Sinopec Unit Sells Gas Pipeline Asset to PipeChina
26 Jul 2020 by Camille Klass
China's new oil and gas pipeline company PipeChina has made its first purchase of gas infrastructure assets, agreeing to buy state-controlled Sinopec Kantons' wholly owned subsidiary Sinopec Yulin Pipeline for around 3.2bn yuan ($460mn).
The deal will transfer Sinopec Kantons' 4bn m³/yr cross-province Yulin-Jinan gas pipeline to PipeChina. It follows state-owned CNOOC's agreement in April to transfer management rights for its oil and gas infrastructure projects to PipeChina.
Sinopec Kantons is a unit of state-controlled Sinopec, the country's biggest oil refiner. More such asset disposals by Sinopec and fellow state-run energy firm PetroChina are expected to be announced in the coming days. The Sinopec Kantons' asset transfer is due to be completed on 30 September, the same day that the new pipeline firm is expected to begin operations.
The disposal of the Yulin-Jinan pipeline will enable Sinopec Kantons to focus on projects with higher returns. The current unit-based pipeline transmission distance billing model is hurting its profitability compared to an earlier "one price one province billing model," it said. The firm is also involved in the crude oil jetty and storage business.
The transfer of pipeline ownership to PipeChina will also allow Yulin-Jinan to fully utilise its transmission capacity and realise better value, it added. Planned construction of new compression equipment is expected to lift Yulin-Jinan's capacity to 5bn m³/yr, although the timeline is unclear. The 900km pipeline starts in Yulin in the northwestern province of Shaanxi and passes through the northern province of Shanxi and the central province of Henan before ending in Jinan, in northeast China's Shandong province.
PipeChina was formed on 9 December last year, with the objective of improving transparency, liquidity and competitiveness in China's oil and gas market by liberalising the transmission system. It will take control of key pipeline assets, including high-pressure oil and gas transmission pipelines, which are owned by China's three big state-controlled energy firms CNOOC, Sinopec and PetroChina.
Its control of these assets is expected to provide import access that was previously unavailable, or limited, to a growing group of independent Chinese firms, including so-called second-tier companies in the city gas and power sectors.
PipeChina is expected to set new pipeline tariffs and terminal fees once the assets are transferred. This could take some time, industry participants said. They are looking to see how pipeline and terminal capacity will be allocated, with some suggesting PipeChina could allocate as much as 80pc of capacity to the three oil majors.
"It will be quite difficult for us second-tier firms to bring in LNG cargoes and distribute them downstream if only 20pc of capacity is allocated for third-party access," a buyer at a provincial utility said. "We understand that this may be offered through tender. For us to have to bid for this capacity would be very disappointing."
China has 22 operational LNG receiving terminals, of which 17 are owned and operated by CNOOC, PetroChina and Sinopec. CNOOC is the only terminal operator to have offered limited regasification slots at its terminals since 2018.