level of pipeline interconnection, bundled transmission and sales, and ineffective implementation of third-party fair access. China is striving to
achieve independence for oil and gas pipelines
and create a nationwide pipeline network by
2020 to support an oil and gas production, supply, storage and sales system, and deliver the
ultimate goal of a coordinated oil and gas value
chain by 2030.
Pipelines and other infrastructure link
upstream to downstream in the oil and gas sector.
The reform of the pipeline network, and its effect
on upstream-downstream reform, has attracted
widespread attention. The experience of countries with a mature natural gas market suggests
that natural monopolies like pipelines should be
separated from upstream and downstream businesses, and that pipeline companies should divest
their bundled sales services. Pipeline companies
should operate independently and only provide a
transmission service, thus helping to create a
competitive and efficient oil and gas market. The
independence of oil and gas pipelines not only
provides the strongest guarantee for fair access to
infrastructure, it also eases supervision of pipeline transmission costs, accelerates the formation
of an efficient pipeline service market and helps
marketise the whole industry.
In recent years, factors such as low oil and gas
prices, slower growth in gas consumption, a
significant decline in the operating revenues of
CNPC, Sinopec and CNOOC, and the upcoming
pipeline reform have reduced pipeline infrastructure construction and made investment in
upstream exploration and production less attractive. If reform is not accelerated, it will restrict
the construction of gas pipelines and have an
adverse effect on gas supply security. On the
other hand, as oil and gas system reform deepens,
private enterprise will enter the upstream market
to explore and exploit resources, import oil and
gas, invest in infrastructure and develop the
natural gas trading market. As a result,
third-party demands for fair access to infrastructure, especially gas pipelines, will increase.
Independent operation of pipelines will
undoubtedly facilitate fair access and promote
sector-wide market-oriented reform. The
DRC-Shell work stream believes that China
urgently needs to speed up reform of infrastructure, including the trunk pipelines of large
state-owned oil and gas enterprises, and introduce the plan to reform China’s oil and gas
pipeline network as early as possible. This will
create pipeline independence and develop pipeline services, thereby ensuring rapid development of the natural gas market.
The reform of local pipeline networks should
be vigorously encouraged. Laws and regulations
should be improved to ensure fair access. Judging from international experience, a third-party
fair access policy can balance the financial
interests of midstream pipeline owners, upstream
producers and downstream consumers, and
attract capital to invest in infrastructure construction. To encourage private capital to invest
in the construction of China’s oil and gas
infrastructure and to improve the use of existing
infrastructure and thus the efficiency of the entire
sector, it is suggested that infrastructure operators
(including trunk oil and gas pipelines, intra- and
inter-provincial pipeline networks, LNG terminals and underground gas storage facilities)
should provide transmission services to third
parties on a non-discriminatory basis. To ensure
third-party access, the national energy administration should improve the Measures for Regulation of Fair and Open Access to Oil and Gas
Pipeline Networks and the Measures for
Administration of Natural Gas Infrastructure
Construction and Operation, and develop the
Rules for Implementation of Fair Access to
Natural Gas Infrastructure. In so doing it should
define: how infrastructure operators can provide
independent services like pipeline transmission
to all users in a fair and just manner; how they
should disclose information; and define the legal
liability for breach of fairness and openness, thus
laying an institutional foundation for fair access
to pipelines. An efficient system should be created in which regulators can review and approve
the qualifications of prospective upstream and
downstream users applying to operate infrastructure or gain access. Companies failing to
grant fair access or discriminating against third
parties should be penalised and publicised.
Special Report 4: China’s Energy System Revolution
467
achieve independence for oil and gas pipelines
and create a nationwide pipeline network by
2020 to support an oil and gas production, supply, storage and sales system, and deliver the
ultimate goal of a coordinated oil and gas value
chain by 2030.
Pipelines and other infrastructure link
upstream to downstream in the oil and gas sector.
The reform of the pipeline network, and its effect
on upstream-downstream reform, has attracted
widespread attention. The experience of countries with a mature natural gas market suggests
that natural monopolies like pipelines should be
separated from upstream and downstream businesses, and that pipeline companies should divest
their bundled sales services. Pipeline companies
should operate independently and only provide a
transmission service, thus helping to create a
competitive and efficient oil and gas market. The
independence of oil and gas pipelines not only
provides the strongest guarantee for fair access to
infrastructure, it also eases supervision of pipeline transmission costs, accelerates the formation
of an efficient pipeline service market and helps
marketise the whole industry.
In recent years, factors such as low oil and gas
prices, slower growth in gas consumption, a
significant decline in the operating revenues of
CNPC, Sinopec and CNOOC, and the upcoming
pipeline reform have reduced pipeline infrastructure construction and made investment in
upstream exploration and production less attractive. If reform is not accelerated, it will restrict
the construction of gas pipelines and have an
adverse effect on gas supply security. On the
other hand, as oil and gas system reform deepens,
private enterprise will enter the upstream market
to explore and exploit resources, import oil and
gas, invest in infrastructure and develop the
natural gas trading market. As a result,
third-party demands for fair access to infrastructure, especially gas pipelines, will increase.
Independent operation of pipelines will
undoubtedly facilitate fair access and promote
sector-wide market-oriented reform. The
DRC-Shell work stream believes that China
urgently needs to speed up reform of infrastructure, including the trunk pipelines of large
state-owned oil and gas enterprises, and introduce the plan to reform China’s oil and gas
pipeline network as early as possible. This will
create pipeline independence and develop pipeline services, thereby ensuring rapid development of the natural gas market.
The reform of local pipeline networks should
be vigorously encouraged. Laws and regulations
should be improved to ensure fair access. Judging from international experience, a third-party
fair access policy can balance the financial
interests of midstream pipeline owners, upstream
producers and downstream consumers, and
attract capital to invest in infrastructure construction. To encourage private capital to invest
in the construction of China’s oil and gas
infrastructure and to improve the use of existing
infrastructure and thus the efficiency of the entire
sector, it is suggested that infrastructure operators
(including trunk oil and gas pipelines, intra- and
inter-provincial pipeline networks, LNG terminals and underground gas storage facilities)
should provide transmission services to third
parties on a non-discriminatory basis. To ensure
third-party access, the national energy administration should improve the Measures for Regulation of Fair and Open Access to Oil and Gas
Pipeline Networks and the Measures for
Administration of Natural Gas Infrastructure
Construction and Operation, and develop the
Rules for Implementation of Fair Access to
Natural Gas Infrastructure. In so doing it should
define: how infrastructure operators can provide
independent services like pipeline transmission
to all users in a fair and just manner; how they
should disclose information; and define the legal
liability for breach of fairness and openness, thus
laying an institutional foundation for fair access
to pipelines. An efficient system should be created in which regulators can review and approve
the qualifications of prospective upstream and
downstream users applying to operate infrastructure or gain access. Companies failing to
grant fair access or discriminating against third
parties should be penalised and publicised.
Special Report 4: China’s Energy System Revolution
467