PetroChina Eyes Wind and Solar After $38 Billion Pipe Bounty

(Bloomberg) -- China’s biggest oil company plans to use some of the $38 billion it will receive for selling its pipelines to start new businesses focusing on wind and solar power.

PetroChina Co. will use some of the proceeds for a “transformational development of the company to a green and low-carbon model,” Wei Fang, head of investor relations, said in an emailed statement. The money will also go toward dividends, debt repayment and spending on its oil and gas business, he said.

The move underscores how growing concern about climate change and plummeting costs of renewable energy are reshaping the future for global oil and gas giants. While European majors such as Total SA and Royal Dutch Shell Plc have been investing in clean energy for years, China’s fuel champions have until now mostly stuck to their core businesses.

“It’s recognition that the world is changing and they have to start thinking about life beyond just oil and gas,” said Neil Beveridge, an analyst with Sanford C. Bernstein & Co. in Hong Kong. “What that means in terms of specifics, we don’t know at this point.”

The shift will mean more focus on things like wind, solar and geothermal energy and hydrogen, although the company hasn’t given any details about spending plans, Beveridge said. The company expects the new lines of business to bring back returns on equity that are higher than the 7% to 9% its pipelines segment was bringing in, Daiwa Capital Markets analyst Dennis Ip said in a July 24 research note.

The oil giant’s shares closed down 2.8% in Hong Kong on Monday, the second-worst performer on the Hang Seng Index.

PetroChina will receive 268.7 billion yuan in cash and equity for handing over its midstream assets as part of the formation of a new national pipeline giant known as PipeChina, the company announced Thursday.

China is the world’s largest market for renewable energy, but even so it makes sense that PetroChina has thus far kept its focus on fuels, Beveridge said. It’s the nation’s biggest natural gas supplier, and the government is trying to boost the cleanest fossil fuel to 15% of the country’s energy mix from about 8% now.

“The growth potential for gas is enormous,” Beveridge said. “Switching from coal to gas is one of the easiest ways to decarbonize the energy mix today, and that’s a lever that China’s pulling.”

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With assistance from Bloomberg