Restrictions should be gradually eliminated to
diversify investment. According to the Medium
and Long-term Plan for Oil and Gas Pipeline
Networks, issued by the NDRC and NEA in
2017, by 2025 China’s total length of oil and gas
pipelines will be 240,000 kilometres. This
includes 77,000 km of crude oil and oil product
pipelines, which increases by 29,000 km the
27,000 km of crude oil pipelines and 21,000 km
of oil product pipelines at the end of the 12th
Five-Year Plan (2011–15), and 163,000 km of
gas pipelines (an annual increase of 10,000 km
on the 64,000 km of gas pipelines at the end of
the 12th Five-Year Plan). The next 10–15 years
will see oil and gas pipeline construction peak.
Because the construction of oil and gas pipelines
is capital-intensive, and China needs to build
many pipelines, a policy that restricts investment
to CNPC, Sinopec and CNOOC will restrain
China’s pipeline development and slow the
growth of its natural gas market. Restrictions on
private capital funding pipeline construction
should, therefore, be progressively eliminated,
motivating the private sector to invest in pipeline
construction and operation. To this end, the following aspects should be reformed. First, the
infrastructure investment project approval system
should be reformed by softening the review
terms and criteria and by streamlining the
approval procedure, thereby attracting private
capital to invest in and construct gas infrastructure included in the national and provincial plans.
Second, new pipeline investment that is open to
third parties should, if reasonable, be prioritised
for approval. Third, low-interest or interest-free
loans or subsidies should be offered to those
companies building key interconnecting pipelines with low return on investment, to increase
their returns without raising users’ costs. Fourth,
investors should be allowed to invest in, construct, operate and manage LNG terminals and
gas storage facilities as independent legal entities. This will diversify ownership and operation
of LNG terminals and gas storage facilities and
speed up their construction.
Government should—based on the pipeline
needs for crude oil, natural gas and refined oil
products—plan pipeline deployment and create
standards for investment, construction, operation
and pricing. In particular, provincial and
inter-provincial pipelines should be interconnected to support regulations. Unified standards
should be developed for natural gas from different sources feeding into the pipeline network to
ensure stable quality, usability and safety. The
pressure grade of newly built pipelines should be
carefully determined by referring to proven
experience from other countries. Unified design
and manufacturing parameters for gas usage
facilities and gas volume measurement criteria
should be defined to ensure technical
interconnectivity.
Supervision and approval of transmission and
distribution tariffs should be improved to reduce
transmission and distribution costs. First, in
accordance with the principle of China “maintaining administration over pipeline transmission
tariffs in natural monopolies and deregulating gas
source and sale prices”, a pricing system that is
based on “allowable cost + reasonable profit” and
which combines constraints and incentives
should be established. Pricing administration,
cost supervision and review, and price regulation
of gas pipeline transmission and urban gas distribution should be improved This will allow
independent gas transmission tariffs and distribution fees to be set accurately, remove unreasonable costs and charges at pipeline nodes, and
lower the costs of long-distance pipelines, intraand inter-provincial pipelines and gas distribution pipelines. Second, financial independence in
the gas distribution, gas sales and engineering
services of urban gas utilities should be promoted. Third, large users that meet the conditions
for direct supply should be allowed to purchase
gas from a provincial pipeline network, local
branch pipeline or city gas franchise. Given
insufficient pipeline capacity, the absence of
third-party access and the excessive pipeline
transmission tariff, large users that meet the
conditions should be allowed to construct
pipelines for direct supply, thus forcing provincial pipelines to lower costs, be competitive and
improve efficiency. Fourth, under the guidance of
the national gas market regulator, independent
gas market regulations should be established at
468
S. Yaodong and A. Gillespie
diversify investment. According to the Medium
and Long-term Plan for Oil and Gas Pipeline
Networks, issued by the NDRC and NEA in
2017, by 2025 China’s total length of oil and gas
pipelines will be 240,000 kilometres. This
includes 77,000 km of crude oil and oil product
pipelines, which increases by 29,000 km the
27,000 km of crude oil pipelines and 21,000 km
of oil product pipelines at the end of the 12th
Five-Year Plan (2011–15), and 163,000 km of
gas pipelines (an annual increase of 10,000 km
on the 64,000 km of gas pipelines at the end of
the 12th Five-Year Plan). The next 10–15 years
will see oil and gas pipeline construction peak.
Because the construction of oil and gas pipelines
is capital-intensive, and China needs to build
many pipelines, a policy that restricts investment
to CNPC, Sinopec and CNOOC will restrain
China’s pipeline development and slow the
growth of its natural gas market. Restrictions on
private capital funding pipeline construction
should, therefore, be progressively eliminated,
motivating the private sector to invest in pipeline
construction and operation. To this end, the following aspects should be reformed. First, the
infrastructure investment project approval system
should be reformed by softening the review
terms and criteria and by streamlining the
approval procedure, thereby attracting private
capital to invest in and construct gas infrastructure included in the national and provincial plans.
Second, new pipeline investment that is open to
third parties should, if reasonable, be prioritised
for approval. Third, low-interest or interest-free
loans or subsidies should be offered to those
companies building key interconnecting pipelines with low return on investment, to increase
their returns without raising users’ costs. Fourth,
investors should be allowed to invest in, construct, operate and manage LNG terminals and
gas storage facilities as independent legal entities. This will diversify ownership and operation
of LNG terminals and gas storage facilities and
speed up their construction.
Government should—based on the pipeline
needs for crude oil, natural gas and refined oil
products—plan pipeline deployment and create
standards for investment, construction, operation
and pricing. In particular, provincial and
inter-provincial pipelines should be interconnected to support regulations. Unified standards
should be developed for natural gas from different sources feeding into the pipeline network to
ensure stable quality, usability and safety. The
pressure grade of newly built pipelines should be
carefully determined by referring to proven
experience from other countries. Unified design
and manufacturing parameters for gas usage
facilities and gas volume measurement criteria
should be defined to ensure technical
interconnectivity.
Supervision and approval of transmission and
distribution tariffs should be improved to reduce
transmission and distribution costs. First, in
accordance with the principle of China “maintaining administration over pipeline transmission
tariffs in natural monopolies and deregulating gas
source and sale prices”, a pricing system that is
based on “allowable cost + reasonable profit” and
which combines constraints and incentives
should be established. Pricing administration,
cost supervision and review, and price regulation
of gas pipeline transmission and urban gas distribution should be improved This will allow
independent gas transmission tariffs and distribution fees to be set accurately, remove unreasonable costs and charges at pipeline nodes, and
lower the costs of long-distance pipelines, intraand inter-provincial pipelines and gas distribution pipelines. Second, financial independence in
the gas distribution, gas sales and engineering
services of urban gas utilities should be promoted. Third, large users that meet the conditions
for direct supply should be allowed to purchase
gas from a provincial pipeline network, local
branch pipeline or city gas franchise. Given
insufficient pipeline capacity, the absence of
third-party access and the excessive pipeline
transmission tariff, large users that meet the
conditions should be allowed to construct
pipelines for direct supply, thus forcing provincial pipelines to lower costs, be competitive and
improve efficiency. Fourth, under the guidance of
the national gas market regulator, independent
gas market regulations should be established at
468
S. Yaodong and A. Gillespie