How China’s Sinopec Is Escaping The Gas Utility Death Spiral – And Why The West Should Follow

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When Sinopec, China’s sprawling petroleum giant, decided to start drilling geothermal wells instead of oil wells, it was initially greeted with skepticism. Geothermal? Renewable energy? Surely not the first place you’d expect an oil-and-gas colossus to stake its future. But Sinopec wasn’t dabbling. True to form, the company went straight for industrial scale, delivering clean geothermal heat to millions of square meters of residential and commercial buildings in northern Chinese cities. This pivot wasn’t symbolic sustainability theater — it was a calculated, business-driven move toward renewable heat as a core offering.

As a note, this is one in a series of articles on geothermal. The scope of the series is outlined in the introductory piece. If your interest area or concern isn’t reflected in the introductory piece, please leave a comment.

At first glance, Sinopec’s geothermal pivot might seem like an ironic twist: the fossil-fuel heavyweight reinventing itself as a renewable energy utility. Yet, seen through the lens of global market trends and regulatory pressures, the decision appears remarkably rational. Gas utilities worldwide are trapped in an existential dilemma, facing what analysts describe as the “utility death spiral” — as electrification, climate targets, and carbon pricing accelerate, customers abandon gas connections, leaving fewer users to shoulder the escalating fixed costs of pipeline maintenance. Rising tariffs then push even more customers to flee, reinforcing a cycle of shrinking customer bases and escalating financial stress.

Facing this bleak outlook, Western gas utilities often respond with half-hearted hedging, proposing hydrogen blending or vague promises of biogas supply. They hope to preserve existing infrastructure investments, but reality keeps getting in the way. Hydrogen, for example, leaks more easily, embrittles traditional steel pipes, requires extensive equipment retrofits, and is economically prohibitive for widespread residential heating. Studies repeatedly show that heating homes with renewable hydrogen could cost two to three times as much as electric heat pumps. Similarly, biogas is constrained by limited sustainable feedstocks, meaning it can’t scale sufficiently to save the gas pipeline model at scale. As I worked out recently, after 14 years of promising renewable natural gas, Enbridge only managed to get to 1% of its distributed product, and most utilities are in the 0.1% range. These proposed solutions are little more than stalling tactics, delaying inevitable asset-stranding and customer revolts.

Massachusetts’ Eversource and New York’s National Grid have dipped cautious toes into geothermal heat loops — networks where shallow underground loops circulate water warmed by the earth, providing renewable heating and cooling. These experiments are technically solid, impressively efficient, and customers seem happy enough swapping out volatile gas bills for predictable monthly heat subscriptions. But the scale? Still depressingly tiny — dozens of homes here, a neighborhood there — while millions more remain shackled to gas bills and rising tariffs.

Across the pond, the Europeans have been bolder. Companies like ENGIE, Vattenfall, and E.ON offer subscription-based renewable heating, bundling heat pumps, district energy networks, and smart-home gadgets into tidy monthly payments. These providers recognize that what customers want isn’t cubic meters of fossil gas; they just want their living rooms warm and showers hot. Yet even here, trials often stall at “pilot project” scale, hamstrung by regulatory caution and legacy infrastructure constraints. Western utilities talk a big game about renewable heat, but until they stop treating geothermal and heat pumps as niche side-projects and start rolling out thermal infrastructure at scale, they’ll remain dangerously vulnerable to customer defections, regulatory crackdowns, and the inevitable spiral of declining revenues.

Contrast this with Sinopec’s geothermal playbook. They realized early that they could not simply repurpose their existing gas pipelines to deliver geothermal heat directly. Natural gas distribution pipes, designed to carry dry, pressurized methane, can’t simply be switched over to hot water without major retrofits. Gas pipelines lack insulation, making hot-water heat distribution impractical due to massive thermal losses, corrosion issues, and the need for pumping rather than simple pressure-driven flow. Instead, Sinopec accepted the necessity of installing entirely new geothermal district heating networks — pre-insulated, robust pipes carrying heated water from geothermal reservoirs drilled deep underground. Although this required substantial upfront capital expenditure, the long-term economics proved compelling, especially with Chinese policy backing and subsidies.

