(Bloomberg) — China’s relaxation of natural gas price controls will benefit local utilities and may help spur demand for seaborne imports, according to an executive at China Gas Holdings Ltd.
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The major distributor expects to see its gross margin jump 30% this year after regulators green-lighted increases to residential prices to better reflect the cost of purchasing fuel, said Tan Yuwei, general manager of capital management at the Hong Kong-listed company. The move would also allow the development of previously unprofitable projects, he said.
Read More: Chinese Residential Gas Prices Rise After Controls Loosened
China’s loosening of price controls continues a slow-and-steady approach to gradually introducing more market-based rules to its highly regulated energy system, and allows local utilities to pass on some of the soaring costs for imported gas last year following Russian’s invasion of Ukraine.
“The price reforms will boost household gas sales, as we have a large amount of coal-to-gas projects with growth potential that have long been suppressed by the price caps,” Tan said. They will also increase interest in buying more liquefied natural gas, in the spot market and under term deals, he said.
The company’s shares rose as much as 3.4% as of 2:49 p.m. in Hong Kong on Tuesday, the most since July 10, paring their year-to-date decline to 25%.
China Gas is hoping to profit from a resurgence in the nation’s gas demand, which last year fell for the first time in decades. The company nonetheless sold 7% more gas in the year through March, reaching more than 45 million households, but the higher prices helped contribute to a 44% slump in profit.
China Gas is also a major liquefied natural gas importer — thanks to an alliance with state-owned China National Offshore Oil Corp. It is independently looking to add about 2 million tons more of annual supply after signing deals for 3.7 million tons with US suppliers Energy Transfer LP, NextDecade Corp. and Venture Global LNG Inc., Tan said.
The company’s LNG imports could double thanks to a major import terminal in Shandong province that’s set to start by the end of next year and minority interests in two other terminals, Tan said.
China Gas is also a beneficiary of Russian gas imports, which enter the nation in the northeast, where the company has the largest market share. Imports from Russia through the Power of Siberia pipeline may reach full capacity in 2024, a year earlier than planned, as a link into Shanghai is almost complete, Tan said.
–With assistance from Abhishek Vishnoi.
(Updates to add share price move in fifth paragraph.)
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