China's flurry of gas measures to lift investment, third-party access

BEIJING (Reuters) - Sweeping moves by China to boost transparency in the natural gas sector will encourage private investment in pipelines and terminals, industry experts say, as part of Beijing’s drive to nearly triple the fuel’s role in China’s energy mix.

An employee works at gas pipeline site in Zibo, Shandong Province, China, September 14, 2015. REUTERS/Stringer/File Photo

The world’s top energy user is planning to boost the use of natural gas since it emits just half of the greenhouse gases that burning coal produces. The country, the third-biggest gas user globally, wants gas to supply about 15 percent of its total energy by 2030, from just under 6 percent currently.

But a lack of transparency in transportation costs has curbed investment in pipelines and storage facilities by the private sector and control by state energy companies has limited third-party access to trunk pipelines and receiving terminals.

The National Development and Reform Commission (NDRC), the country’s top economic planners, starting in mid-October made a series of policy announcements that include setting a lower investment yield for pipeline investment, allowing storage operators to negotiate rates directly with customers and removing price controls on gas used for fertilizer production.

“The essences of these measures was to encourage third-party access and investment in gas infrastructures, a boon for the private sector,” an executive with an independent gas distribution company said this week, who declined to be named due to company policy.

Starting in 2017, the investment yield for trunk pipelines that connect provinces will be set at 8 percent for systems with 75 percent capacity utilization or higher, down from 10 to 12 percent previously, the NDRC said last month.

However, analysts at Beijing-based consultancy SIA Energy believe the new lower yield, equivalent to 10.7 percent at pre-tax levels, would still be attractive to investors since it is higher than the yields in mature gas consuming nations such as France at 5 percent and the United Kingdom at 6.7 percent.

SIA also noted that despite the lower yield actual returns for investors could be as high as 15 to 20 percent because of low borrowing costs in China and the effects of greater leveraging.

The NDRC also ordered last month pipeline operators - PetroChina, Sinopec and CNOOC -- to publish financial information such as turnover, cost and how they calculate transportation costs. The increased transparency in transportation prices would offer a clearer gauge for third parties who want to use the pipelines, said SIA.

Last week, the NDRC said it will free up natural gas prices for making fertilizer, as a means to curb excess output. Fertilizer producers’ gas feedstock costs have been shielded from years of government price hikes.

By removing the subsidies, gas could be diverted to other more efficient industries like petrochemicals or for residential use, Daio Zhouwei, an analyst at consultants IHS, said on Tuesday.

Reporting by Chen Aizhu; Editing by Christian Schmollinger