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New oil and gas firm as China looks to break monopoly

25/09/2015 by

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China is reportedly creating a new oil and gas firm in a bid to break up the monopoly of companies dominating the energy industry. As part of sweeping reforms, the Chinese government is planning to break the state-owned enterprises into three specific entities and, as a result, create more competition. A number of other changes could allow private businesses to import their own oil and gain access to pipelines.

According to the Chinese state-run media, oil and gas transportation operations are to be stripped into three parts. These will be the China National Petroleum Corp, China National Offshore Oil Corp and Sinopec Group. The latter enterprise will be developed into a new natural gas and crude oil pipeline firm. Although the media’s report gave no time frame for the changes to be made, nor any indication of the source of the news, it said the Chinese government is still debating whether to roll out the changes at once or to implement them in stages.

It is no secret that the Chinese president, Xi Jinping, has made it a priority to overhaul the nation’s energy sector. Several high-ranking officials, including Zhou Yongkang, the former security chief, have already been convicted on corruption charges that directly related to the country’s state-owned energy firms. As a result there is need to change the system, not only to make it more productive and competitive but also to restore faith in the sector. Such a move will also be in line with Beijing’s wider plan to bring more private companies into the energy industry. A report by gas analyst Nelson Wang and CLSA China Oil suggested that the sector’s efficiency could be boosted if more private companies were brought on board.

China is currently the world’s second-largest crude oil importer. Demand has been slightly dented by the nation’s recent economic slowdown, but experts suggest major oil consumption is unlikely to fall. In July Beijing offered private firms the chance to explore six gas and oil blocks.

Mr Wang explained that experts are expecting Beijing to allow gas pipeline access and the construction of receiving terminals for liquefiers to independent organisations as part of midstream operations; meanwhile, it is expected that downstream operations will include the government allowing an increasing number of businesses to import crude oil. This would be done by removing the current restrictions that ban the use of any crude liquids that have been imported. As a result, the industry would become more competitive and could increase productivity.

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