China Readies Reform Plans for Oil & Gas Sector

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China’s National Development and Reform Commission (NRDC) is preparing a draft reform plan for the country’s state-controlled oil and gas companies that is expected to be released by the end of this year. The plan aims to ease controls on market entry in all parts of the industry.

According to a report at Caixin, the country’s three massive state-owned enterprises — China National Petroleum Corp. (CNPC); China Petrochemical Corp. (NYSE: SNP), or Sinopec; and China National Offshore Oil Corp., traded in the United States as CNOOC Ltd. (NYSE: CEO) — have launched separate reform plans over the past several years seeking to attract private investors and consolidating businesses, but the pace has slowed as the companies have been waiting for the central government to issue an overall reform plan.

The reform plan is expected to liberalize mining rights, crude oil imports and pipeline operation, in addition to relaxing state control on sales of refined products and the pump price of gasoline. A senior researcher at a Beijing-based think tank told Caixin, “The oil and gas sector is in urgent need of a top-down reform design to guide market reforms covering the entire industry chain … .”

Caixin noted that the reforms should include:

… reducing government intervention in company operations, spinning of affiliated businesses and the independent operation of pipeline assets. At the industry level, market access should be further liberalized in different areas, and as for regulators, more efficient supervision and industrial regulations need to be established.

One key part of the reforms is spinning off the Big Three’s pipeline operations. The goal is to make pipeline businesses independent and “market-oriented.” One proposal is to hive off the pipeline assets and put them together into a “national-level management company.” Such an arrangement, according to another researcher, “can prevent related-party transactions in oil and gas transportation and sales, while the establishment of a national company will make it easier to supervise the operation of pipelines and also control costs.”

Other potential reforms include separating the oilfield services businesses from CNPC’s and Sinopec’s exploration and production operations. CNOOC effected such a separation in 2012, and it has managed only indifferent results since then.

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