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An engineer on a bicycle checking pipelines at an oil refinery of China National Petroleum Corp (CNPC), in Lanzhou, Gansu province on April 21, 2008. Photo: Reuters

China combines three oil pipeline networks into a single operator in much-anticipated merger to improve efficiency in state sector

  • The National Oil and Gas Pipeline Network Group would operate the pipelines owned by CNOOC limited, China National Petroleum Corp and Sinopec Group
  • The merged company would own 500 billion yuan in combined assets, and be responsible for managing a pipeline network that’s expected to expand by 80 per cent to 240,000 kilometres by 2025
Energy

China has combined the oil pipelines operated by the nation’s three state-owned energy companies into a single network, in a long-anticipated consolidation to improve efficiency and ensure adequate supply.

The National Oil and Gas Pipeline Network Group was formally established on Monday in the Chinese capital, according to a notice by state news agency Xinhua.

The new group would own 500 billion yuan (US$71 billion) in combined assets, and be responsible for managing a pipeline network that’s expected to expand by 80 per cent to 240,000 kilometres by 2025. The company cobbled from China National Petroleum Corporation (CNPC), Sinopec Group and China National Offshore Oil Corporation (CNOOC) would help China expand its energy infrastructure and marked a key move in deepening oil and gas reforms, Xinhua said.

The merger, under consideration since 2014, is part of the Chinese government’s programme of combining state factories and industries into fewer, larger groups to help them survive a slowing economy and weather competition with global rivals.

SCMP Infographics: The Central Asia gas pipeline

A similar consolidation took place in 2014 at China Tower Corporation, which combined the telephony and data transmission towers of China Mobile, China Unicom and China Telecom under one corporate entity. China Tower raised HK$58.8 billion four years later through an initial public offering in Hong Kong.

CNPC owns 85,600km of pipeline, or 69 per cent of the entire network used for distributing domestic crude oil, 76 per cent of natural gas pipelines and 43 per cent of the pipelines for refined oil, according to local media reports. The asset transfers of holdings from the three companies would be completed in the second half of 2020, according to a report on Jiemian.com.

The new company is likely to be headed by Zhang Wei, the general manager of CNPC, while the State-owned Assets Supervision and Administration Commission (Sasac) of the State Council will be its majority owner, according to media reports. None of the three responded to requests for comment.

The merger also comes as China has promised to ease dependence on coal, overhauling the energy industry and ramping up gas consumption as an alternative, cleaner fuel.

Last year Beijing cut its coal share of the country’s total energy to 59 per cent, from 68 per cent in 2012, though overall consumption continued to increase. Still, in September it announced an aim to shut a total 8.66 gigawatts of obsolete coal-fired power capacity by the end of the year and all regions have been ordered to shut coal-fired power units with a capacity of less than 50,000 kilowatts. This winter China aims to add another 4.93 million households to its coal-to-gas or electricity plan.

Domestic gas production and consumption, meanwhile, is predicted to increase.

Production will double from 149 billion cubic metres (bcm) in 2018 to 325 bcm in 2040, according to a note by global energy consultancy group Wood Mackenzie in August, and by 2019 China will use up around 310 bcm of natural gas, with consumption set to grow until 2050, predicted the National Energy Administration (NEA) in September.

On Monday, CNPC, Sinopec and CNOOC’s stocks rose in Hong Kong and Shanghai. Sinopec’s shares were up 0.6 per cent in Shanghai, and 1.2 per cent in Hong Kong. CNOOC’s shares gained 0.2 per cent in Hong Kong.

This article appeared in the South China Morning Post print edition as: China sets up energy group in reform push
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