PetroChina plans US$47 billion gas pipeline sale as part of Beijing’s energy sector reforms

The three pipelines transport 45 per cent of China’s total gas consumption

PUBLISHED : Thursday, 10 December, 2015, 4:49pm
UPDATED : Thursday, 10 December, 2015, 4:49pm

PetroChina is discussing selling a stake in domestic gas pipelines worth an estimated US$47 billion in total, sources said, in a move seen as a prelude to Beijing's plans to break the state giant's near monopoly and boost spending on energy infrastructure.

The sale could attract domestic interest from Chinese institutions, asset managers and private equity investors, sources said.

PetroChina produces two-thirds of China's natural gas and controls nearly 80 per cent of the mainland’s 90,000km of gas pipelines, a bottlenecked grid that has prevented greater use of a fuel with half the greenhouse gas emissions of China's biggest energy source, coal.

Beijing is expected to unveil a sweeping reform package within weeks that targets its vast energy sector, part of a broader restructuring drive to boost efficiency and bring in private investment.

A senior source with knowledge of the plan said PetroChina, which transports mostly its own gas in its pipes, was preparing to sell part of its premium domestic gas pipeline assets, worth around 300 billion yuan (HK$361 billion), which includes three trunk lines running from the country's far west to its eastern and southern shores.

This is a good avenue for them to raise funds for capex and cutting debt
Hong Kong-based investment banker

“This is a good avenue for them to raise funds for capex and cutting debt,” said a Hong Kong-based investment banker who has advised PetroChina on past transactions.

He added that PetroChina had been debating such a plan for a while but had not yet formally hired an investment bank to manage the sale process.

Any deal, which would follow the US$17.5 billion sale by domestic rival Sinopec this year of its fuel marketing business, could be a step toward Beijing's goal to establish one or more independent pipeline companies that would enable greater access for non-state suppliers.

For PetroChina, battered by depressed oil prices and a recent plunge in gas prices, a sale would bring badly needed cash.

“Instead of divesting project by project, it (the sale) will be from three trunk pipelines bundled together,” the first source with knowledge of the divestment plan said.

The three lines are about 20,500km long and transport a combined 80 billion cubic metres a year, or 45 per cent of China's total gas consumption.

A high-level project team was working on the deal, the source said, adding it would target mostly domestic investors and proceed at “an accelerating pace”, without giving a timeline for the sale or how big a stake PetroChina would part with.

A PetroChina media official said he was not aware of this development and declined further comment.

Last year PetroChina tried and failed to auction off regional segments of its pipelines, and just last month sold its Central Asian pipelines outside China for US$2.4 billion to a government asset management firm.

Energy specialists said the latest plan had the hallmarks of being part of the Beijing's broader programme for the sector.

“PetroChina wouldn't have the guts to call for divestment of such a scale. It has to come from the top,” said a gas analyst with a state energy firm.

With seven-year-low oil prices hammering its revenues and a hefty debt load, PetroChina is under pressure to slash capital spending and shed more non-core assets.

“PetroChina will have to be reformed. Further cost cutting and divestment of non-core assets such as the pipeline segment looks increasingly likely as the company moves to repair the balance sheet and fill the earnings gap,” Bernstein analysts wrote last month.

China's gas grid is less than a fifth of the size of the US system, the world's biggest, and as Beijing loosens drilling and import rights in the sector, a lack of pipeline space has become a barrier to growth.

In a previous pipeline sale in 2013, PetroChina brought in domestic fund management firm Taikang Asset Management and Beijing Guolian Energy Industry Investment Fund as equity partners to manage part of its gas pipeline assets.