20 April 2019

Revamping CNPC’s gas business a must to deepen pricing reform

Compared with the oil price adjustment regime, China has made limited progress in introducing market-oriented reforms in the natural gas sector. One of the major factors behind the stalemate is China National Petroleum Corp.’s (CNPC) sheer monopoly of the market, ranging from onshore exploration to pipeline transportation.

Serial corruption scandals at the energy giant are finally providing authorities with an opportunity to press ahead with its much-delayed overhaul. The aim is to spin off its natural gas pipeline operation, which controls 90 percent of the country’s natural gas pipelines and ancillary facilities.

The past decade has seen a rapid expansion of CNPC’s natural gas infrastructure assets. The state-owned behemoth has been accused of extracting extra benefits from its dominant status in the industry, such as charging other competing producers exorbitant gas transportation fees.

The Economic Observer reports that Shenhua Energy’s (01088.HK, 601088.CN) 20 billion yuan (US$3.27 billion) gas project in northern China was once put off for two years simply because it didn’t have access to CNPC’s pipeline network. Datang International Power Generation (00991.HK, 601991.CN) was also forced to invest several billion yuan to build its own pipelines in Inner Mongolia as CNPC didn’t allow Datang to use its existing ones in the region following their dispute over transportation fees. China Petrochemical Corp. (Sinopec) faced similar problems when it launched natural gas projects in western China’s Sichuan province.

Consequently, a growing number of state-owned and private energy companies have turned to the National Development and Reform Commission (NDRC) and the State-owned Assets Supervision and Administration Commission to lodge their protest.

It is reported that the NDRC convened several meetings in September to discuss measures to revamp CNPC’s pipeline business as a means to foster fair play and facilitate natural gas pricing reform. One of the proposals is to set up another state-owned enterprise dedicated to the operation and management of CNPC’s pipeline networks.

Also on the agenda is separating the listings of CNPC’s assets and subsidiaries. The NDRC believes that China National Offshore Oil Corp. (CNOOC) and Sinopec’s experience in this regard can offer some useful reference. The former now has four listed subsidiaries, while the latter floated Sinopec Engineering (02386.HK) on the Hong Kong bourse just this May. Separate listing is also seen as an effective approach to introduce a more market-oriented management system within CNPC that can be implemented in concert with the gas asset revamp.

– Contact the writer at [email protected]



EJ Insight writer

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