It is the first futures market on the Chinese
mainland open to outside investors.
5.2 Major Problems in the Existing
Oil and Gas System
and Mechanisms
Following the intensive introduction and implementation of reform policies and measures after
the 18th National Congress of the Communist
Party of China in 2012, China’s oil and gas
market-oriented reform made great progress.
Measures include improving the oil and gas
pricing mechanism, marketising the allocation of
oil and gas resources, enhancing oil and gas
supply capacity, and improving oil and gas
resource use. However, there are still some
underlying institutional problems in the oil and
gas sector that urgently need to be addressed.
5.2.1 Unsound Market System
and Inadequate Market
Competition
First, the administrative monopoly is strong in
exploration and production, restricting the extent
to which oil and gas production capacity can be
improved. Oil and gas exploration and production is a monopoly in China. According to the
Administrative Measures for Registration of
Mineral Resources Prospecting Blocks and the
Administrative Measures for Registration of
Mineral Resources Exploitation issued by the
State Council in 1998, the companies engaged in
exploration and exploitation of oil and gas
resources are subject to mandatory approval by
the State Council. So far CNPC, Sinopec,
CNOOC and Yanchang Petroleum have been
approved. Oil and gas mining rights need to be
registered, which has been a long-term policy.
The mining rights of the four companies cover all
favourable blocks. At present, China’s registered
oil and gas exploration rights cover 4 million
square kilometres of land, of which 3.9 million
square kilometres belong to CNPC, Sinopec and
CNOOC. Registered oil and gas exploitation
rights cover about 118,000 square kilometres of
land, of which 117,000 square kilometres (99%
of all registered exploitation rights) are owned by
CNPC, Sinopec and CNOOC. In recent years,
China began to explore the transfer of mining
rights through competitive bidding for shale gas
and coalbed methane exploration blocks and
carried out pilot public bidding for conventional
oil and gas blocks in Xinjiang. However, oil and
gas mining rights are still highly concentrated in
a few large state-owned oil and gas companies,
leading to limited market competition, a low
degree of marketisation and inefficient operation.
Since the procedures for transfer and exit from
oil and gas mining rights are not mature, and
since supervision and follow-up measures are
absent, it is difficult for private capital to enter
the market. A diversified upstream market based
on orderly competition has yet to be formed. As a
result, there is insufficient investment in oil and
gas resource exploration and exploitation and the
potential for increased output and lower costs is
restricted. Furthermore, enclosed gas blocks are
not exploited. This prevents blocks of potential
resources from being fully exploited.
Second, the lack of diversity in infrastructure
investors and insufficiently deregulated investment access result in infrastructure construction
lagging behind market development. In China,
trunk gas pipelines and branch pipelines are
mainly invested in and built by CNPC, Sinopec
and CNOOC. Regional branch pipelines are
mainly invested in and built by CNPC, Sinopec,
CNOOC and local capital. CNPC’s gas pipelines
account for more than 70% of total gas pipeline
investment. Because of this lack of diversity in
pipeline investors, China’s gas pipeline construction does not match demand. During the
12th Five-Year Plan (2011–15), China constructed about 25,800 kilometres of trunk and
feeder gas pipelines, accounting for only 58.5%
of the planned 44,000 km target. Although
pipeline investment and construction are not so
far behind that they hinder gas supply, it is still
difficult for private natural gas companies to
enter the market, due to constraints like insufficiently deregulated investment access and long
project approval processes. As a result, it is hard
to unlock the huge potential in gas pipeline
investment and construction—the quantity and
460
S. Yaodong and A. Gillespie
mainland open to outside investors.
5.2 Major Problems in the Existing
Oil and Gas System
and Mechanisms
Following the intensive introduction and implementation of reform policies and measures after
the 18th National Congress of the Communist
Party of China in 2012, China’s oil and gas
market-oriented reform made great progress.
Measures include improving the oil and gas
pricing mechanism, marketising the allocation of
oil and gas resources, enhancing oil and gas
supply capacity, and improving oil and gas
resource use. However, there are still some
underlying institutional problems in the oil and
gas sector that urgently need to be addressed.
5.2.1 Unsound Market System
and Inadequate Market
Competition
First, the administrative monopoly is strong in
exploration and production, restricting the extent
to which oil and gas production capacity can be
improved. Oil and gas exploration and production is a monopoly in China. According to the
Administrative Measures for Registration of
Mineral Resources Prospecting Blocks and the
Administrative Measures for Registration of
Mineral Resources Exploitation issued by the
State Council in 1998, the companies engaged in
exploration and exploitation of oil and gas
resources are subject to mandatory approval by
the State Council. So far CNPC, Sinopec,
CNOOC and Yanchang Petroleum have been
approved. Oil and gas mining rights need to be
registered, which has been a long-term policy.
The mining rights of the four companies cover all
favourable blocks. At present, China’s registered
oil and gas exploration rights cover 4 million
square kilometres of land, of which 3.9 million
square kilometres belong to CNPC, Sinopec and
CNOOC. Registered oil and gas exploitation
rights cover about 118,000 square kilometres of
land, of which 117,000 square kilometres (99%
of all registered exploitation rights) are owned by
CNPC, Sinopec and CNOOC. In recent years,
China began to explore the transfer of mining
rights through competitive bidding for shale gas
and coalbed methane exploration blocks and
carried out pilot public bidding for conventional
oil and gas blocks in Xinjiang. However, oil and
gas mining rights are still highly concentrated in
a few large state-owned oil and gas companies,
leading to limited market competition, a low
degree of marketisation and inefficient operation.
Since the procedures for transfer and exit from
oil and gas mining rights are not mature, and
since supervision and follow-up measures are
absent, it is difficult for private capital to enter
the market. A diversified upstream market based
on orderly competition has yet to be formed. As a
result, there is insufficient investment in oil and
gas resource exploration and exploitation and the
potential for increased output and lower costs is
restricted. Furthermore, enclosed gas blocks are
not exploited. This prevents blocks of potential
resources from being fully exploited.
Second, the lack of diversity in infrastructure
investors and insufficiently deregulated investment access result in infrastructure construction
lagging behind market development. In China,
trunk gas pipelines and branch pipelines are
mainly invested in and built by CNPC, Sinopec
and CNOOC. Regional branch pipelines are
mainly invested in and built by CNPC, Sinopec,
CNOOC and local capital. CNPC’s gas pipelines
account for more than 70% of total gas pipeline
investment. Because of this lack of diversity in
pipeline investors, China’s gas pipeline construction does not match demand. During the
12th Five-Year Plan (2011–15), China constructed about 25,800 kilometres of trunk and
feeder gas pipelines, accounting for only 58.5%
of the planned 44,000 km target. Although
pipeline investment and construction are not so
far behind that they hinder gas supply, it is still
difficult for private natural gas companies to
enter the market, due to constraints like insufficiently deregulated investment access and long
project approval processes. As a result, it is hard
to unlock the huge potential in gas pipeline
investment and construction—the quantity and
460
S. Yaodong and A. Gillespie