Chinas natural gas market-oriented reform, which reshapes the industrial map, has entered the last stage, and the urban gas market has begun to scour the sand.
According to the reform idea of controlling the middle and liberalizing the two ends, the state oil and gas pipeline network company has completed the reform goal of managing the middle after its establishment and completion at the end of September this year. The policy direction of opening up both ends has also been determined, and the access threshold for upstream and downstream natural gas has been basically relaxed. The focus now is how the reform policy will be implemented in the downstream natural gas market.
Landing means: redistribution of cheese, out of the weak. The dividend period of nearly 20 years for city gas companies will come to an abrupt end.
It is inevitable that the profit margin of natural gas sales of city gas companies will decline. According to the reporter of Caijing, the national development and Reform Commission and a number of local regulatory departments have recently strengthened the supervision of urban gas enterprises, trying to reduce their charging level and list of charges. At the same time, some provinces are also promoting the reform of natural gas industry in order to reduce gas prices.
Many industry insiders interviewed by Caijing believe that polarization will become an increasingly obvious trend in urban gas industry. Head city gas companies are expanding upstream resources to resist the risk of downstream market, and are also actively expanding additional business in addition to gas business. However, for the small and medium-sized urban combustion enterprises which are difficult to control the upstream resources, the future is worrying.
Looking back on the performance of city gas companies in 2019, many enterprises have experienced the situation of increasing income without increasing profit or decreasing gross profit margin, and the profits of some enterprises have begun to decline. In the next few years, this phenomenon will continue, unless more low-cost upstream resources can be developed.
Challenge: profit decline is inevitable
With the promotion of reform, the downstream natural gas market is about to enter an era of full opening and free competition. The urban gas franchise system started in 2004 will be shaken, and the city gas companies will face more competition and stricter supervision.
According to relevant regulations, the permitted rate of return of urban gas distribution link is 7% or less after tax. A number of industry insiders told Caijing that the actual rate of return in some areas is far more than 7%. Recently, all localities have begun to supervise and audit the cost of urban gas enterprises, the main goal is to reduce their unreasonable income.
Han Xiaoqing, director of information and information of gas depots, told Caijing that Chinas natural gas price reform has gradually covered the whole industry chain including downstream transmission and distribution fees from upstream gas price reform, and cost supervision and audit will become more stringent, and the charging standards for gas distribution and engineering installation of city gas companies will gradually rationalize and show a downward trend.
Natural gas pipeline can be divided into long distance gas pipeline and provincial city gas pipeline. The cost supervision and audit of long-distance pipeline was carried out in 2017. In that year, the national development and Reform Commission carried out cost supervision and audit on 13 natural gas long-distance pipeline companies under CNPC and other groups, and re approved their pipeline transportation prices. After verification, the average transportation price decreased by 15%.
The national development and Reform Commission requires all localities to submit the cost supervision and audit of urban gas pipelines before November 30, 2020.
In addition to the cost supervision, the stricter supervision of the urban gas industry is also reflected in the re evaluation and reform of the urban gas franchise.
Zhejiang Province has recently issued the evaluation method for the first national pipeline gas franchise project, which will evaluate 130 enterprises that actually operate pipeline gas in Zhejiang Province. It plans to complete the first round of pipeline gas franchise evaluation before the end of this year, and on the basis of the evaluation results, encourage large-scale and group integration among urban gas enterprises. Recently, Hunan Province has also formulated the outline of interim evaluation report on pipeline gas franchise (Draft for comments), which plans to evaluate the urban gas enterprises in the whole province.
City gas companies have made psychological preparations for the future situation. The profit margin of urban gas enterprises will certainly go down. If the account opening fee is excluded, the main business of most enterprises will lose money. Wang zhehong, vice president of China Urban Gas Association and chairman of Shanghai Gas Group, said at a seminar at the end of last year.
The novel coronavirus pneumonia outbreak was not yet released by Wang Zhehong. After the impact of the epidemic, the voice of all walks of life to reduce the gas price is even higher, and the operation pressure of urban gas enterprises is further increased.
