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Sinopec, the world’s biggest oil refiner, has agreed to sell 50 percent in its unit Sichuan to East China Gas Pipeline Co. for a total amount of around US$3.3 billion (22.8 billion yuan). The proceeds from the sale will be used to expand the capacity and operations of the pipeline.
The buyers are China Life Insurance Co, which will pay the bulk of the total, US$3.1 billion (20 bln yuan), in exchange for a 43.86 percent in the company, and ADIC Communications, a unit of the State Development & Investment Corp., will supply the remained of the money and receive a 6.14-percent stake.
In its announcement to the Hong Kong Stock Exchange, Sinopec said after the deal is finalized, the capital of the pipeline company will be doubled to US$29 million (200 mln yuan) and it will no longer be included in the financial reports of the parent company.
One local energy analyst told Bloomberg that the deal is part of Beijing’s efforts to spur greater use of natural gas in China, building more storage capacity for the fuel and more pipelines, both of which are currently in short supply in the country.
The deal, first announced in August, is also part of China’s energy giants’ efforts to raise capital by opening the doors for private investors. It followed a similar announcement from peer PetroChina, which said it had plans to restructure its midstream assets and sell parts of them.
Private investment is also now welcome in upstream operations. In late November, Xinhua reported that Beijing plans to start commercial production at between five and eight new oil megafields and 5-10 gas fields with the help of external, private investors.
The news about an opening-up of the upstream sector to private investors seems to indicate that China is dissatisfied with its place as the world’s number-two importer, and is also unhappy with how its state-owned giants are exploiting its domestic resources. The reform could see an influx of foreign energy investment in China, despite the low prices.
By Irina Slav for Oilprice.com
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Irina is a writer for the U.S.-based Divergente LLC consulting firm with over a decade of experience writing on the oil and gas industry.