Market set for greater role in oil and gas sector

The market-oriented reform of the country's oil and gas sector will give the market a decisive role in the industry, allowing broader participation in a sector dominated by State-owned companies, analysts say.

"The blueprint for the heavily monopolized energy sector won't have any serious impact on the dominance of the State-owned trio of giants in the sector, but it will definitely encourage the entry of independent companies into the industry and diversify the market players," says Wang Lu, an Asia-Pacific oil and gas analyst at Bloomberg Intelligence.

China's oil and gas sector is dominated by three heavyweights: China National Petroleum Corp, China Petrochemical Corp and China National Offshore Oil Corp, which have long been accused of monopolizing the nation's oil and gas resources.

"Allowing new players into the industry may raise the country's upstream capital expenditure, which would increase the workload of oilfield service companies, especially independent ones such as Anton Oilfield Services Group and SPT Energy Group," says Wang.

The news of the reform plan fueled a stock market upsurge among oilfield service companies on May 22, with Sinopec Oilfield Service Corp climbing by 9.95 percent to 4.09 yuan (60 cents; 0.53 euros; ￡0.46) and China Oilfield Service rising by 0.83 percent to 13.31 yuan.

Low oil prices have made PetroChina, Sinopec and CNOOC more prudent in capital expenditure, says Wang.

The reform plan, released on May 21, included opening up exploration to more companies, liberalizing retail prices and separating pipeline operations from the country's major energy companies.

Dong Xiucheng, a professor at China University of Petroleum in Beijing, says the reform will give competitive companies easier market access, whether they are State-owned or private.

"A more diversified competitive market will be the future trend," says Dong.

"While the government should safeguard national energy security, the market should play its role in allocating resources, boosting productivity to meet demand." However, one analyst says the plan lacks an implementation schedule, deadline or specific projects.

"The plan shows a clear attitude toward the sector's future direction," says Li Li, energy research director at ICIS China, an energy market consulting company.

"However, the blueprint comes up with no specific schedule for the long-awaited reform of the sprawling State-controlled sector, or clear deadlines or certain requirements for any specific projects and companies."