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China launches state-owned Oil & Gas pipeline company

09/12/2019
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A new centrally administered state owned Oil & Gas enterprise has been launched this week in China to manage investment, construction and interconnection of main oil and gas pipelines to form a nationwide network.

China's new state-owned Oil & Gas company will improve efficiency of the country's pipelines to drive competition
(Image via Unsplash)

The formation of the company is said to be part of a national drive intended to “boost competition” by improving the allocation efficiency of the supply of Oil & Gas resources.

According to consultancy firm Wood Mackenzie, China’s pipelines already run at maximum capacity during peak seasons, but demand is expected to increase 250% by 2040.

“The new company will separate [oil and gas] transportation, production and sales, and open [transportation] to third-party entities, which will benefit market competition,” reported state news agency Xinhua. 

The new company will take over the majority of pipeline infrastructure currently controlled by China National Petroleum Corp (CNPC), Sinopec and CNOOC in addition to an unspecified number of underground natural gas storage and liquefied natural gas terminals. 

The formation of the company is being seen as a sign of China’s commitment to overhauling its Oil & Gas industry to better diversify its energy supply and reduce reliance on coal. The announcement comes just one week after the Assets Supervision and Administration Commission of the State Council (SASAC) released a plan to cut coal production by 25-30%  in North-West China. 

So far the Chinese government’s attempts to swap out coal heating for gas across the North-East has been slowed by a lack of infrastructure.

By establishing the new enterprise, it’s thought that second tier players will find it easier to book capacity on the pipelines, boosting imports from areas like Russia and Turkmenistan. Last week also saw the first gas being delivered to North-East China from Siberia through Russia’s Gazprom pipeline.

According to Wood Mackenzie analyst Max Petrov, the most significant impact of the company’s launch will be to lower gas pricing in the long term. 

The company will be overseen by SASAC, which will hold a 40% share of the ownership. The remaining ownership will be controlled by China’s three energy giants, CNPC (30%), Sinopec (20%) and CNOOC (10%).

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