CNPC under heavy pressure to spin off pipeline network

In the wake of the scandal that erupted at China National Petroleum, the State Council's National Development and Reform Commission (NDRC) is considering putting the company's sprawling natural gas pipeline network under the direct jurisdiction of the central government or spinning it off into an independent company.

In addition, CNPC may further spin off other quality assets as a prelude to listing those operations on the stock market. The practice has already been pioneered by China National Offshore Oil and Sinopec, two other major state petrochemical enterprises.

A ranking CNPC official said that the company is under heavy pressure to restructure its operations, following the outbreak of the major scandal. A spinoff of the natural gas pipeline network can break the market monopoly and facilitate the reform of natural gas prices, said an NDRC official.

China's natural gas enterprise has been stalled by extensive difficulties in defining the relationship between the prices of up and downstream petrochemical products.

Presently, there are three kinds of natural gas prices in China: ex-plant prices, pipeline prices, and urban network prices.

CNPC has monopolized China's natural gas market, including onshore natural gas exploration and natural gas imports from western Asia and Russia. "The ultimate objective of reform on the natural gas pricing mechanism is to conform to international practices. CNPC stands at the core of the reform, impeding its implementation. The spinoff of the natural gas pipeline network will greatly facilitate the implementation of the reform," said an industry insider.

Despite repeated calls by experts, CNPC has been reluctant in transforming its natural gas pipeline network into an independent outfit, citing a complicated shareholding structure, which includes both private and foreign interests.

The company's natural gas pipeline network is under the charge of its natural gas pipeline bureau. Established in 1973, the bureau has built pipelines exceeding 60,000km in length since 2000, in addition to natural gas storage tanks with a total capacity of 20 million cubic meters. CNPC now administers 70% of China's crude oil and 90% of its natural gas pipelines.

Compared with other major businesses within the CNPC, the pipeline sector is the most easily spun off when considering the extent of importance and operability, as well as the independence of operation, an NDRC official said.

Another option to the spinoff is allowing other enterprises equal access to the pipeline network. Presently, other enterprises have to pay CNPC exorbitant fees for accessing the pipelines, an analyst said.

Sinopec is an enthusiastic advocate for CNPC to forego its monopoly of the natural gas pipeline, as the former failed to win the concession of the latter for use of its pipelines inside Sichuan province. The rival state giant was looking to channel resources from a natural gas field in Puguang, but was forced to build the pipeline itself.