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
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.
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
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