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China Integrated Natural Gas:Govt now considering affordability for pricing

研究机构:瑞银证券 研究员:瑞银证券研究所 发布时间:2014-08-17

China announced natural gas price hike of Rmb0.4/cum

The NDRC announced today that the ceiling city gate gas price for non-residential users on the existing volume portion will be increased by Rmb0.4/cum, effective 1 September 2014. Prices for the incremental volumes are unchanged, and so are still Rmb0.5/cum higher than that of existing volume. The increase is slightly higher than our assumption of Rmb0.35/cum. The government also reiterated its target of achieving pricing parity between existing gas and incremental gas by 2015.

The government’s focus on users’ affordability begins

A key feature of the announcement is that pricing bureau are being now told to take into account the affordability of end users when considering the fuel cost pass-through in end user prices – particularly in respect of transportation, district heating and power generation. For vehicle operators, the government suggests to alleviate pressure on affordability by possibly increasing fares and fuel surcharge, or through government subsidies. For power and district heating companies, the government will continue to reform tariffs and provide subsidies; and gas suppliers should offer discounts.

Positive for upstream suppliers

While the gas price increase is near our forecast and does not affect our estimates for the upstream suppliers, we believe the market may nonetheless feel relieved with the news. The announcement stresses the price hike is to encourage gas supply and further promotes the market-oriented pricing mechanism for imported LNG, shale gas, CBM and coal-to-gas. This will support further well-head gas price increases at Sinopec, Petrochina and CNOOC and help to reduce import losses at PetroChina.

Neutral-to-cautious on the downstream

We have been highlighting that margin risk is growing as gas prices rise and we do think the market has factored in this risk for the gas utilities. We think shares could struggle to perform until the ability to pass on the latest increase in gas prices is evident. We have a Sell on China Gas, which we think is the most expensive in the sector trading at 51x 2014E P/E, if excluding its connection fee profit.

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