The increase in gas prices is a common situation in many places in China, and its important background is that in 2023, many provinces and cities in China will optimize the linkage mechanism of upstream and downstream natural gas prices, which is commonly referred to as "natural gas price" in the industry.
In 2023, the state issued the "Guiding Opinions on Establishing and Improving the Linkage Mechanism of Upstream and Downstream Prices of Natural Gas", and since then, many places in China have successively announced the increase in gas costs, and more than 130 cities and counties have issued documents or notices on the linkage mechanism, and many provinces and cities on the residential side have issued announcements to adjust the price.
Utilities such as water, electricity and gas are also characterized by high dividend yields compared to industries such as coal and oil. Stimulated by the recent news of price increases, the increase in water, electricity and gas prices will have a direct positive impact on local utility companies.
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Overview of the city gas industry
At present, the city gas supply in mainland China has formed a stable pattern dominated by natural gas and supplemented by liquefied petroleum gas (LPG).
Natural gas is a clean and low-carbon fossil energy, which is an important part of the transformation of the mainland's energy structure. Natural gas is predicted to overtake coal as the world's second largest energy source by 2035. In mainland China, natural gas demand is expected to maintain a growth trend until 2050, and it is expected to achieve sustained rapid growth in the short term.
Natural gas is divided into city gas, industrial fuel, natural gas power generation, natural gas chemical industry, and other users. In addition, according to the comprehensive performance of natural gas utilization in terms of social benefits, environmental benefits and economic benefits, it is divided into priority, allowed, restricted and prohibited categories, so as to realize the efficient and environmentally friendly utilization of natural gas resources.
Diagram of gas type:
Source: JOVO Energy
City gas industry chain and leading manufacturers combing
The upstream of the city gas industry is the natural gas extraction industry, the midstream is concentrated in the pipeline transportation link, and the downstream consumption is mainly residential gas and industrial production gas.
As the middle and downstream links of the natural gas industry chain, city gas has high qualification barriers and regional monopoly attributes. After obtaining the consent of the competent government department through competition and signing the concession agreement, the city gas company can invest in the construction of municipal gas pipelines and facilities during the concession period and in the area to meet the gas demand of the region.
On April 8 this year, the National Development and Reform Commission (NDRC) and six other departments jointly issued the new "Measures for the Administration of Infrastructure and Public Utilities Concessions", which will have a new impact on the management and extension of natural gas concessions.
Diagram of natural gas industry chain:
Upstream gas source advantage: Companies with unconventional natural gas resources or LNG terminals have a first-mover advantage; Companies with provincial pipeline networks in the midstream are worth paying attention to; In the downstream segment, the representative manufacturers include high-quality urban gas companies such as China Gas, ENN Energy, Shenzhen Gas and New Natural Gas.
Among the related manufacturers, Kunlun Energy is the only natural gas platform under PetroChina, backed by PetroChina, with stable and high-quality natural gas upstream resources; ENN Energy is one of the largest clean energy distributors in mainland China; As of the end of 2023, the company has 275 city gas projects and owns the Jiangsu Rudong LNG terminal of China Resources Gas, which is currently under construction. In addition, Shouhua Ran Gas, New Natural Gas, Guizhou Gas, Baichuan Energy, Chongqing Gas, Anhui Natural Gas, Changchun Gas, Delong Huineng, Blue Sky Gas, Nanjing Public Utilities, Oriental Huanyu, etc. are also the main layout manufacturers in the industrial chain. #燃气##天然气##化工##财经##水电##公用事业#
epilogue
From a long-term perspective, the clean and low-carbon nature of natural gas is consistent with the overall trend of the mainland's energy structure transformation to clean and low-carbon, and natural gas consumption is expected to achieve sustained and stable growth. In the short term, as the global supply and demand relationship gradually tends to balance, natural gas prices generally show a downward trend, which is expected to further stimulate the recovery of downstream user demand and bring recovery opportunities for city gas companies. At present, the upstream and downstream linkage mechanism of natural gas prices is being implemented across the country, which is conducive to the flexible adjustment of gas source costs by city gas companies, so as to increase gas and enhance profitability.
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