The balance of power between China’s three state oil firms is shifting again, with the recent cooperation agreement signed by Sinopec and China National Offshore Oil Corp. (CNOOC) set to change the look of the domestic gas sector, currently dominated by leading producer China National Petroleum Corp. (CNPC). Sinopec and CNOOC are looking to boost their domestic market share and have agreed to cooperate in sourcing gas supplies and developing transport infrastructure in the energy-hungry south. Sinopec and CNPC are already moving into CNOOC’s backyard by focusing greater attention and spending on China’s offshore sector, and now it is the turn of the domestic gas sector to see its established pecking order challenged. Sinopec and CNOOC’s agreement will focus on serving provinces like Guangdong, Jiangxi and Fujian, where CNOOC has gas from offshore fields and LNG import terminals but a weak onshore distribution system, and Sinopec has transportation and pipeline networks but less-secure gas supplies.
    While CNPC is by some margin China’s leading gas player, with a 70% market share in domestic supply and distribution, it lacks strong transportation infrastructure in the southeast — one of the areas where its two rivals see an opportunity. Moreover, Sinopec is set to eat into CNPC’s lead in production with the $8.5 billion development of the 12.9 trillion cubic foot Puguang field in Sichuan China’s second-largest onshore gas field. Puguang is expected to come on stream next year at around 0.9 billion cubic feet per day, rising to 1.45 Bcf/d in 2009. This will significantly increase Sinopec’s domestic gas output, which averaged 727 million cubic feet per day in 2006, ahead of CNOOC’s 360 MMcf/d but a long way behind CNPC’s 4.2 Bcf/d. While some Puguang gas will go to Shanghai and the surrounding coastal cities, the expansion of the fertilizer and petrochemical sector in Sichuan will increase local industrial demand for gas and limit the volumes Sinopec will be able to ship to the south.
    Gas currently makes up 3% of China’s overall energy mix, but this is forecast to hit at least 8% by 2010, with the fastest growth coming from residential users. According to official forecasts, Chinese gas production is expected to reach 8.9 billion cubic feet per day by then, while demand will be over 9.7 Bcf/d. The government is therefore scrambling to make up the shortfall with LNG imports and possible pipeline volumes from Russia. Besides the Guangdong Dapeng LNG terminal, which started up last year, CNOOC is planning three other terminals in Fujian, Shanghai and Ningbo, while CNPC has also received government approval for its 3.5 million ton per year Jiangsu Rudong terminal, scheduled for start-up in 2011, and is planning further regasification plants in Liaoning and Hebei. Sinopec’s own receiving terminals have now been put on the back burner because of the rising cost of LNG imports. One further potential benefit of the Sinopec-CNOOC alliance, analysts argue, is that joint negotiations with LNG sellers like Iran and Yemen could give the Chinese firms greater bargaining power on price.

                                            from Petroleum Intelligence weekly