New | Reform buzzword in China’s oil and gas industry in 2016
Pounded by sinking crude prices, China’s energy sector will likely see opening of upstream exploration and production segment to non-state companies
China’s oil and gas sector will likely see unprecedented reform which would result in large-scale opening of upstream exploration and production to participation by non-state companies and a spin-off of midstream pipeline assets into one ore more independent entities.
The expected moves are part of wider reform aimed at improving efficiency of the nation’s energy industry dominated by giant lumbering state firms amid the most difficult operating conditions since the previous downturn in 2009 as oil prices tumbled sharply to 11-year lows.
This will be partly achieved through greater participation of the private sector that has been largely shut out of the strategic sector due to a lack of technical capabilities and access to exploration rights that are firmly in the hands of state firms.
“Two major developments are expected to take place in 2016, namely the opening up of the upstream sector to participation by domestic non-state firms, and the spin-off of pipeline assets,” said a source close to listed state-backed industry titan PetroChina.
The company will be the most affected by the changes, since it controls around 60 per cent of the nation’s oil and gas output and proven reserves, and over 70 per cent of the nation’s crude oil and gas pipelines.
Analysts generally do not expect oil prices to see a significant rebound until mid to late 2016 amid a glut which has severely dented the oil giants’ cash flows and profits.