China is in the midst of setting up its own national oil and gas pipeline corporation, allowing the country to better streamline operations and costs across its vast oil and gas pipeline network and assets currently run by the country’s “big three” energy giants: China National Petroleum Corp. (CNPC), China National Offshore Oil Corp. (CNOOC) and China Petroleum & Chemical Corp. (Sinopec). According to the National Energy Administration, by 2020, China’s pipeline network will stretch as far as ~169,000 km, expanding to 240,000 km by 2025.
The combined asset value worth approximately USD 75bn, could attract further investment, reduce costs (especially associated with LNG shipping) and increase competition; leading to a reduction in gas prices and eventually a decrease in the use of coal by stimulating gas demand. It is predicted that China’s soaring domestic usage will see a further 50% increase in LNG demand over the next four years. It is doubtful that the current infrastructure can support such demand, thus the push to reform and liberalise the state-owned petroleum sector.
Sinopec, the world’s largest refiner in terms of volume, agreed to split its LNG sales and pipeline assets to quicken the proposed reform. This would allow a more market-based approach to pricing across the sector; thus falling in-line with China’s gas pricing reform which was unveiled in 2013. This year Sinopec bonds, have performed well, with the yield on the 3.125% 2023s tightening 110bps. The A1/A+ bond continues to offer two notches of credit cushion.