Analysis of Market-oriented Reform of Natural Gas and Low-cost Gas Sources for China's "Big Three Oil Companies"

Based on the latest searched information, I will systematically analyze the market-oriented reform and low-cost gas source issues of China’s “Big Three Oil Companies” against the backdrop of high gas costs.

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On December 6, 2019,

was officially registered, marking a key step in the market-oriented reform of China’s natural gas industry [0]. The core content of this reform includes:

Reform Content	Before Reform	After Reform
Pipeline Assets	Operated independently by the “Big Three Oil Companies”	Unified operation by PipeChina
Pricing Mechanism	Integrated upstream and downstream pricing	Gradual establishment of market-oriented pricing mechanism
Profit Model	Pipeline fees subsidize gas prices	Independent accounting for transmission and distribution business

According to the bond prospectus of PipeChina, as of the end of 2024, the company’s in-service oil and gas pipeline totaled

, including 58,700 kilometers of natural gas pipelines, covering basically all trunk pipelines across the country [0].

After the reform, the natural gas industry chain has undergone fundamental changes:

• Upstream Production Segment
  : The “Big Three Oil Companies” (CNPC, Sinopec, CNOOC) focus on natural gas exploration and development
• Midstream Transmission Segment
  : PipeChina is responsible for pipeline construction and operation
• Downstream Sales Segment
  : City gas companies are responsible for terminal distribution and sales

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In 2025, China’s natural gas output exceeded

, increasing by more than 10 billion cubic meters for 9 consecutive years [1]. Domestic gas is the basic source of low-cost gas, mainly coming from:

• Conventional Natural Gas
  : Traditional producing areas such as the Sichuan Basin and Ordos Basin
• Unconventional Natural Gas
  : Accelerated development of shale gas, coalbed methane, etc.
• Offshore Natural Gas
  : Deepwater development by CNOOC in areas such as the South China Sea

According to the latest data,

, after Qatar [2]. In November 2025, Russia’s LNG exports to China more than doubled year-on-year to , hitting a record high [2].

Supplier Country	Price Advantage	Market Share Change
Russia	About 10% lower than the average price	Significantly increased
Qatar	Stable supply	Remains the first
Australia	Traditional main supplier	Surpassed by Russia

Russia’s LNG price advantage mainly stems from:

• Voluntary price concessions to develop the Asian market
• Need to find alternative markets due to Western sanctions
• Relatively low transportation costs (compared to US LNG)

China has built multiple cross-border natural gas pipelines:

• China-Russia Eastern Route Natural Gas Pipeline
  : Designed annual transmission capacity of 38 billion cubic meters
• Central Asia-China Natural Gas Pipeline
  : Turkmenistan, Uzbekistan, Kazakhstan
• China-Myanmar Oil and Gas Pipeline
  : Natural gas transmission capacity of 12 billion cubic meters per year

According to data from the Shanghai Petroleum and Natural Gas Exchange, the China LNG Comprehensive Import CIF Price Index was

from January 5 to 11, 2026, up 2.09% month-on-month and down 14.75% year-on-year [3]. Northeast Asian spot LNG prices remained in the range of [3].

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There are structural obstacles in the price transmission of the natural gas industry chain:

[Upstream] Big Three Oil Companies → Rising costs of imported/domestic gas → Price pass-through sales
   ↓
[Midstream] PipeChina → Pipeline transportation fees
   ↓
[Downstream] City Gas Companies → Rising gas procurement prices → Unable to pass on price increases to residents
   ↓
[Terminal] Residential Users → Enjoy low-cost gas → City gas companies suffer losses

From January to November 2022, the average price of China’s imported natural gas reached

, up more than 32.8% year-on-year [4]. City gas companies face severe gas price inversion; only Hebei’s gas enterprises suffered losses of in 2022 [4].

After the market-oriented reform, the role of the “Big Three Oil Companies” has fundamentally changed:

Function	Before Reform	After Reform
Pipeline Operation	Own pipelines, able to cross-subsidize	Pipelines stripped, focus on upstream
Gas Price Regulation	Able to use pipeline profits to cover losses	Unable to be responsible for gas price inversion
Market Responsibility	Full industrial chain guarantee	Only responsible for production and supply

As the analysis points out:

[4]. Originally, when the gas pipelines were in the hands of the “Big Three Oil Companies”, gas price inversion could be compensated by pipeline fee profits; but after the pipelines were transferred to PipeChina, the Big Three Oil Companies can no longer cover the losses caused by gas price inversion [4].

