Gradual Reform Across the Value Chain

Despite the importance and necessity of the reform it also comes with its own set of struggles, making it the most difficult task for the top authorities. So when China announced its long-awaited oil and gas reform summary in May, it makes sense that the reforms will be gradual and pilot-based, containing a compilation of plans and programs already underway.

Welcome to Deloitte's series on China Oil & Gas Reform.  Over the coming months we will be reviewing each of these reforms in turn.  A global trend of reduced commodity prices, the importance of environmental concerns and the technology imperative are driving China's oil & gas reform beyond its own domestic concerns.

China has been studying the sector for a long time as oil and gas assets are considered strategic assets of the country.  Despite the importance and necessity of the reform it also comes with its own set of struggles, making it the most difficult task for the top authorities.  There is an intertwined relationship between geopolitics and economics, volatile international and domestic market dynamics, and different interests of state ownership and private investors. So when China announced its long-awaited oil and gas reform summary - Opinions on China Oil and Gas System Reform ("the Opinions") - in May , it makes sense that the reforms will be gradual and pilot-based, containing a compilation of plans and programs already underway.

China's oil and gas reform aims to push market-oriented reform across the entire value chain. The key issues facing the sector are:

• Upstream: exploration and exploitation is the foundation of oil and gas industry, and it is the most capital intensive, lucrative and monopolized sector;
• Midstream: the separation of pipelines is the key issue;
• Downstream: reform of downstream sector is under great pressure, but the completion of the pricing mechanism and introduction of mixed ownership may be breakthrough achievements.

Kevin Guo
Deloitte China Partner | Energy & Resources Managing Partner

Christopher Roberge
Deloitte China Partner | Oil & Gas Sector Managing Partner

Jill Qu
Deloitte Research Energy & Resources Industry Researcher