Signs of further opening-up for oil, gas industry

There are more signs that China's oil and gas sector, traditionally dominated by the State-owned companies, will be more open to private capital following China Petrochemical Corp's announcement last week that it will open up 30 percent of its retail business sector.

The private steel company Guangzheng Group said on Friday it has signed a cooperation agreement with the corporation, also known as Sinopec, to jointly develop a natural gas business in western Xinjiang Uygur autonomous region.

According to the company's statement, it signed a strategic cooperation agreement with Sinopec's subsidiary South Western Tarim Exploration and Development Co to jointly develop downstream gas markets in five areas: Bayingolin, Kashgar, Hotan, Aksu and Kezhou in southern Xinjiang.

Last week, Sinopec said it will welcome private capital to invest in up to 30 percent of its oil retail business sector, including more than 30,000 fuel stations, pipelines and storage facilities, which is a big step toward State-owned enterprise reform.

The business unit the subsidiary opened for private investors also involves downstream assets. But Sinopec didn't make any comment officially about the deal.

An insider at the company, who declined to be named, told China Daily it is also considering making moves to introduce private capital in more sectors, in line with the central government's policy of encouraging private investment in State-controlled industries.

Wang Xiaokun, senior analyst at domestic commodities consultancy Sublime China Information Group Co Ltd, said it is not the first time that private capital participates in the downstream business of Sinopec.

Two years ago, Sinopec introduced private capital for fundraising for the third line of the West-East gas pipeline project, which is believed to be the first time the company introduced private capital.

"There are already many private companies involved in the gas station business, such as Guanghui Energy Co Ltd, which is doing very well in the natural gas business in Xinjiang," said Wang.

She said Sinopec doesn't hold a big share in the natural gas market in Xinjiang, which means the new cooperation can provide the State-owned company with the opportunity to integrate its natural gas supply chain into the autonomous region.

"Guangzheng has money while Sinopec can ensure the natural gas supply based on its strong upstream advantages," added Wang.

In the past, Sinopec's subsidiary has been primarily engaged in oil product and downstream sales, including gasoline, diesel, liquefied petroleum gas and natural gas in southern Xinjiang.

The natural gas market in Xinjiang has huge potential because of the coal-to-gas project in the area being developed in order to reduce pollution and improve the environment, said Wang.

"It's smart to make arrangement in Xinjiang to expand the natural gas business, but their competitor, Guanghui Energy, is very strong," she said.

Han Xiaoping, chief information officer of the China Energy Net Consulting Co Ltd, said it's a good trend that more private companies are participating in the oil and gas sector because it will provide more effective supervision over State-owned enterprises.

"Even though private companies may not have the controlling stake, they have the right to know the financial and operational details of the investment project, which is beneficial for the healthy development of the company," he said. "Meanwhile it can also cut costs for both when they put their individual strengths together."