Oil: State en­ergy gi­ants can put cash into prof­itable ven­tures

China Daily (Canada) - - FRONT PAGE -

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.

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