CNPC Spill the Power Market, Daqing Oil Field Power Company Only Need One License

The electricity business license will only be issued to power generation companies and power companies by 2015. But with the advancement of the power system, the current market conditions are also eligible to open equally to sales business.

Recently, CNPC disclosed that in the second half of 2016 to set up the first power company - Daqing Oilfield Electricity Sales Co., Ltd. (hereinafter referred to as "Daqing Power Sales Company"). The expected reduction of electricity costs will be 130 million yuan once after the business license for power selling.

February 15, CNPC responded to "China Business" and said that due to Daqing Power Sales Company details were not disclosed, so shall not response yet.

However, the reporter learned through the grid company that the annual power supply of Daqing Power Sales Company can reach 15 billion kwh, accounting for 1.5 times electricity consumption in Heilongjiang province with the annual generating capacity of 8.6 billion kwh.  Daqing Power Sales Company is the country's largest enterprise grid and also the largest enterprise-owned power plant.

Daqing Oilfield sells electricity?

With the clear indication of opening electricity sales to social capital in The Opinions on Further Deepening the Reform of The Power System issued by State Council, power sales company are opened everywhere domestically.

In January 2016, Daqing Oilfield Electric Power Group set up a power sales company to build a working group, and in July the same year the State Energy Bureau Northeast Bureau of the Northeast issued the first power business license.

For this reason, CNPC, formally approved the establishment of Daqing Oilfield Power sales company on August 18, 2016. At the end of the same year, the National Development and Reform Commission formally approved the Daqing Oilfield incremental distribution network project to become one of the first batch of 105 pilot. Daqing oil sales company enjoys the wholesale price, approved by the Heilongjiang Provincial Price Supervision and Administration.

Reporters learned from the insiders of CNPC that Daqing Oilfield, as the largest oil field of CNPC, established a specialized power company in order to cooperate with the production of self-built power plant. This company not only supplies power for site oil and petrochemical production but also for the some industrial, commercial and residential electricity usage in the city.

That is to say before the release of electricity license, Daqing Oilfield have had everything ready whether in power generation, distribution network, or end users, only the lack of a sales license.

With the acceleration of power system reform and public open of electricity licensed, Daqing Oilfield has solved the license problem, and got the opportunity to deeply participate in the electricity market transactions. Moreover, Daqing can also compete with the grid enterprises to win a lower price, thereby reducing the cost of oil field electricity.

In fact, there are less corporations that are similar to Daqing Oilfield who owns power plants and distribution network, as well as stable users. In the second half of 2016, SINOPEC followed the CNPC, and Henan Oilfield hydropower plant also made the petrochemical system within the first power business license. Shows as public information, Henan Oilfield hydropower plant is mainly responsible for the production and construction of Henan Oilfield and residential usage.

According to statistics, this kind of company is not only existing in oil system, but also in the steel, coal, electrolytic aluminum and other industries and most of these enterprises are state owned. So, if all of the enterprises who have the ability to run electricity sale can share the benefits brought by electricity license release?

"China Petroleum (8.350, 0.00, 0.00%)” reported that in 2016, the Sichuan Petroleum Administration Bureau and the State Grid, Sichuan Electric Power Company signed a separate power supply separation framework agreement on the oil and gas field power supply business transfer to reach a cooperation intention. The work will be completed in 2017.

Apart from CNPC, the reporter also learned that China Nuclear Construction Nuclear Fuel Components Co., Ltd signed the "Jinjiang Court Power Supply Separation Framework Agreement" and other framework agreements with the State Grid Corporation of Sichuan Electric Power Company Yibin Power Supply Company in the end of 2016 to handed over the power business.

Why they all have the ability to run electricity business but some of them can do it rather others need to transferred to the grid company? A state-owned enterprises executive told reporters that the stripping of "Three for One Industry" is an important part of state-owned enterprise reform. It has been cleared that the state-owned enterprises will no longer bear any cost for power supply, Heating and property management of family area in any way by 2019. Even if they have self-owned power plants, distribution network, users, if there is no advantage, then it will be abandoned finally. There for, if Daqing Power Sales Company can be copied as a model, that shall be reconsidered according to their specific circumstances.

Owned power plant "legalized"

Because Daqing Oilfield has the largest enterprise power grid and the largest oil-owned power plant in CNPC, so after the release of electricity license, it has confidence and successfully get the sale license. In other words, in order to get sales license, apart from the possession of the network, the self-owned power plant is also an important factor.

According to public information, in 2014 the national self-owned power plant installed capacity reaches over 110 million kilowatts, equals about 8% of the country's total installed capacity. Self-owned power plants are mainly concentrated in the iron, steel, electrolytic, aluminum, petrochemical, cement and other high energy-consuming industries, mainly distributes in resource-rich areas and some economically developed areas.

Although the self-owned power plant has a great advantage in the enterprise cost control, but there are many problems its construction operations, such as grant construction does not match, energy consumption exceeded, low level of operation and management, operating reliability is poor; social responsibility is not enough.

In addition, due to self-owned power plant approval trouble, so some companies simply did not get the construction be granted firstly. A business executive from Northwest Iron and Steel has frankly told reporters, "Any steel plant that have furnaces over 1000 cubic meters have 100% self-owned power plant. As per the calculation, the steel industry's own power generation is an astronomical figure "

By the end of 2015, the National Development and Reform Commission, the National Energy Board officially released the power system reform supporting documents. The document clearly stipulates that in Beijing-Tianjin-Hebei, Yangtze River Delta, Pearl River Delta and other regions prohibit the construction of new coal-fired power plant. Also, the documents required that enterprises with grid-owned power plants should negotiate with the power grid enterprises to determine the reserve capacity, and pay the backup fee to the grid system according to the agreed capacity. This is considered to be a self-owned power plant had to give profits to the grid business because of lacking of sales license.

Nowadays, the embarrassing situation that the self-owned power plants have been squeezed out of the electricity sales business because of licenses lacking will be changed by the advancement of the electricity sales license public open. Many flawed self-owned power plant will usher in a "legalization" opportunities.

In addition, some enterprises can even use the public open of electricity sales reform transformation for self-help. The steel company official said indicated that self-owned power plant used to be a measure for high energy-consuming enterprise to reduce costs. Facts have also proved that most of the high energy-consuming industries who survived have their own self-owned power plant enterprises. But with these high energy-consuming industries overcapacity getting seriously, business running has also become difficult. One company may survive if it can catch up the reform and get electricity sales licenses.

In fact, the establishment of Daqing Power Sales Company has also been considered as a transformation of self-help by others. Affected by low oil prices, Daqing Oilfield is facing production reduction, loss and other difficulties. In 2015, Daqing reached revenue 153.3 billion yuan, profits 10.2 billion yuan and taxes 35.8 billion yuan. Compared with 2014, respectively reduced 100.2 billion yuan, 54.2 billion yuan and 53 billion yuan. At the first two months of 2016, the oil prices continued go declining. Daqing oilfield’s loss has reached more than 50 billion yuan. In addition, in 2015, Daqing Oilfield implied the first production cuts. It planned to cut crude oil production by 32 million tons with an average annual reduction of about 1.14 million tons.

Under the dual pressure of production cut and low oil price, Daqing Oilfield may be able to out of a transformation of self-help road with the annual generating capacity of 8.6 billion kwh and the annual supply of 15 billion kwh, accounting for 25% of electricity consumption of Heilongjiang Province 1/5.