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the upstream in recent years, displeased by the refiners to source crude from new suppliers, be
fact that demand has outstripped the majors’ that from domestic fields or imports.
production capacity. This has seen the coun- This has the potential of creating a more liq-
try’s dependence on oil imports grow to 70% uid oil and gas midstream, with market deter-
of demand, while imported gas accounts for mination of prices a more tangible possibility.
half of consumption. The government set up natural gas exchanges
In January, Beijing revealed plans to allow in Shanghai and Chongqing in 2015 and 2018
foreign and private companies to explore and with the hopes of creating an Asian price bench-
develop the country’s hydrocarbon resources mark, but to little effect. With the country
without the need for partnerships with state- already the world’s largest importer of natural
owned developers. gas, and soon to be the largest buyer of lique-
The Ministry of Natural Resources said at fied natural gas (LNG), removing control of the
the time that locally registered companies with midstream from the hands of the producers and
CNY300mn ($42.8mn) of net assets would importers should help China close in on its goal
be allowed to operate independently in the of attaining pricing setting power.
upstream from May 1. This came after Pipe-
China’s formation in December 2019, which What next
removed a major hurdle to upstream investment. While the promise of a more liquid midstream
is attractive, there are still challenges the govern-
Breaking down barriers ment and PipeChina need to overcome.
The majors have typically prioritised their own The first of these is that the pipeline oper-
needs over those of third parties when allocating ator has inherited infrastructure bottlenecks
capacity in their transportation networks. And created by corporate agendas more than
despite the government’s efforts to improve national energy strategy. The country had
third-party access, success has been limited. 133,000 km of oil and gas pipeline at the end
PipeChina’s arrival on the scene is expected of 2019, according to CNPC, which operated
to fix this, with the company acting as a neu- more than two-thirds of that figure.
tral purveyor of pipeline capacity to all of the The government wants to expand the net-
country’s oil and gas producers. work to 230,000 km by 2025 and the former net-
Beyond the upstream, however, merging works of the Big Three will have to evolve from
the country’s oil and gas pipelines could have serving a singular corporate need to addressing
ramifications for the wholesale fuel sector. those of a nation. PipeChina needs not just to
Traditionally state-run refiners have carved integrate its new assets but also figure out how
out sections of the country under their con- it intends to develop a unified national energy
trol based upon their access to feedstock. For strategy from a disparate mix of assets.
example, the fuel market of landlocked Yunnan The company has already got a first taste of
Province remains dominated by CNPC, which its new responsibilities, overseeing the start of
has ready access to international crude supplies construction this week on the southern section
thanks to its Myanmar-China oil pipeline. of the China-Russia East gas pipeline. This is the
Removing control of the country’s pipelines pipeline that receives Russian gas from the 38bn
could, in theory, eventually lead to a break-up cubic metre per Power of Siberia pipeline, one of
of regional downstream monopolies. At the very the most challenging gas supply lines China has
least, it will make it easier for state and private had to negotiate.™

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