijing/China - With the purchase of the pipeline, China is pushing ahead with the reform of the oil and gas industry, which has been debated since 2014 and is impatiently awaited by foreign oil companies. So far, the pipelines in the country are controlled by China's state-owned companies Petrochina, Sinopec and CNOOC. They thus dictate the price and make it difficult for both domestic and foreign competitors to enter the market.
However, the Chinese central government does not want to use this step primarily to help foreign corporations or Chinese private companies, but rather to reduce China's dependence on oil and gas imports in the long term and thus increase the country's energy security. Beijing hopes that the reform will lead to more investment in the economic sector and also to more domestic production of liquefied natural gas (LNG).
The Pipechina Group, which was only founded in December last year, will in future be concerned exclusively with the transport and storage of oil and gas products, but will not trade in them. The purchase of the 944-kilometer gas pipeline caused a stir in China. The stock market prices of all Chinese petroleum companies rose briefly.
Further sales to Pipechina are also planned. It is estimated that another 240,000 kilometres of the Chinese pipeline network will be added by 2025. The majority shareholder of Pipechina is the state-owned assets supervision and administration commission (SASAC).
The reform of the pipeline sector, which includes storage facilities and LNG head stations, is an important piece of the Chinese energy puzzle. Beijing wants to reduce the share of coal in its energy mix in the long term. So far, LNG accounts for only 4.8 percent of China's primary energy. The growth potential is correspondingly large. To achieve this, however, the bottlenecks in the transport and storage of natural gas must be further reduced.
The British oil multinational BP has recognized the signs of the times and has recently increased its efforts in the Chinese LNG market considerably. Only last week, a new gas supply agreement was concluded with the Chinese company Foran Energy in the southern province of Guangdong. From 2021, BP will supply 300,000 million tonnes of LNG annually to Foran Energy in the city of Foshan for an initial two-year period. The imported natural gas will be regasified at the Dapeng LNG terminal in Guangdong and then pumped to Foshan via a pipeline.