China transfers pipelines to new state-backed operator to improve flows of natural gas, LNG and oil

Monday, 27 July 2020
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The Chinese government said the nation had taken formally brought the pipeline and storage assets of the largest energy majors under the newly formed China Oil & Gas Pipeline Network Corp. while paying for the assets and giving the majors stakes in the company.

China National Petroleum Corp. (CNPC), the largest of the majors, said it would sell most of its oil and gas pipelines and storage facilities to China Oil and Gas Pipeline for 268.7 billion yuan ($38.30 billion) and hold a 29.9 percent stake in the new national pipeline and storage company.

CNPC will be the largest shareholder of the Chinese majors in China Oil & Gas Pipeline.

“By interconnecting the country's oil and gas pipelines, the new company will help raise the allocation efficiency of oil and gas resources and ensure safe and stable energy supply,” said a government statement.

The new centrally administered China Oil & Gas Pipeline, also known as PipeChina, was established in December 2019 to be responsible for the investment, construction and interconnection of oil and natural gas pipelines, as well as third-party access to LNG terminals and storage facilities.

China has around 64,000 kilometres (about 40,000 miles) of pipelines carrying natural gas, 27,000km carrying oil and 21,000km carrying petroleum products such as gasoline and jet fuel, according to the most recent figures from China’s main economic planning agency.

Most of the pipelines were owned under the name of CNPC’s Hong Kong-listed affiliate PetroChina.

PetroChina’s dominance of the oil and gas distribution network was seen as having a negative impact on domestic exploration and production as other companies could be blocked or have to pay expensive fees to get their oil and gas to market.

Under its statutes, China Oil and Gas Pipeline is set to offer open access to pipeline networks to approved companies.

Another stake in China Oil & Gas Pipeline will be held by the country's largest oil refiner, China Petroleum and Chemical Corp. (Sinopec) in return for the sale of some of its oil and gas pipeline assets

Sinopec’s transferred pipeline assets are valued at 122.7Bln yuan ($17.48Bln). It will receive a 14 percent stake in China Oil & Gas Pipeline and 52.7Bln yuan ($7.51Bln) in cash.

“Sinopec Natural Gas entered into the agreement on additional issuance of equity and cash payments to purchase assets with PipeChina, pursuant to which Sinopec Natural Gas proposed to transfer equity interests in the relevant oil and gas pipeline companies to PipeChina,” explained Sinopec.

The government statement made no mention of asset transfers from China National Offshore Oil Corp., the nation’s biggest LNG importer, but whose pipeline network delivery assets are much less than those of CNPC and Sinopec.

Analysts said the start of operations by China Oil & Gas Pipeline will have an impact over time on the access of LNG imports to the domestic natural gas network and market, which is still separated into North and South because of still inadequate infrastructure between provinces.

One of its tasks in addition to enabling third-party access to LNG terminals is to improve pipeline flows nationwide and to be an investment vehicle for more natural gas and storage facilities.

That’s as Chinese LNG imports in June jumped 27.8 percent to 5.79 million tonnes, or around 84 cargoes, compared with 4.53MT in June 2019, according to data from the General Administration of Customs.

In the January-June period, the LNG shipments to China increased by 9.9 percent percent to 31.18MT versus 28.37MT in the first half of 2019.

The data also showed that China’s pipeline natural gas imports dropped 15 percent to 2.54MT and fell in the first half by 7.4 percent to 17.18MT.
China imports its pipeline gas from Myanmar, Turkmenistan, Kazakhstan, Uzbekistan and Russia.
China’s main LNG suppliers are Australia, Qatar, Malaysia and Indonesia, while the US has just resumed LNG shipments.

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