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China adopts a strategy of “long-term contracts as the mainstay, spot procurement as supplement” for LNG imports:

• Medium- and Long-term Contracts
  : Lock in prices, avoid spot price fluctuation risks
• Spot Procurement
  : Flexible supplement, allocate according to demand
• Resale Operations
  : Some enterprises attempt to resell contracted LNG to optimize costs

Benefiting from a large number of medium- and long-term LNG purchase and sales agreements signed by importers including the “Big Three Oil Companies”, as well as a large amount of imported pipeline gas, China’s demand for spot LNG imports is not high at this stage, and the impact of international spot prices on the overall Chinese market is limited [3].

To ensure low-cost gas supply, China is actively promoting diversified import sources:

Direction	Progress	Purpose
Russia	Increased LNG and pipeline gas	Obtain low-cost resources
Middle East	Qatar, Iran, etc.	Stable supply
Southeast Asia	Indonesia, Malaysia	Short-distance transportation advantage
United States	Long-term contracts (partially suspended)	Price hedging

In 2025, China’s domestic natural gas output was approximately

, with imports of approximately [1]. Increasing domestic reserves and production is the fundamental way to obtain low-cost gas:

• Increase development of unconventional oil and gas (shale gas, coalbed methane)
• Promote stable and increased production of old oil and gas fields
• Accelerate development of deep-sea resources

The construction of major projects such as the second phase of the Sichuan-East Gas Transmission Pipeline will optimize resource allocation:

• Total length of approximately
  4,269 kilometers
  , designed annual transmission capacity of
  14 billion cubic meters
• It is expected to complete over
  1,000 kilometers
  of pipeline welding in 2026
• Helps allocate natural gas from different sources to achieve the optimal price combination

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1. Market-oriented reform has changed the natural gas supply pattern
   : After the establishment of PipeChina, the “Big Three Oil Companies” focus on upstream production and can no longer subsidize downstream gas prices through pipeline businesses.
2. Low-cost gas sources show a diversified trend
   : Domestic natural gas, Russian LNG, Central Asian pipeline gas, etc., jointly form the low-cost gas supply system.
3. The problem of gas price inversion remains to be solved
   : As an intermediate link, city gas companies face the dual dilemma of upstream cost pressure and downstream price regulation.
4. Fading policy subsidies exacerbate contradictions
   : The “coal-to-gas” subsidy in areas such as Hebei has been reduced from 1 yuan per cubic meter to about 0.2 yuan per cubic meter, significantly increasing the burden on users.

China’s natural gas market-oriented reform is still in the process of deepening. To solve the problem of low-cost gas supply, it is necessary to:

• Improve the natural gas price formation mechanism
  : Gradually straighten out the price transmission chain
• Strengthen the construction of the reserve system
  : Improve peak-shaving capacity and stabilize price fluctuations
• Promote fair opening of LNG receiving terminals
  : Introduce more market entities for competition
• Strengthen international cooperation
  : Ensure the stability and economy of diversified import channels

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[0] Bond Prospectus of National Oil and Gas Pipeline Network Group Co., Ltd. (http://static.sse.com.cn/disclosure/bond/announcement/company/c/new/2025-08-20/243667_20250820_MINN.pdf)

[1] Economic Daily - “Feeling the Surge of China’s Energy Transition Momentum” (http://www.ce.cn/xwzx/gnsz/gdxw/202601/t20260117_2707599.shtml)

[2] Yahoo Finance - “Russia’s LNG Exports to China Hit Record High in November, Price Temptation Overrides Sanction Risks” (https://hk.finance.yahoo.com/news/俄羅斯11月對中國出口lng規模創紀錄-價格誘惑蓋過刲裁風險-071218876.html)

[3] Shanghai Petroleum and Natural Gas Exchange - “China LNG Comprehensive Import CIF Price Index was 127.53 Points from January 5 to 11” (https://www.shpgx.com/html/xyzx/20260115/8646.html)

[4] Caifuhao/Eastmoney - “Dilemma of Hebei’s ‘Coal-to-Gas’: Instead of Being Stuck, It’s Better to Make a Flexible U-turn” (https://caifuhao.eastmoney.com/news/20260120090951397864780)