The reform plan for oil and gas is to be unveiled soon. The plan will allow eligible and qualified market players to participate in the conventional exploration and exploitation of oil and gas and allow eligible crude processing enterprises to use imported crude oil. It also encourages enterprises to invest in the exploration and exploitation of oil and gas via mixed ownership reform and carry out the construction and operation of natural gas pipeline projects in urban areas. A series of supporting policies will be introduced subsequently.
The reform will involve the entire industry chain.
Li Jin, vice president of China Enterprise Reform and Development Society (CERDS), believed that as the international energy prices are running at lows, a consensus has been reached that it is now an important time window for the reform of the oil and gas system. This round of reform will involve the entire industry chain. More specifically, it has two directions: system reform and state-owned enterprise reform. The mixed ownership reform – to introduce private capital into the exploration link and the pipeline network link – will be a highlight of the market.
The State Council recently approved the opinions on key works in deepening the economic system reform in 2017 formulated by the National Development and Reform Commission (NDRC). The opinions propose to step up efforts in the reform of electricity, oil, gas and other key industries, introduce and implement reform plans for the oil and gas system and accelerate the development of supportive policies and special plans for the reform.
Yan Pengcheng, head and spokesman of the Department of Policy Studies of the NDRC, recently said that the selection of the third batch of pilot programs for the mixed ownership reform has started. The pilot program in the oil and natural gas sector will advance as a whole after the reform plan for the sector is formally implemented.
Since the beginning of this year, the NDRC issued the 13th Five-Year Plan for oil development and the 13th Five-Year Plan for natural gas development. In the draft plan for the national economy and social development in 2017, it stressed again that China will focus on the oil and gas system reform, open up the exploration and exploitation of oil and gas and other competitive businesses in a moderate and orderly pace and improve the import and export management system for the oil and gas.
Li Junchen, senior energy researcher with Oceanwide Research Institute, believed that as an important part in the process of deepening reform, the oil and gas system reform has already started. After the reform, competition for natural gas resources will become fiercer. Distribution and transmission links will be compressed, which will effectively reduce costs for gas and electricity. In addition, the petroleum and gas trading centers in Shanghai and Chongqing provide an open trading platform for the marketization of natural gas prices. The accelerating reform will gradually remove institutional barriers for the development of the natural gas industry which is expected to form a more effective industry system. Gas power generation will also benefit from the reform.
Sinopec Group, CNPC and CNOOC prepare for the reform
The three major oil producers in China, China Petrochemical Group (Sinopec Group), China National Petroleum Corporation (CNPC) and China National Offshore Oil Corporation (CNOOC), are making preparations for the new round of oil and gas reform.
Sinopec Group proposed in a recent document that it will introduce policies on deepening reform, advance pilot reform in scientific and technological system and steadily promote the mixed ownership reform. Sinopec Group Chairman Wang Yupu presided over a seminar on April 5 to study the overall plan for deepening the institutional mechanism reform in its subsidiary Sinopec Sales Company.
Currently, over 25 domestic and foreign investors subscribed 29.99 percent equities of Sinopec Sales Company for a total of 107.094 billion yuan in cash. As for its pipeline asset, China Life Insurance Co., Ltd. and SIDC Transportation Co., Ltd. subscribed 50 percent equities of Sinopec Sichuan-East Natural Gas Pipeline Co., Ltd. for 22.8 billion yuan. In addition, Sinopec Yizheng Chemical Fibre Limited Liability and Sinopec Oilfield Equipment Corporation (000852.SZ), the two listed platforms of Sinopec Group, respectively consolidated the group’s oil engineering companies and machinery assets.
CNPC is also making process in marketization since the beginning of this year. Following its approval of the guidance on the market-oriented reform and the guidance on the mixed ownership reform on last December, CNPC released the plan to deepen reform in CNPC Daqin Oilfield, the plan to expand autonomy in management in Kunlun Energy Co., Ltd. and the pilot plan on socialization reform of its central hospital at the end of February. CNPC Sales Company Western Brach recently completed its first online transaction on Shanghai petroleum and gas trading center.
China National Offshore Oil Corporation CNOOC is actively promoting the consolidation of its refinery business and the listing of CNOOC Energy Technology & Services Limited.
Focus on relevant investment opportunities
Li Jin believed that the reform of the largely monopolized oil industry is to restructure the industry, adopt the mixed ownership and attract private capital to break the monopoly. If the reform advances, major links in the industry, including transfer of mining right, exploration and exploitation, pipeline transportation, circulation and refining, will be liberalized. It will push forward the oil and gas sector for a radical change to a market-oriented industry chain.
Founder Securities believed that as one of the seven major sectors for the mixed ownership reform, the oil and gas reform will continue to advance this year. There are opportunities in two aspects. First, as the Sinopec Group, CNPC and CNOOC lead the mixed ownership reform in the industry, investors can focus on opportunities brought by the separation of main and supplementary businesses as well as professional reorganization, particularly on opportunities in the securitization of quality unlisted assets of these groups and reform benefits brought by the asset structure optimization and efficiency improvement in CNPC and Sinopec Group. Secondly, as the long-awaited overall reform plan is expected to be introduced soon, investors can focus on the circulation of oil and gas blocks and the pipeline network reform.
Huachuang Securities believed that the oil and gas system reform will bring more theme-related investment opportunities. There are three mainlines: state-run and private petrochemical and natural gas industry chains, investment in oil and gas infrastructure and the progress of the state-owned enterprise reform.
Translated by Coral Zhong
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