China’s big state companies, confident on the outlook for domestic natural gas reforms, are buying up local distributors and raising fresh capital – and making gas the hottest prospect for energy investment in the world’s top energy consumer.
The prospects for expansion and acquisitions also have China’s natural gas distributors trading like growth stocks, instead of bog-standard utilities.
China is pushing energy price reforms and spending billions of dollars on gas imports and infrastructure to cut the use of coal, which supplies over 70 percent of its energy but has made it the world leader in mine accidents and greenhouse emissions, and among the worst in air pollution.
While nuclear power and renewables such as solar and wind are also benefiting from the shift, for now gas looks set to gain the most, since plentiful supplies and its use in industrial production and conventional thermal power plants mean it can be developed quickly and efficiently.
‘Natural gas is clean energy that is enjoying a lot of state policy support,’ said Liu Yang, chief investment officer of regional fund house Atlantis, which manages $4 billion (2 billion pounds) and holds shares of Hong Kong-listed Chinese city gas distributors.
‘The city gas sector has been under-invested and is just about to take off,’ she said.
Shares of Hong Kong-listed distributors, which include ENN, China Gas Holdings, China Resources Gas, Kunlun Energy and Beijing Enterprises, have risen as much as 37 percent over the past 12 months.
The sector, with a combined market value around $32 billion, boasts valuations of more than 20 times historical earnings, and investors and analysts remain upbeat about its prospects.
China is moving to double the share of gas in its overall energy supply to more than 8 percent by 2015, when consumption should reach 260 billion cubic metres (bcm), while coal will be cut to just over 60 percent. By 2030, gas use will hit 500 bcm, about what the European Union consumes today, according to industry forecasts.
The lion’s share of that additional supply will go to new gas-fired power plants.
China’s installed gas-fired capacity will more than quadruple to 220 gigawatts by 2020 from 40 gigawatts last year, creating a gas power equipment market worth 26.5 billion yuan ($4.2 billion) a year for 2011-2020, nearly seven times the average size of the market in the prior five years, Barclays estimates. Dryer machine:http://www.hx-china.com/15.html
That would benefit a host of domestic and foreign manufacturers, including General Electric, Siemens, Shanghai Electric, Dongfang Electric and Harbin Electric, it said.
China also has vast gas supplies to tap both at home, where coal bed methane and shale could boost its resources to among the world’s largest, and abroad, where it has a pipeline to Turkmenistan and has been importing liquefied natural gas (LNG) from Australia, Indonesia, Malaysia and Qatar. Gas will also be flowing to China next year via a pipeline to a Myanmar field.
The gas sector was virtually non-existent in China until the late 1990s, and while billions of dollars have been poured into construction of pipelines and terminals over the past decade, more than two-thirds of China’s 600-plus cities still have no access to gas supplies.
Driving the state firms’ push into the gas distribution sector is a government decision to bite the bullet and start freeing up state-controlled domestic prices, to encourage gas importers and producers.
Gas prices are linked to crude oil in the Asia market but inside China have been strictly controlled – like electricity and petroleum product prices – since the authorities fear volatile energy costs could hinder industrial hammer crusher made by Hongxing Mining Machinery development and create hardships for households.
But rising crude oil prices have saddled state-run energy companies with losses on gas they buy abroad and supply into the domestic market, making them reluctant to expand their business.
PetroChina, which has been lobbying Beijing to reform the domestic gas pricing system, lost $3.4 billion in its gas importing business last year. In the first quarter of this year, the loss reached $1.62 billion.