Energy reform gaining steam

As China's oil and gas giants further speed up company-level reforms, insiders believe the Chinese government is also likely to release its reform plan for the sector by the end of the second quarter, or June 30, to further open up the country's energy markets.

China Petroleum and Chemical Corp, or Sinopec, the world's largest refiner, announced that it will soon come up with a reform plan for its marketing company.

China National Petroleum Corp, Asia's biggest oil and gas producer, had vowed earlier to achieve a market-based pricing system in two to three years for one of its five natural gas sales companies in northern China.

CNPC said last year that it would split its natural gas sales and pipeline units to establish five individual natural gas sales companies, which will be responsible for all pipeline-related operations.

The pipeline unit of the oil and natural gas giant was previously responsible for both natural gas pipeline operations and sales.

Analysts believe such moves suggest sector reform is likely to speed up.

Li Li, energy research director at ICIS China, a consulting company that provides analysis of China's energy market, says the spinoff of the natural gas pipeline operations and sales business of the oil and gas giants will help achieve a more nuanced natural gas sales organization and ensure that market forces play a major role in the allocation of resources.

According to Wang Lu, an Asia-Pacific oil and gas analyst at Bloomberg Intelligence, sector reform may concentrate on two aspects: promotion of mixed or public-private ownership and making the prices of refined oil products and gas more market-oriented.

"While state-owned CNPC, Sinopec and China National Offshore Oil Corp dominate the industry, relaxing entry restrictions on nonpublic capital can promote investment and diversify ownership," she says. "Market-determined prices can better reflect the supply-demand balance and stimulate demand growth."

According to Wang, Sinopec's reforms will focus on marketing, while CNPC's will target the gas and pipeline segment and focus on separating pipeline operations from the marketing function.

"The marketing company of Sinopec may be listed in the future, and the initial public offering of the marketing company can raise capital and unlock the hidden value that had been buried in the integrated oil and gas company," she says.

According to a review by Sebastian Lewis, head of content for S&P Global Platts Greater China, the easing of restrictions on foreign investment in upstream oil and gas exploration is expected. So is reform of the midstream sector, with a new pipeline company expected to be spun out from the big three state-owned oil companies. But exact plans remain unclear.

zhengxin@chinadaily.com.cn

(China Daily Africa Weekly 04/14/2017 page27)