Oil: State energy giants can put cash into profitable ventures
analyst at Sanford C. Bernstein.
“China should push to strip out pipeline assets from oil companies and allow those facilities to run independently from explorers,” said Lin Boqiang, director at the Energy Economics Research Center at Xiamen University. “This is reform that China can do now.”
China National Petroleum Corp and its listed arm PetroChina Co are the country’s biggest owner of pipelines, controlling about 77,000 kilometers.
China Petrochemical Corp and its listed unit China Petroleum & Chemical Corp, or Sinopec, are the next largest with more than 30,000 kilometers.
PetroChina shares rose 0.21 percent to HK$9.42 ($1.22) in Hong Kong, while Sinopec was down 0.58 at HK$6.9. The city’s benchmark Hang Seng Index was down 0.58 percent to close at 27,249.28 points.
Any cash from pipeline sales would benefit the companies as it could be re-channeled to more profitable upstream businesses, said Bloomberg Intelligence Asia Oil & Gas analyst Grace Lee.
PetroChina’s Beijing-based spokesman Mao Zefeng said the company had no comment to make on market speculation.
Sinopec’s Beijing-based spokesman did not answer two calls to his office seeking comment. Questions sent to the NDRC on Tuesday were not immediately answered.
While China’s oil and gas pipeline network of about 120,000kmis only around one-fifth of the size of the natural gas network in the United States, it is expanding fast and will be bigger than the US by 2040, said Beveridge.
PetroChina’s pipelines are worth about $147 billion based on a price to earnings ratio of 25 times, Beveridge estimated in research note.
China has invested a lot of money to expand its pipelines and that will continue as demand for natural gas grows, according to Beveridge. It should separate energy exploration from pipelines to encourage more competition and investment, he said.
The discussion to spin off the pipelines is taking place amid sweeping change in China’s energy industry after the top officials of China’s biggest explorers were replaced earlier this month.
PetroChina and Sinopec’s dominance of pipeline infrastructure makes it difficult for others to enter the energy exploration business as they have to ask China’s No 1 and No 2 explorers to share resources, said Lin, who is also an adviser to China’s National Energy Commission, chaired by Premier LiKeqiang.
“The pipeline business is like the power-transmission business that should be run by independent companies that allow equal access to all market players,” Lin said. “By allowing one or two companies to dominate the market, you create a huge barrier for other companies to compete.”
Power transmission is a precedent for the kind of pipeline reform China is considering.
In 2002, it created two state grid companies, China Southern Power Grid Co and State Grid Corp, by separating the transmission businesses of energy utilities.
However, it may be more complicated as both PetroChina and Sinopec are listed companies with global shareholders, who will demand fair value for the pipelines, Lin said.
Options include setting up a national pipeline company that would buy and hold all the assets, or establishing several companies based around their location, according to two of the people.
PetroChina sold 50 percent of its western pipelines for 20 billion yuan ($3.2 billion) to outside investors including Taikang Asset Management Ltd and Beijing Guolian Energy Industry Investment Fund in June 2013.
Its attempt to do the same with its eastern pipelines was called off by the government last year until a clear decision on their future could be taken, two of the sources said.
While the NDRC has ordered Sinopec and PetroChina to allow equal pipeline access to others, the policy was difficult to implement because the companies could decide pipeline capacity utilization and turn down usage requests, Lin said.