August 2, 2016 / 11:28 AM / 2 years ago

Sinopec to sell stake in gas pipeline business under reform push

BEIJING, Aug 2 (Reuters) - China’s Sinopec Corp said on Tuesday it would sell half of its premium natural gas pipeline business to investors, a move spurred by Beijing’s reform push to boost efficiency and increase infrastructure investment in cleaner fuel.

Sinopec, the country’s second-largest oil and gas group, said it would hold 50 percent in the Sichuan-East China pipeline project after the completion of the divestment plan that has won board approval.

It did not give a value of the target assets, or a timeline for when the sale would be completed.

The government is keen to boost investment in the country’s patchy 90,000-km gas grids, which are less than a fifth the size of the system in the United States. This has created a major bottleneck that limits consumption of gas, which has half the greenhouse gas emissions of China’s biggest energy source, coal.

Sinopec has said it spent 62.7 billion yuan ($9.45 billion) to build the pipeline that runs 2,200-kilometres (1,370 miles) from the southwestern province of Sichuan, a top gas producing basin, to Shanghai on the east coast.

Its Sichuan-East China pipeline project, which started commercial operation in 2010, is able to carry about 12 billion cubic metres of natural gas a year, or about six percent of the country’s total gas consumption.

Industry experts said Sinopec’s plan, similar to that of its larger domestic rival PetroChina announced seven months ago, was a prelude to reform packages Beijing is expected to roll out that targets sectors including oil and gas pipelines.

One of the government reforms on the agenda, experts said, would likely be to break the dominance of PetroChina and Sinopec over key pipeline assets, and also cut the state-supervised transportation costs.

“It’s a good time for Sinopec to recoup at least part of its investment over the years and finance more pipeline capacity building while still able to maintain a controlling stake,” said Li Yao, founder and Chief Executive Officer of Beijing-based consultancy SIA Energy.

Under the reform plans, the two energy giants would be also under pressure to separate gas transportation from sales, which they currently bundle together. This would effectively lower the cost of fuel for consumers and allow third-party access, experts said.

Sinopec’s pipeline sale is likely to attract institutions or funds that are seeking steady, fixed returns, Li said.

After PetroChina’s pipeline spin-off at the end of last year, the company held 72.26 percent in a restructured pipeline division, called PetroChina Pipeline, while other partners, including institutional investors and non-state firms, held the remaining 27.74 percent. ($1 = 6.6336 Chinese yuan renminbi) (Additional reporting by Kathy Chen. Editing by Jane Merriman)

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