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CNPC Plans Internal Consolidation To Fast-Track Gas Storage Upgrade

Source: Reuters 6/1/2018, Location: Asia

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China's CNPC plans to consolidate billion-dollar underground gas storage assets into one business to expedite an infrastructure upgrade it needs to avert a long-term supply crunch during peak winter heating season, company officials told Reuters.

Underground facilities scattered across different businesses, like natural gas marketing and pipeline units, are expected to be transferred to CNPC's exploration and production (E&P) department, senior company officials briefed on the plan said. CNPC is the parent of top Asian oil and gas producer PetroChina.

China, the world's third-largest gas consumer, is facing a shortage of underground storage amid Beijing's drive to boost use of natural gas in order to cut pollution from coal. Currently its underground storages can only meet 5 percent of total gas used versus 20 percent in the United States, leaving China vulnerable to the kind of supply crunch it suffered early this year.

Freezing weather and a sweeping government campaign to switch millions of homes and businesses from coal to gas led to supply cuts at some industrial users as authorities prioritised households.

CNPC produces some 70 percent of China's domestic gas, and owns and operates most of the country's underground gas storage units (UGS).

A CNPC spokesman did not respond to request for comment.

"The purpose of letting E&P take care of UGS business is to speed up building the storage, as the upstream division has the technical know-how and also operates the gas fields that are main sites to build the storage (units)," said one company official.

A second official said the plan could be announced as soon as in the coming weeks.

The officials declined to be identified because the plan was not yet public.

China now operates 25 facilities with total designed working capacity of 18.9 billion cubic metres (bcm) and working volume of 11.7 bcm. PetroChina built 23 of them, with the remaining two build by Sinopec.

Led by CNPC, China has embarked on a building boom of UGS over the next five-eight years, spending more than $10 billion to nearly double gas storages. Most will be built from tapped or producing wells.

Some storage facilities, such as in the gas-rich southwest Sichuan basin, are already run by the E&P division, said a third CNPC official based in Chongqing, China's shale gas hub.

Beijing has urged China's gas suppliers - mainly CNPC, Sinopec and CNOOC - to have storage facilities able to meet at least 10 percent of their contracted sales by 2020. The government is also expected to roll out market-based pricing to stimulate investment.

The officials briefed on the plan said the assets to be transferred will not include storages at CNPC's receiving terminals for liquefied natural gas. These will continue to be operated by a separate unit, PetroChina Kunlun Energy.

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