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Midstream infrastructure network has long been a key bottleneck
in China's natural gas market development. Physically, the
transmission length is merely 15% that of the United States,
keeping pipeline connection rate to just 24% of total population
and 41% of urban population. In addition, the national oil
companies, PetroChina in particular, dominate the pipeline
business. Although policies on third-party access (TPA), have been
in place since 2013, only a handful of TPA cargos have come through
and there is virtually no TPA to the transmission network. This
limits options for both gas producers and buyers and prevents gas
flow optimization in the pipeline network.
Figure 1: China's natural gas infrastucutre reform
In March 2019, the National Development and Reform Commission
announced in the annual Work Report the plan to establish a
national pipeline company. The work plan is reportedly finalized
and now pending the State Council's approval. The implementation
may proceed in three phases. First, transferring existing pipeline
assets and employees to a new company, tentatively named China
Pipeline Corporation and at the same level as the current three
national oil companies. Second, allowing state and private
investment funds to invest capital up to 50% of China Pipeline
Corporation to develop new projects. Third, initiating an initial
public offering for China Pipeline Corporation.
This is a major step in the right direction to improve market
efficiency. Once fully implemented, the plan will transform the
current market landscape, allowing downstream market access to more
gas suppliers, midstream operator to optimize gas flow with
midstream investment opportunities available to new players, and
more supply options for citygas distributors and end users.
However, many details have yet been made public, including the
timeline for each step, which assets to be included, and initial
ownership allocation. The government also needs to resolve the
questions how to compensate for import losses and maintain supply
security, before it can turn to improving market efficiency.
Looking back, midstream reforms in the United States and Europe
each took two decades to complete. Given China's complex market and
the fact that new pipelines still need to be built, it will take
time to achieve equitable and nondiscriminatory midstream TPA.