From an economic standpoint, the geothermal district heating model makes substantial sense, even if it initially demands heavy investment. Sinopec capitalized on the scale economies of drilling geothermal wells — skills remarkably similar to oil and gas extraction, though focused differently. Instead of oil rigs, they deployed drilling equipment suited to tapping underground aquifers and reservoirs heated naturally by Earth’s interior. Once established, these geothermal systems offer predictable, low operating costs, free from the volatility of fossil fuel prices. Geothermal heat also neatly sidesteps future carbon pricing and regulatory burdens associated with gas combustion. Sinopec’s customers, rather than buying fuel, now subscribe directly to heating services with stable, predictable bills — a powerful selling point in a volatile energy market.

Admittedly, Sinopec has distinct advantages. China’s centralized state apparatus, extensive policy support, and deep public capital pools made rapid deployment feasible. Western utilities lack this centralized support, facing fragmented regulatory environments and often private equity shareholder pressures that can punish short-term earnings disruptions. Yet Sinopec’s experience still holds vital lessons. One critical insight is that gas utilities cannot expect simple pipe reuse to bail them out. Ambitious claims about switching gas pipes to hydrogen or hot water gloss over serious engineering limitations and massive retrofit costs. Sinopec acknowledged this reality upfront, choosing to build fit-for-purpose thermal networks from scratch. The sooner Western utilities confront the inevitable — that substantial infrastructure reinvestment is unavoidable — the better they’ll manage the transition.

Sinopec also highlights the economic upside of treating heat delivery as a fully integrated, service-based business. Rather than selling molecules, it now sells reliable warmth, delivered at a consistent quality and stable price. This heat-as-a-service model is potentially more profitable long-term, protecting Sinopec from fuel price fluctuations, carbon taxes, and customer attrition. Western utilities considering similar pivots would need regulatory backing to replicate such economics. Regulators must permit utilities to recover capital spent on thermal infrastructure through rate bases, similar to traditional pipes. Without assured cost recovery and returns on investment, utilities understandably hesitate. Therefore, regulatory reform — explicitly enabling utilities to own, operate, and earn returns on thermal networks — is essential.

Economically, western gas utilities would likely need to target thermal network installations strategically: converting neighborhoods where gas pipelines are aging and due for costly replacement, thus redirecting that capital toward renewable thermal infrastructure. This should be rolled into the strategic shut down of the gas lines, sub-isolation network by sub-isolation network, as Utrecht in the Netherlands, a leading western jurisdiction for both shutting down gas and heat as a service, is doing. Avoided future investments in stranded gas pipes substantially offset upfront geothermal costs. Regulators and utilities must collaboratively determine these “tipping-point” neighborhoods to ensure efficient transition planning, minimizing wasteful duplication of investment in obsolete gas infrastructure.

While European gas utilities have often figured this out, with Vattenfall, ENGIE, Ørsted, and Fortum as prime examples, North American utilities are ceding the market to firms like Enwave, Corix, and Creative Energy. Corix’ origins were actually with a gas utility which didn’t recognize the value proposition and looming threat, ironically enough.

Ultimately, Sinopec’s geothermal pivot isn’t just a sustainability headline, it’s a practical blueprint for escaping the gas utility death spiral. It underscores that meaningful transition requires accepting hard infrastructure realities and investing deliberately rather than clinging desperately to outdated pipelines. Regulators must act decisively, clarifying incentives and cost recovery frameworks to enable large-scale thermal network investments. Gas utilities, in turn, must be honest about the economic limitations of pipe reuse, hydrogen hype, and biogas dreams. Transitioning to renewable heat services is challenging, but delaying only deepens the eventual cost and disruption. Sinopec’s story reminds us that sometimes, bold steps are actually the safest steps.

Regulators and gas utilities, the choice is yours: face reality and invest proactively now, or wait until stranded assets, spiraling costs, and angry customers leave you with no viable path forward. Sinopec, improbably enough, has laid out your roadmap. It’s time to start following it.