Greater Liberalisation In Sight?


BMI View : The punishment lashed out against officials from state-owned Sinopec for the company's culpability in a major pipeline accident in Qingdao has seen yet another national oil company fall from grace following corruption probes into PetroChina. While China's NOCs are likely to continue their dominance over the entire value chain of the country's oil and gas industry, the weakened political power of these firms could allow for greater liberalisation of the industry to the benefit of private players in the upstream, midstream and downstream. Although the upside risks from industry liberalisation to our production forecasts are high, we maintain our current outlook given that much uncertainty clouds the politics underpinning reform of China's oil and gas industry.

Another one of China's national oil companies (NOC) has fallen from grace. Sinopec became the latest firm to be indicted, with the State Council - China's equivalent of the cabinet - holding the country's largest refiner responsible for a major pipeline blast in Qingdao that killed 62 people and led to losses totally about US$123mn in November 2013. An official report opened by the State Council into the accident identified Sinopec's negligence in pipeline safety inspection, thereby allowing for pipeline corrosion and explosion risks to exist that led to the blast. In addition, it has also been held accountable for its 'weak emergency response' that failed to contain casualties from the fire.

In response to the report's findings released on January 10, 63 employees will be indicted. The official Xinhua News stated that 48 of them will 'receive punishment for violating Party and administrative disciplines' and 15 'transferred to judicial organs for their alleged crimes' - a veiled reference to the criminal trial that awaits them. Among the workers held responsible is Sinopec's Board Chairman Fu Chengyu, who received a 'demerit administrative sanction' - or another term for demotion. Following the reports, the NOC announced that it would compensate for losses, though the parties to whom it will compensate and the value of this compensation has yet to be established at the time of writing.

On The Rise, But Underwhelming Increase
China's Oil & Gas Production, 2000-2012

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This article is tagged to:
Sector: Oil & Gas
Geography: China