Beijing Shakes Up Its Biggest Energy Company

China is shaking up its largest energy company by breaking apart its monopoly on natural-gas pipelines, which for years has discouraged the independent development of promising new supplies of the cleaner-burning fuel.

State-controlled PetroChina Co. said late Monday that it will establish a new subsidiary containing some of its gas pipelines and that the business will eventually be sold. The subsidiary, known as PetroChina Eastern Pipelines Co., will hold the first and second phase of its West-East pipeline, which connects gas fields in China's far northwestern region of Xinjiang with consumers in Shanghai to the east and in Guangdong to the south.

PetroChina, the listed unit of China National Petroleum Corp., said that after the sale it won't retain any ownership of the business, which it said will have 29 billion yuan ($4.65 billion) in net assets.

PetroChina didn't give a timetable or name a potential buyer. Those factors could influence how the pipelines are run and the role they will play in China's energy markets. PetroChina has divested similar assets in the past, only to have them reacquired by related parties.

PetroChina will disclose relevant information in a timely manner, a company spokesman said Tuesday.

Kang Wu, vice chairman for Asia at energy consultancy FGE, said the sale of PetroChina's pipelines could help spur independent development of new and capital-intensive sources of natural gas, such as shale and coal-bed methane.

China is looking to double the share of natural gas in its energy mix to 10% by 2020, amid heightened worry over its pollution problems. China is looking to tap sources such as shale gas, which is gas trapped in shale-rock formations, or coal-bed methane, which is found inside big coal deposits. The development of shale gas has led to booming supplies and low prices in the U.S.

China is thought to have rich shale-gas resources, but the high cost of development and the dominance of its state-owned energy companies are among the factors that have discouraged small-scale development, which was key to the U.S. shale boom.

In the past, independent developers were typically required to sell their gas at wholesale prices to PetroChina before it entered the pipeline. "Your business stopped there," Mr. Wu said. PetroChina, as the intermediary, would then sell the gas to consumers on the other end at higher prices, he said.

With the pipelines under new ownership, independent producers could theoretically bypass PetroChina and strike more lucrative deals directly with consumers, Mr. Wu said. However, it isn't clear whether this will be the case, he said, adding that existing gas-supply agreements between independent producers and PetroChina could still be enforced.

PetroChina's move to give up control of some of its pipelines comes amid a sweeping anticorruption drive that has ensnared at least a dozen current and former executives linked to the company, including two former chairmen.

It also comes as Beijing accelerates the reform of its state-owned enterprises by bringing in private investors to improve returns and efficiency. China Petroleum & Chemical Corp., known as Sinopec, said earlier this year that it would divest 30% of its fuel distribution-and-marketing business. Sinopec recently formed a subsidiary containing the convenient stores that accompany its fuel stations, and the business is expected to become publicly listed.

PetroChina said in a statement Monday to the Hong Kong stock exchange that the sale of its pipelines will help "develop the mixed-ownership model, optimize resource allocation and financing structure and diversify the ownership structure of the company."

The West-East pipeline has been built in phases. The first phase began operating in 2005, is 4,000 kilometers long and transports gas from Xinjiang to Shanghai. The second began operating in 2008, is about 4,800 kilometers long and transports gas from Xinjiang to Guangdong. A third phase, expected to be completed in 2015, will span 7,400 kilometers and will move gas from Central Asia to Guangdong.

Analysts said PetroChina would benefit from the pipeline sale because it can reinvest the proceeds in its core business of oil and gas exploration and production.

"Pipelines produce stable cash flows, but the returns are generally low when compared with upstream oil and gas development, which is higher risk but has higher returns," said Neil Beveridge, a senior analyst at Sanford Bernstein.

New rules introduced by Beijing this year to improve third-party access to gas pipelines also made their ownership less strategically valuable, he said.

This isn't the first time PetroChina has sold stakes in its pipelines, but the decision to fully divest itself of the assets is unprecedented. In 2010, PetroChina offered to sell its majority stake in a natural-gas transmission company through an open tender. However, the assets were later purchased by PetroChina subsidiary Kunlun Energy Co.

In 2012, PetroChina sold 48% of the third phase of the West-East pipeline to three Chinese parties: The National Council for Social Security Fund, the Urban Infrastructure Industry Investment Fund and Baosteel Group Corp., one of China's largest steel makers. Some analysts said the new pipeline business would likely attract similar buyers, which include insurance and investment funds looking for reliable returns.