China Names Oil & Gas Veteran to Top Energy Post to Drive Revamp

(Bloomberg) -- China has named a leading business executive to its top energy post, eschewing a practice of appointing career politicians as the nation pushes through an overhaul of its massive energy sector.

Zhang Jianhua, the No. 2 official of state-run China National Petroleum Corp., will become director of the National Energy Administration, according to the Communist Party’s official People’s Daily. He will be the fifth NEA chief and the first to be appointed from an energy company, the newspaper reported this week.

The administration didn’t respond to several faxes from Bloomberg seeking comments, while a CNPC spokesman in Beijing declined to comment.

Zhang, 54, will take the reins as China attempts to pull off an extensive revamp of its energy sector.

Zhang’s Challenges Ahead:
  • Drive China’s state-owned giants to increase domestic oil and gas output to bolster energy security.
  • Trim coal use by strengthening control over consumption and cutting inefficient mines to reduce overcapacity. 
  • Push liberalization of natural gas pricing by unifying residential and non-residential benchmark rates.
  • Merge pipeline assets of the three state-owned companies to create a new national operator. 
  • Promote sustainable development of the renewable energy sector, such as the solar industry. 

“Most of China’s energy reforms have to go through state-owned enterprises,” said Tian Miao, an analyst at Everbright Sun Hung Kai Co. “Zhang’s business background would give him more insights into how SOEs operate and execute energy policies. Hopefully that will allow reforms to be better implemented.”

Zhang’s appointment also comes after two former NEA chiefs were probed for “serious violations,” typically used to describe investigation for graft. His predecessor, Nur Bekri, who was previously a long-time chief of Xinjiang autonomous region, served from December 2014 until he was removed in September.

Zhang’s career in China’s petroleum and chemical industry spans more than three decades. He was most recently general manager at CNPC and vice chairman of PetroChina Co., where he resigned from last week. Before that, he was vice president of China Petroleum & Chemical Corp., known as Sinopec.

‘Spare No Efforts’

At a PetroChina briefing in August, Zhang said the company was “born with a mission” to produce oil and gas for China and would “spare no efforts” in fulfilling that aim. He was responding to a call by President Xi Jinping to boost domestic output for national energy security amid a trade spat with the U.S.

China, the world’s biggest energy user, relies on imports for about 70 percent of its oil and 40 percent of its gas needs. Those ratios have been rising in recent years as its oil output stagnates and gas production can’t keep pace with booming demand.

To improve supply efficiency and encourage non-state companies, policy makers have taken steps toward market liberalization including boosting access for third-party suppliers to pipelines operated mainly by CNPC, Sinopec and China National Offshore Oil Corp. and giving markets greater flexibility to set gas prices for residential and non-residential users.

Well Placed

Zhang’s appointment “comes at a time of significant reforms within the industry,” said Neil Beveridge, an analyst at Sanford C Bernstein & Co. in Hong Kong. He’s particularly well-positioned to drive China’s pipeline overhaul given his understanding of how the industry works, Beveridge added.

The areas where Zhang’s experience might be more limited include the NEA’s goals of easing coal use and increasing the uptake of renewable energy, according to Everbright’s Tian. The solar industry, for instance, has come under scrutiny this year after its breakneck expansion led to overcapacity.

Zhang will have to make sure he gets the solar policy right and execute it well, Tian said. “This is an area that deserves immediate attention.”

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