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China’s pipeline plan is a step in the right direction, says energy consultancy

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China’s decision to create a national pipeline company is a step in the right direction, said energy consultancy Wood Mackenzie, which added that the new entity could have a valuation of up to $105 billion.

Following government and industry discussions that began in 2014, China finally announced its intention to go ahead with the creation of the oil and gas pipeline earlier this year. A central pipeline company will help China’s energy companies separate expenses related to pipeline transportation from the actual sale of oil and gas.

China’s existing infrastructure is not enough to meet the energy demand growth of the world’s second-largest economy, writes Wood Mackenzie consultant Xueke Wang in a note.

While China’s demand surges, independent oil and gas producers are facing obstacles in accessing takeaway capacity – the ability to get oil out of the area via pipelines, trucks, and rails – at competitive tariff rates, restricting the pace of upstream development, Wang added.

Wood Mackenzie, which has forecast a valuation in the range of $80 billion to $105 billion for the company, said the firm would likely seek a public listing after two to three years of operation.

“We think the three national oil companies could collectively hold up to 70 percent ownership of the national pipeline, with PetroChina taking pole position at just under 50 percent,” Wood Mackenzie senior analyst Maxim Petrov said.

The formation of the pipeline company could provide a much-needed boost to China’s domestic output at a time when oil imports represent nearly three-quarters of its overall consumption.

This figure is expected to increase to 80 percent by 2030, according to an industry report, as domestic production lags consumption increases.