* Price hike to boost income of gas importers like
* Analysts expect more gas price increases over next two
* PetroChina shares rack up best daily gain since May 2009
(Adds outlook of gas prices, share performance of related
By Charlie Zhu
HONG KONG, July 2 China's first natural gas
price hike in three years will boost the revenues of importers
led by PetroChina Co by billions of dollars and narrow
mounting losses caused by selling the fuel at artificially low
rates mandated by the government.
The long-awaited price hike is part of upward revisions
through 2015 as the government liberalises its gas pricing
regime to spur production and import of the cleaner-burning
fuel, analysts say.
"Yes, absolutely," said Simon Powell, head of Asia Oil and
Gas Research at CLSA in Hong Kong, when asked whether he
expected China to further raise prices. "You are going to see
another 20 percent increase on top of the 15 percent next year."
The latest increase of 0.26 yuan to 1.95 yuan (32 cents) per
cubic metre is slightly more than the last revision of 0.23 yuan
per cubic metre in 2010. The adjustment three years ago was a 25
While the hikes look impressive in percentage terms, the gas
sold in China is cheap by international standards, and prices
are still below the average import price of more than 3 yuan per
cubic metre for gas originating from Central Asia.
Many analysts expect the size of future price increases to
be bigger, with Goldman Sachs predicting annual gains of 0.42
yuan per cubic metre in 2014 and 2015.
The government's goal is to establish a market-oriented
natural gas pricing mechanism that fully reflects demand and
supply conditions, China's National Development and Reform
Commission (NDRC) said after announcing the latest hike.
The Hong Kong-listed shares of PetroChina, which accounts
for more than 70 percent of China's gas market, have soared
after Beijing said late on Friday that non-residential users
including industrial and commercial gas users will see a 15
percent jump in prices from July 10.
The stock rose more than 7 percent to HK$8.84 on Tuesday -
its biggest gain since May 2009. The Hong Kong stock market was
shut on Monday due to a public holiday.
Shares of mainland gas distributors such as ENN Energy
Holdings Ltd also surged on hopes that increased
imports and production will help boost sales volumes. Suppliers
of gas in cities have been grappling with shortages as demand
Over the years, the Chinese government has encouraged the
use of natural gas partly by keeping prices low.
It wants gas to account for 8 percent of the country's
energy mix by 2015 versus 5 percent currently. That compares
with the international average of 24 percent, according to the
NDRC, China's top economic planner.
Additional price hikes are unlikely to erode industrial and
commercial demand for gas in the world's second-biggest economy,
Factories and businesses have very limited freedom to switch
to coal - already 20 percent cheaper before the latest gas price
hike - due to government pressure to use cleaner fuels, the
Perennial bottlenecks in China's coal transport system also
encourage users to lean towards natural gas, they say.
China purchased 42.5 billion cubic metres (bcm) of gas from
overseas last year, up more than 30 percent compared with 2011
and a nearly 10-fold increase from 2007.
The gas - which delivered via pipelines from Central Asia
and by ship in liquefied form from countries like Australia,
Indonesia and Qatar - accounted for 27 percent of total
consumption last year.
PetroChina made a loss of 41.9 billion yuan ($6.83 billion)
from selling imported natural gas last year, due to government
price controls put in place to tame inflation.
The country's largest energy company and other gas importers
including Sinopec Corp have long lobbied for a gas
price increase. Beijing has been concerned that raising prices
too quickly would risk stoking inflation.
The government has not thrown caution to the wind, analysts
say. Residential users, which account for an estimated one fifth
of China's gas consumption, are exempted from the latest hike.
Investment banks including Morgan Stanley, BNP Paribas and
HSBC have upgraded their ratings on PetroChina's shares in
reaction to the price hike announced last week.
Some also revised up their earnings forecasts, with HSBC
raising its 2013 earnings estimate for PetroChina by 17 percent
and 2014 earnings by 8 percent.
Shares of companies distributing gas that they buy from
importers also rose, even though the gas price hike may squeeze
their margins in the short term, analysts say.
Some gas suppliers have already started price negotiations
with their customers since the announcement of the hike, a top
executive of a major Chinese distributor told Reuters. He
declined to be identified as he was not authorised to speak to
ENN Energy gained slightly to HK$41.50 on Tuesday, after
hitting a session high of HK$44.55. The stock has surged more
than 50 percent in the last 12 months, outperforming the market.
Other distributors like China Resources Gas Group Ltd
and China Gas Holdings Ltd, once an
acquisition target of a consortium between ENN and Sinopec, have
risen around 50-100 percent in the period.
The gains make the sector a star performer on the Hong Kong
Shares of Chinese oil and gas services companies like Anton
Oilfield Services Group and SPT Energy Group Inc
also rose sharply on investor hopes that the price
hike would lead to more spending on domestic gas exploration and
($1 = 6.1327 Chinese yuan)
(Additional reporting by Vikram Subhedar and Clement Tan;
Editing by Ryan Woo)