China’s Sinopec to sell its natural gas pipeline business

China’s state-owned Sinopec Corp. recently announced that it plans to sell half of its premium natural gas pipeline business. This move is prompted by reforms pushed by the Beijing government to boost investment and efficiency in the country’s gas transport network, and to promote the use of cleaner fuel.

After the completion of the divestment plan, which has already been approved by the board, the company will hold 50% in the Sichuan-East China pipeline project. Specific details regarding the target assets and the timeline of the sale were undisclosed.

Beijing is really looking to increase investment in the country’s 90,000-km gas pipeline, which is less than a fifth the size of the system in the United States, as the infrastructure currently has inadequate capacity to meet domestic demand.

This has led to a major bottleneck that limits consumption of gas as the government seeks to promote use of the cleaner-burning fuel in a move away from more pollutive coal, which has double the volume of carbon dioxide emissions and is presently China’s main source of energy.

Sinopec has earlier invested 62.7 billion yuan (US$9.45 billion) to build the Sichuan-East China pipeline that runs 2,200 km from the south-western province of Sichuan, a top gas producing basin, to Shanghai on the east coast.

The route, which started commercial operation in 2010, is able to carry about 12 billion cu m of gas per annum, or about 6% the country’s total gas consumption.

According to industry experts, Sinopec’s plan is similar to the plan announced seven month ago by its larger domestic rival PetroChina, and is 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 of Beijing-based consultancy SIA Energy.