23  January  2019

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 Infopetro -> Industry in Focus

China Unveils Pipelines Strategy


The National Development and Reform Commission (NDRC) and

National Energy Administration (NEA) unveiled ambitious

plans last week to expand and upgrade China's oil and

gas pipeline network over the next decade.

The network should reach a total length of 169,000 km by

2020, they said in a joint statement. This would comprise

32,000 km of pipelines for crude oil, 33,000 km for

refined oil and 104,000 km for natural gas. China

currently has 112,000 km of oil and gas pipelines.

And by 2025, the network should reach a total length of

240,000 km, of which natural gas pipelines will comprise

123,000 km, according to the new goal.

The target envisages all Chinese cities with a population

of at least 1 million people being connected by a

pipeline for refined fuel by that date, while those with

more than 500,000 residents will have access to gas


The project will support Beijing's target of increasing

gas' share of China's energy mix to 10% by the end of

2020, from around 6.5% currently. The move could also

support the share prices of Chinese gas distributors,

which have already surged around 30% on average so far

this year.

Sector confidence
While confidence in the distributors is again partly

driven by Beijing's push to increase the use of natural

gas, the NDRC's recent clarification that returns for

China's downstream sector will be capped at a slightly

higher level than many had feared has also supported

their stock. Distributors will be allowed to make a 7%

profit, rather than 6%, the NDRC said last month.

A booming housing market is also helping distributors not

only generate revenue from supplying gas to residential

users but from installation fees. A pick-up in industrial

activity in China has, meanwhile, pushed up gas

consumption from that sector.

Analysts are concerned, however, that China's housing

market might run out of steam and whether Beijing's

plans to revert to a more neutral monetary policy will

have an impact on industrial activity.

The country's dire urban air pollution position, though,

should in the longer term support Chinese demand for gas.

And while having gas account for 10% of China's energy

mix is the right move for Beijing, it is still be far

below the current global average of 25%.

One analyst at PetroChina, the country's biggest energy

producer, also predicted early this week that China's

total gas demand growth could hit a new record in 2017,

with consumption surging by 30 bcm.

"We estimate China could consume 28-30 bcm more than

last year, mainly on the back of preferential policies,"

the deputy director of PetroChina's planning and

engineering institute, Han Jingkuan, told Interfax.

If correct, the range of demand growth that PetroChina

predicts would exceed the previous record demand increase

of 23.7 bcm seen in 2011 and would equal annual growth of

13.6-14.6% based on China's apparent gas consumption of

205.8 bcm in 2016.

Additional benefits
Beijing's new pipeline construction target will also

support flows of crude and refined oil C both foreign

and domestically produced C from remote border regions

to prosperous inland cities, the NEA and NDRC said.

In particular, imports from countries through which China

's ambitious One Belt, One Road (OBOR) project will run

will be boosted by the construction of more pipelines,

they said, highlighting projects in Russia, Myanmar and

Central Asian countries. Further import projects will be

initiated, they added.

Beijing believes that improving its oil and gas networks

will boost energy security, stimulate investment, support

the wider economy and help wean China off its dependence

on coal.

Although the country's consumption of dirtier coal

continues to fall, it still accounts for more than 60% of

China's energy mix. While China's coal consumption

shrank 4.7% in 2016 compared to a year earlier, its crude

consumption expanded 5.5% and its gas consumption jumped


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