China govt sets up na­tional oil and gas pipe­line com­pany

Muscat Daily - - BUSINESS -

Sin­ga­pore - China an­nounced the cre­ation of its long-planned na­tional oil and gas pipe­line com­pany, of­fi­cially kick­ing-off one of its big­gest en­ergy re­vamps aimed at help­ing sup­ply keep pace with swelling de­mand.

The move marks a ‘key step’ in China’s ef­forts to deepen re­forms of its oil and gas sec­tor, the of­fi­cial Xin­hua News Agency said on Mon­day.

The gov­ern­ment will merge the net­works op­er­ated by its three state-owned giants un­der a sin­gle com­pany, an im­por­tant step to­wards re­mov­ing bar­ri­ers that have ham­pered do­mes­tic pro­duc­tion, and which dove­tails with ef­forts to use more gas in­stead of coal.

A main de­vel­op­ment to watch is the 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 re­form of tele­com car­ri­ers in 2015 that cre­ated China Tower Corp, Bev­eridge said.

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

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

Sec­tor over­haul

The plan fol­lows other Chi­nese re­forms aimed at a more level play­ing field for pri­vate and state-owned en­ter­prises. As well, the na­tion has been ac­cel­er­at­ing the over­haul of its en­ergy sec­tor in re­cent years, in­clud­ing changes to its gas pric­ing pol­icy and merg­ing power giants.

Pol­icy mak­ers have also em­barked on a cam­paign tar­get­ing pol­lu­tion, re­plac­ing coal with gas for in­dus­trial and res­i­den­tial uses. That’s boosted de­mand for the cleaner-burn­ing fuel faster than pipe­lines can sup­port it, giv­ing China added ur­gency to push for­ward the lat­est re­form.

Share­hold­ing struc­ture

The change will mainly af­fect PetroChina Co, the listed unit of China Na­tional Pe­tro­leum Cor­po­ra­tion (CNPC), which con­trols about 70 per cent of the na­tion’s net­works. Its shares in Hong Kong sank to their low­est since 2004 last week amid con­cern the com­pany’s earn­ings and cash flow would be di­luted as it loses one of its most prized as­sets. The stock rose as much as 2.8 per cent on Mon­day fol­low­ing a gain in oil prices last week.

CNPC may take a 30 per cent stake in the pipe­line com­pany, while China Pe­tro­leum & Chem­i­cal Cor­po­ra­tion (Sinopec) holds 20 per cent and China Na­tional Off­shore Oil Cor­po­ra­tion 10 per cent, Eco­nomic In­for­ma­tion Daily and 21st Cen­tury Busi­ness Her­ald re­ported. The State-owned As­sets Su­per­vi­sion and Ad­min­is­tra­tion Com­mis­sion will own the re­main­ing 40 per cent, they said, cit­ing uniden­ti­fied sources.

Zhang Wei, gen­eral man­ager of CNPC, will likely be ap­pointed as chair­man of the pipe­line com­pany, ac­cord­ing to lo­cal me­dia.

The Chi­nese gov­ern­ment will merge the net­works op­er­ated by its three state-owned oil and gas giants un­der a sin­gle com­pany

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