Next Up in China's Clean-Air Push Is a Gas Pipeline Behemoth
(Bloomberg) -- China’s push to eradicate smog by using more natural gas is set to get a boost as it pushes ahead with a plan to merge under one company a national pipeline network that would unify transport and investment decisions.
Regulators are aiming to announce a decision before winter to combine oil and gas pipeline assets owned by its three state energy giants, worth as much as 500 billion yuan ($78 billion), under a new national operator, according to people with knowledge of the matter.
The move, under discussion since at least 2014, would reinforce President Xi Jinping’s commitment to overhaul state-owned enterprises and streamline industrial capacity. It would also be a boon for efforts to use more natural gas instead of coal to cut pollution. That endeavor has been hampered at times by a lack of infrastructure.
The national pipeline company would be provisionally named China Pipelines Corp., said the people, who asked not to be identified as the information isn’t public. Under the plan, state-controlled and private funds will inject capital sufficient to lower the combined stake held by the three oil majors to about 50 percent. The company may then file for an initial public offering, according to two of the people. The proposal hasn’t been finalized and may change, they said.
The National Development & Reform Commission and State-owned Assets Supervision & Administration Commission didn’t respond to faxes seeking comment.
The pipeline overhaul is among measures to ensure open access to third-party suppliers to the assets operated mainly by state-owned giants -- China National Petroleum Corp., China Petrochemical Corp. and China National Offshore Oil Corp. That could improve supply efficiency to meet booming demand and help ease gas supply crunches, which parts of the country suffered from last winter.
“If you look at every liberalized gas market, there is a clear separation of pipeline ownership and gas supply,” Sanford C. Bernstein & Co. analyst Neil Beveridge said in a phone interview. “Pipeline reform becomes key.”
Spokesmen for the three state energy companies didn’t respond to requests for comment.
CNPC’s flagship listed unit PetroChina Co. rose as much as 2 percent in Hong Kong on Tuesday before erasing those gains to close 0.3 percent lower at HK$6.53. Natural gas unit Kunlun Energy Co. slid 1 percent. China Petroleum & Chemical Corp., China Petrochemical’s listed unit and known as Sinopec, advanced 1.5 percent.
Sinopce may indirectly be the biggest beneficiary of the pipeline spinoff as it will open the way for it to complete the long-awaited public listing of its retail unit, China International Capital Corp.’s Hong Kong-based analysts including Nelson Wang wrote in a note to clients.
“The pipeline spinoff clears the very last hurdle of its marketing IPO, which has been delayed as Sinopec first needs to dispose of its crude and refined products pipelines into the national pipeline company,” Wang wrote. “We believe it will likely take place by year-end and will be a positive catalyst for Sinopec.”
Gas transport reform would be the latest change China has made amid efforts to adopt free-market practices common in the U.S. and Europe, replacing decades of strictly regulated buying and selling. The plan would follow sweeping changes unveiled last month to Chinese gas prices for different users in a major step toward market liberalization.
Under the current system, independent producers may find it hard to buy space at an affordable rate on a pipeline owned by their upstream competitors, according to Lu Wang, a Bloomberg Intelligence analyst in Hong Kong. For consumers such as city-gas distribution networks or large industrial plants, they’re stuck buying from the company that hooked the pipeline up to them, she said.
If pipeline assets could be separated from the majors, then “all gas will be treated equal,” said Wang.
China’s gas pipeline network spans 70,000 kilometers (43,500 miles), according to estimates from Bernstein. The tally from the three energy giants is about 66,000 kilometers, based on company disclosures in 2016. PetroChina, China’s largest gas producer and importer, owns about 70 percent of it, Beveridge said.
Timing is a big unknown. China has taken several steps toward liberalization this decade, from regulating how much pipeline companies and gas distributors can charge to last month’s decision to harmonize gas pricing so that residential, industrial and commercial users would all pay the same city-gate price. Pipeline reform could take another one to two years to become reality, Beveridge said.
“It’s inevitable, but your guess on timing as good as mine,” Beveridge said. “This is the potential breaking up of PetroChina, so it’s a very big reform and something they will want to get right.”
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