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NOCs to Hand over Pipelines to NPC

SCI99

2019-02-25

NOCs to Hand over Pipelines to NPC

According to sources, the central government is going to establish the National Pipeline Corporation (NPC) in 2019. The new corporation will acquire the related assets from NOCs, finish the asset delivery and operate in a market-oriented manner. The establishment of the NPC will break the vertical monopoly of NOCs and force them to pay more attention to develop the upstream resources. It will also optimize the allocation of resources and reduce redundant construction.

Now NOCs have already formed their own pipeline companies to split the pipelines and other assets. The next major step of the pipeline reform is to merge these three pipeline companies into one. The establishment of the NPC needs three steps: 1. NOCs (CNPC, Sinopec and CNOOC) shall form independent pipeline subsidiaries (they have already finished this part) and form the NPC with assets in these subsidiaries (they have not finished). 2. The new corporation will introduce more social capital from both the state-owned funds and private capital. The newly introduced social capital will account for 50% of the total capital and will be used to expand the pipelines. 3. The NPC will seek to go public.

Now, most of China’s long-distance energy pipelines (crude oil, refined oil and natural gas) are built and operated by CNPC and Sinopec. China’s present natural gas pipeline is not enough for the delivery. By the end of 2017, the length of China’s operating natural gas pipeline was only 74,000 km, which was only 1/8 of that of the U.S. According to NDRC and NEA’s plan, this number shall reach 104,000 km in 2020 and 163,000 km in 2025.

However, the establishment of the NPC is still facing some problems. First, as all NOCs are traded in the open market, the split of the pipeline assets will cause panic among the investors. Second, it is not sure yet whether an independent pipeline operator could solve the monopoly of the gas pipeline. Third, the profit of CNPC’s PNG import is negative for a long time. Market participants are wondering whether the new corporation will inherit these PNG import contracts with losses. Four, the asset split will affect the balance sheet, profit sheet and cash flow of CNPC greatly. How to avoid the impact? These problems are the greatest barriers to stop the establishment of the NPC.

CNPC now owns the most pipelines in China. By the end of 2017, CNPC ran 82,400 km pipelines, taking up 68% of China’s pipeline. Sinopec ran 15% of the total, and CNOOC ran the least. These NOCs have already made great effort to advance the pipeline reform. For instance, at the end of 2018, the interconnection pipeline between CNOOC Tianjin FSRU and CNPC North China Pipeline. And CNPC announced to establish a new independent company to serve the pipeline subsidiary on February 20.

On May 21, 2017, the State Council announced to form the National Pipeline Corporation and to open the infrastructure to third parties fairly. The related reform plan has been reviewed by NEA in December 2018 and might be released to the public in May 2019.

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