Chinese energy has become bloated

REUTERS/Stringer

This past March, I wrote about some intriguing comments from the Chinese government. Suggesting that the nation might be on the verge of opening major opportunities in its oil and gas sector for outside investment.

And news this week appears to have confirmed this trend is now in motion.

That development came from state oil and gas player China Petroleum & Chemical Corp. (Sinopec). With the company announcing it will sell a major stake in a key pipeline asset to foreign investors.

Sinopec management said Tuesday that it willend up to 50% of the Sichuan-East China natural gas pipeline to incoming investors. With the move aimed at shoring up cash holdings for the company.

Although Sinopec didn’t hang a value on the transaction, this appears to be a significant asset. With the project consisting of over 1,700 kilometers of pipe, delivering 12 billion cubic meters (423 billion cubic feet) of natgas per year directly into the key consuming market of Shanghai.

Sources interviewed by the Wall Street Journal estimated the sale could fetch up to 20 billion yuan ($3 billion). Which would make this one of the biggest foreign deals ever completed in energy infrastructure in China.

The fact that the stake is coming up for sale also shows big changes afoot in China’s energy sector. With local operators now apparently following through on orders from Beijing to begin divesting assets to outside investors.

That trend is coming for a number of reasons. For one, officials are seeking to loosen the dominance of big state firms like Sinopec — which many feel have become “bloated” and complacent.

Natural gas is likely to be a particular focus. With the Chinese government reportedly also seeking a big buildout in pipeline infrastructure — to facilitate a national switch from coal to cleaner natgas energy supply.

Such an infrastructure overhaul is seen as happening much smoother under the direction of private firms. Which could mean more deals coming available soon — watch for announcements on the buyers and deal terms for the Sichuan-East China project, and for additional asset sales over the coming months.

Here’s to shaking the tree.

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