However, Chen Xinsong believes that before the cross subsidy problem is solved, it is unreasonable to only reduce the price of industrial gas, which will seriously weaken the city gas companys ability to fulfill its universal service obligations and ultimately affect the peoples livelihood.
A number of leading urban gas companies told Caijing optimistically that no matter how strict the cost supervision and audit is, they will guarantee the minimum profit margin of 7% for the urban gas enterprises, and will not force the gas price cut across the board, and the price reduction will be jointly borne by the upstream and downstream enterprises. On the whole, the advantages of reform outweigh the disadvantages.
The market-oriented reform of natural gas is not all bad for city gas companies, but opening up the upstream is a huge benefit.
The upstream opening of natural gas includes two aspects: domestic self recovery and international import. Although the former has no access threshold on the surface, it is very difficult to operate in practice. The opportunities for urban gas enterprises mainly come from gas intake, and they have obtained the independent import right which was far away in the past. Novel coronavirus pneumonia is a difficult opportunity to change. The international supply of LNG is difficult to change in the short term. With the impact of the new crown pneumonia and the oil price slump, it is a good opportunity to import LNG.
Mastering upstream resources means having a stronger voice and anti risk ability for downstream business. With the advantages of upstream resources, Kunlun energy (00135. HK) controlled by PetroChina is one of the few companies in the field of urban combustion whose net profit growth rate is higher than the income growth rate in 2019. In 2019, the total income of Kunlun energy is 113.313 billion yuan, with a year-on-year growth of 7.44%; the net profit is 5.551 billion yuan, with a year-on-year growth of 19.79%.
Xinao energy (02688. HK) has a better growth momentum than Kunlun energy. In 2019, the companys operating revenue was 70.183 billion yuan, with a year-on-year increase of 15.6%; and its net profit was 5.670 billion yuan, a sharp increase of 101.2% year-on-year. ENN group, which belongs to ENN, has the first large LNG terminal invested and operated by a private enterprise in China. The terminal was put into operation on October 19, 2018.
In addition to Kunlun energy and ENN group, which have already built imported LNG terminals, more and more urban gas enterprises are acquiring equity of imported LNG terminals through various ways. According to the statistics of gas reservoirs, except for the LNG terminals controlled by three barrels of oil, there are currently 8 LNG terminals built or under construction, which are more or less related to urban gas enterprises. A number of urban gas enterprises have planned to invest in the construction of new LNG terminals, which are currently in the preliminary stage of preparation.
In the first seven months of this year, the average price of Chinas natural gas imports was 2547.7 yuan per ton, down 15.6% year-on-year, according to the General Administration of customs. According to industry estimates, the current spot price of LNG has fallen to the lowest price in 10 years. Therefore, imported LNG is not only the guarantee of gas source, but also can greatly reduce the cost.
Wang Peng, chairman of the board of Nanjing suneng Natural Gas Development Co., Ltd., which is engaged in natural gas trade, told Caijing that the lowest price of LNG we got this year was only 1.5 yuan / m3 (delivery price), while the price of pipeline valve station in Jiangsu was more than 2 yuan / M3. There was a big difference between the two prices.
If there is no cheap gas source, city gas enterprises will gradually lose customers. Guangdong, a big energy consuming Province, is vigorously promoting the coal to gas industrial enterprises. Foshan, Guangdong is the base of ceramic enterprises. In late July, Foshan ceramic enterprises jointly resisted the coal to gas campaign, requiring self built LNG stations to reduce gas prices. Finally, under the coordination of Foshan municipal government, foran energy (002911. SZ), a local city fuel enterprise, had to promise to reduce gas prices for ceramic enterprises.
Foshan ceramic enterprises are mainly dissatisfied with the charge of high-level transportation fees charged by urban gas enterprises. Kunlun energys wholesale gas from PetroChina has more price advantages, so our industrial gas price is lower than Foshan. All the industrial enterprises on our side have successfully converted coal to gas. Another city in charge of Kunlun energy in Guangdong told Caijing.
