LNG macro analysis, page-2250

China Sets Up National Pipeline Firm in Major Energy Revamp

By Alfred Cang and Jasmine Ng

6 December 2019, 16:07 GMT+11 Updated on 9 December2019, 23:45 GMT+11

• Move marks ‘key step’ in nation’s oil & gasreform: Xinhua
• Government will merge the assetsof CNPC, Sinopec and CNOOC

China announced the creation ofits long-planned national oil and gas pipeline company, officially kicking offone of its biggest energy revamps aimed at helping supply keep pace withswelling demand.

The move marks a “key step” inChina’s efforts to deepen reforms of its oil and gas sector, the officialXinhua News Agency said Monday.

The government will merge thenetworks operated by its three state-owned giants under a single company, animportant step toward removing barriers that have hampered domestic production,and which dovetails with efforts to use more gas instead of coal. Thegovernment will also encourage local oil and gas pipeline firms to integratewith the national company in “market-orientated ways,” Vice Premier Han Zhengsaid, according to a statement.

Clickhere for a QuickTake Q&A explaining China’s national pipeline plan

A main development to watch isthe valuation of assets, said Neil Beveridge, an analyst at Sanford C.Bernstein & Co. It may take six to nine months for that detail to emerge,based on a similar $10Billion reform of telecom carriers in 2015 that created China Tower Corp.,Beveridge said.

Pipe Up

Pipelines are feeding gas-hungry cities on China’scoast from Myanmar, Central Asia and major production areas like the Ordos andTarim basins

Source: China National PetroleumCorp.Note: Map doesn't include all of China’s pipelines.

The pipeline company’s creationhas been considered since at least 2014 and is part of President Xi Jinping’sdrive to streamline industrial capacity among state-owned enterprises. Thegovernment is seeking to spur wider natural gas distribution and upstreamexploration by shifting ownership from competing producers into a singleoperator, which can make decisions based on overall national energy needs.

The reform is also designed tohelp smaller private or foreign firms, which have found access toinfrastructure blocked or prohibitively expensive. With the assets strippedfrom the hands of the big three state firms, other companies can gain accessand move supply to where it’s needed.

Sector Overhaul

The plan follows other Chinesereforms aimed at a more level playing field for private and state-ownedenterprises. As well, the nation has been accelerating the overhaul of itsenergy sector in recent years, including changesto its gas pricing policy and $1Trillion Power Industry Overhaul Is Just Starting merging power giants.

Media representatives of the newpipeline operator didn’t respond to an email seeking comment. The State-ownedAssets Supervision & Administration Commission, which oversees centrallyowned enterprises, didn’t respond to a faxed request for comment. Nobodyanswered calls to the media departments of the three companies involved --China National Petroleum Corp., Sinopec Group and China National Offshore OilCorp.

Policy makers have also embarkedon a campaign targeting pollution, replacing coal with gas for industrial andresidential uses. That’s boosted demand for the cleaner-burning fuel fasterthan pipelines can support it, giving China added urgency to push forward thelatest reform.

Shareholding Structure

The change will mainly affectPetroChina Co., the listed unit of CNPC, which controls about 70% of thenation’s networks. Its shares in Hong Kong sank to their lowest since 2004 lastweek amid concern the company’s earnings and cash flow would be diluted as itloses one of its most prized assets. The stock rose as much as 2.8% Mondayfollowing a gain in oil prices last week.

CNPC may take a 30% stake in thepipeline company, while Sinopec holds 20% and CNOOC 10%, Economic InformationDaily and 21st Century Business Herald reported. SASAC will own the remaining40%, they said, citing unidentified sources.

Zhang Wei, general manager ofCNPC, will likely be appointed as chairman of the pipeline company, accordingto local media.

—With assistance by Ramsey Al-Rikabi, Jing Yang, Aaron Clark, and Dan Murtaugh

(Updateswith government plan to integrate local pipeline firms in third paragraph.)

https://www.bloomberg.com/news/articles/2019-12-06/china-to-launch-major-reform-of-national-oil-pipelines-next-week