Sinopec Looming Boom

China Petroleum and Chemical Corp. (Sinopec), Asia's largest oil refiner, is steering the country's shale gas exploration as well as the mixed-ownership reform targeted at bloated state-owned enterprises (SOEs).

On March 23, the Chinese oil giant handed in its 2013 financial performances to shareholders. Its net profits stood at 66.13 billion yuan ($10.66 billion) last year, up 3.5 percent year on year, as calculated according to international financial reporting standards.

The Fuling field in the southwestern municipality, the nation's first large-scale shale gas field discovered in 2012, has 2.1 trillion cubic meters in reserves, according to Sinopec.

"The company expects the annual capacity of the Fuling field will reach 1.8 billion cubic meters by the end of 2014 and 5 billion cubic meters by 2015. Sinopec aims to have annual production capacity of 10 billion cubic meters by 2017, equivalent to 10 million metric tons of oil.

The top five countries with the largest minable shale gas reserves are China, the United States, Argentina, Mexico and South Africa. China has about 20 percent of the world's total shale gas reserves, the largest in the world, according to a report published by the country's Ministry of Land and Resources. China's Sichuan Basin, Ordos Basin, Tarim Basin, the west-Hubei and east-Chongqing area, and Guizhou and Hunan provinces boast huge stores of shale gas, according to a survey conducted by the ministry.

To tap its reserves, the Chinese Government has unveiled a string of policies to boost production. In March 2012, the government released its 2011-15 plans for the shale gas industry. According to the plan, the country is set to increase its existing next-to-nothing production to 6.5 billion cubic meters a year by 2015, and then to between 60 billion and 100 billion cubic meters by 2020.

Sinopec Chairman Fu said the new discovery and development at the company's Fuling shale gas field symbolizes a much earlier than expected entry into large-scale commercial development, which cuts off the 10-year development period originally outlined by the company.
In February, Sinopec unveiled a plan to restructure its massive marketing business. The company said it would sell up to 30 percent of its marketing arm, in a multi-billion-dollar asset restructuring. The stake sale plan was the first time a centrally administered SOE shared lucrative business with private investors.

It is not clear whether Sinopec would establish a partnership by setting up a joint venture or just absorbing money like through an initial public offering and put it into already established business.

"It is wise for Sinopec to scale back its downstream involvement by introducing outside investors and focusing more on the upstream sector, which can yield more profit," said Liao Na, Vice President of Shanghai-based energy consultancy ICIS-C1 Energy.

"The large and medium-sized private companies and the ones which have already established cooperation with Sinopec have a greater chance of taking a piece of the pie."

(bjreview.com.cn  Edited by Topco)