Market set to get greater role in oil and gas sector

By ZHENG XIN(China Daily)
Updated: 2017-05-23 07:20:41

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 said.

"The blueprint for the heavily monopolized energy sector won't have any serious impact on the dominance of State-owned trio of giants in the sector, but will definitely encourage the entry of independent companies into the industry and diversify the market players," said 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," said Wang.

The news of the reform plan fueled a stock market upsurge among oilfield service companies on Monday, with Sinopec Oilfield Service Corp climbing 9.95 percent to 4.09 yuan (60 cents) and China Oilfield Service Ltd rising 0.83 percent to 13.31 yuan.

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

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

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

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

"While the government should safeguard national energy security, the market should play its role in allocating resources, boosting productivity to meet demand."

However, some analysts said the plan lacks an implementation schedule, deadline or specific projects.

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

"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."

Wang said the industry is heading toward market-oriented prices and the diversification of market players. Yet issues which may discourage the industry from changing include low oil prices and high upfront capital requirements.

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