The future: the polarization of urban gas company
The profit of natural gas sales of urban gas enterprises is thinning, but the cake of natural gas market is still expanding. According to the report on the development of oil and gas industry at home and abroad in 2019 released by the economic and technological research of CNPC, it is estimated that the national natural gas consumption will be about 330 billion cubic meters in 2020, with a year-on-year growth of 8.6%.
Chart 4: Chinas natural gas consumption and growth rate in recent ten years
The urban gas enterprises with upstream resources will enjoy the reform dividend and continue to grow bigger and stronger. Over the past year, the number of merger and acquisition cases of Toutou city gas company is increasing. Last year, ENN acquired xuanran Natural Gas Co., Ltd., and won 8 high-quality gas projects in Anhui and Shanghai; Kunlun energy acquired Jinhong holding company and obtained 17 gas projects.
Small and medium-sized urban gas enterprises are in the most difficult period. Shi Feng, investment analyst of urban gas industry and deputy general manager of zizhitonglian ecological data company, told Caijing that the willingness of small and medium-sized private city gas companies to sell is much stronger than before. Due to the lack of upstream resource advantages, large customers in the operation area of small and medium-sized city gas may be directly supplied by gas sales companies, and the profit model of small and medium-sized city gas companies will change from gas sales to gas distribution. The era of profiteering in urban gas industry has passed, and the valuation rate of urban gas enterprises will further decline in the future. At present, it is the best time for urban gas enterprises to sell.
Under the pressure of thin profit margin and stricter supervision, small and medium-sized city gas enterprises are also facing fierce competition from more and more LNG point supply enterprises.
LNG point supply, also known as LNG regional gas supply unit, is suitable for end users such as small and medium-sized towns and factories where the gas transmission pipeline is not easy to reach or the construction of pipeline is not economical due to small consumption. Industry insiders believe that point supply not only takes away small users of urban gas enterprises, but also threatens to compete with urban gas enterprises for cheap gas sources.
LNG point supply is small in scale and flexible in supply mode, mainly in the purchase of LNG spot. With the continuous downturn of LNG spot price, the development of LNG point supply industry in many places is accelerating. Wang Peng, who has operated LNG point supply business for many years, said that since this year, the trading volume of LNG point supply equipment is increasing, and the sales radius of point supply enterprises is also expanding. Previously, it was difficult for the LNG terminal in Jiangsu to sell gas to Henan and Shandong, which has been normalized this year. The main business of urban gas enterprises is quite different from that of point supply enterprises, so it is difficult for them to win back customers from point supply enterprises. Unwilling to decline, small and medium-sized urban gas enterprises have begun to actively expand the transformation path. Some enterprises try to establish network sales platform for users resources to sell non gas products; some enterprises try to transform into comprehensive energy suppliers to provide customers with a variety of energy services. All urban gas enterprises are under transformation pressure, and the proportion of non gas sales revenue in urban gas enterprises will gradually increase. Shi Ning, gas industry analyst at Zizhi Tonglian ecological data company, said that in the long run, urban gas enterprises must take the road of comprehensive development. The author is a reporter of Caijing. Source: Chen Hequn, editor in charge of financial magazine_ NB12679
LNG point supply is small in scale and flexible in supply mode, mainly in the purchase of LNG spot. With the continuous downturn of LNG spot price, the development of LNG point supply industry in many places is accelerating. Wang Peng, who has operated LNG point supply business for many years, said that since this year, the trading volume of LNG point supply equipment is increasing, and the sales radius of point supply enterprises is also expanding. Previously, it was difficult for the LNG terminal in Jiangsu to sell gas to Henan and Shandong, which has been normalized this year. The main business of urban gas enterprises is quite different from that of point supply enterprises, so it is difficult for them to win back customers from point supply enterprises.
Unwilling to decline, small and medium-sized urban gas enterprises have begun to actively expand the transformation path. Some enterprises try to establish network sales platform for users resources to sell non gas products; some enterprises try to transform into comprehensive energy suppliers to provide customers with a variety of energy services.