Sinopec Inks Oil, Coal Cooperation Pact with China National Coal Group

Chinese state company Sinopec said Wednesday it has inked an agreement with fellow state-owned China National Coal Group for strategic cooperation.

The pact was signed Tuesday in Beijing, Sinopec said.

"[We will] establish a strategic partnership in the sale and purchase of oil and coal and enhance our respective advantages for comprehensive cooperation in refined oil products and coal," Sinopec said in a statement on its website, without providing other details.

When contacted, a spokeswoman for the company declined to elaborate.

China National Coal is one of China's largest state-owned coal miners.

Analysts said the move likely signals Sinopec's interest in expanding into the coal-to-chemicals sector.

"Sinopec could be looking to start investing in such projects, including in coal-to-gas," said Yan Shi, analyst at UOB Kay Hian Investment Consulting in Shanghai. The tie-up with China National Coal is not surprising given that Sinopec's expansion options in the domestic upstream are limited, Yan added.

PetroChina controls much of China's onshore blocks, while China National Offshore Oil Corp. is the monopoly offshore operator.

"Sinopec lags behind in the upstream, especially domestically, so it is urgently looking to own more energy resources," Yan said.

Sinopec is progressing development of two cross-country gas pipelines designed to transport synthetic gas from coal gasification in western Xinjiang province to eastern China. The gas would be purchased from coal companies in Xinjiang. The pipelines will have total capacity of 30 billion cubic meters/year (2.9 Bcf/day) and are expected to be operational by the end of the current five-year economic plan in 2015. The company is now awaiting approval from the National Development and Reform Commission for the projects.

Sources previously said Sinopec's strategy in developing the pipelines is to allow it to compete in the natural gas sector against PetroChina, which currently operates both West-East natural gas pipelines that run from Xinjiang to the eastern coast.

The first will be 7,373 kilometers (4,581 miles) long and link Xinjiang with Guangdong and Zhejiang provinces. It will cost over Yuan 130 billion ($20.6 billion) and have five trunk lines. The second will also start in Xinjiang and run to Shandong and Jiangsu provinces, spanning 4,463 km.

Following a lull in project approvals over the last few years due to concerns over technology and environmental pollution, the central government is now actively encouraging coal resources in Inner Mongolia and Xinjiang to be exploited. The NDRC is expected to approve a number of coal gasification projects, including a few power plants that will run on synthetic coal gas.