CNPC moves to open pipeline facilities

China National Petroleum Corp, the country's largest oil and natural gas producer, approved a document covering the opening of its oil and gas pipeline facilities to third-party use, a move in accordance with the nation's energy reform.

Chairman Zhou Jiping presided over the meeting, saying that allowing third parties to use these facilities will increase the efficiency of the industry, as specified under the central government's guidance on energy reform, according to a CNPC statement on Thursday.

The company's natural gas and pipeline subsidiaries are making preparations for the move.

Lin Boqiang, director of the China Center for Energy Economics Research with Xiamen University, said the move is a strong signal that China is taking concrete steps to break the monopoly in the energy industry.

Giant oil companies such as PetroChina Co Ltd dominate upstream oil and gas exploration, pipeline construction and delivery and the downstream retailing business in the country.

Taking pipeline assets away from the total control of PetroChina will help boost the market, especially for small and mid-sized gas producers that don't have pipelines, said an industry observer who declined to be identified.

The oil and gas producers, especially gas companies, will be able to sell their resources to end-users without investing in pipeline construction, said the observer.

"More importantly, breaking the long-standing monopoly in the oil and gas market will influence or even accelerate the reforms in the power transmission sector, which is also dominated by State Grid Corporation," he said.

In February, the National Energy Administration published a document, saying the operators of oil and gas pipelines should open their facilities to third parties and create fair conditions for the industry's development.

PetroChina, the listed arm of CNPC, is the biggest pipeline network operator in China. It owns about 70 percent of the country's crude pipelines and up to 90 percent of the natural gas pipelines.

In early May, PetroChina announced it will transfer its First and Second West-East Gas Pipelines assets to a new subsidiary, PetroChina Eastern Pipelines Co.

All assets of the new company - worth 82 billion yuan ($13.1 billion) - will then be sold by public tender on an asset exchange on the Chinese mainland.

The new company will be established in Shanghai with registered capital of 10 billion yuan.

Its pipeline network delivers natural gas to China's eastern cities from Central Asia and the Xinjiang Uygur autonomous region.

Industry insiders described this move as a big step forward in China's mixed ownership reform among State-owned enterprises in the energy sector.

Duan Zhaofang, a natural gas expert with CNPC's research institute, said the huge investment required for pipeline construction calls for a diverse range of investors.

Wang Ruiqi, senior analyst with the energy information consultancy ICIS C1 Energy, said the central government is trying to cut the energy giants "down to size" by spinning off their assets in order to weaken the chain of corruption.

Since September, at least seven high-ranking officials relating to CNPC including Jiang Jiemin, former CNPC chairman, have been probed for corruption-related charges.