China's Pipeline Sector to Undergo Major Transformation

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China's Pipeline Sector to Undergo Major Transformation

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In China the state frequently meddles in the marketplace to smooth out disruptions and ease any undue burden on the consumer. This is now the case with wholesale natural gas prices with the state opting for a huge increase to make up for wide scale losses in China's gas import business, as the state buys gas at high prices anchored in long term supply contracts and caps increases in the domestic price of retail gas. This is obviously not sustainable over time.

In addition China is about to reform the downstream pipeline sector, which, up to now, because of these very same market interventions by the state, has been extremely profitable.

Beijing plans to launch this year a national oil and gas pipeline company that will combine assets from PetroChina, China National Offshore Oil Corporation (CNOOC) and Sinopec, a move aimed at spurring private and foreign exploration investment. But the pipeline reshuffle is predicated on agreement between all the major players in the market and this top down approach is showing signs of wear and tear.

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