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March 19 (The following statement was released by the rating agency)
Fitch Ratings says pricing reform in the
Chinese gas sector is unlikely to materially impact gas distributors' margins,
and low gas prices in the US are unlikely to materially influence the price at
which gas is transacted in the Asia-Pacific (APAC) region in the medium-term.
These were among the key points of discussion during recent round-table meetings
with international investors based in Hong Kong and Singapore.
Investors cited China's gas pricing reforms and their implications for China's
city gas distributors as a key uncertainty in the APAC energy and utilities
sector. Fitch expects China to gradually implement pricing reform in the energy
sector, including how gas is priced domestically. Currently gas prices are
controlled by the state which has led China National Petroleum Corporation
(CNPC, A+/Stable) to generate losses due to high costs of natural and liquefied
natural gas (LNG) imports.
Fitch believes demand for natural gas from industries and households will
continue to be strong notwithstanding likely higher costs to consumers following
the price reforms. This is because natural gas is substantially more
cost-effective than alternative sources. At the same time, Fitch believes that
city gas companies should be able to pass on cost increases to consumers leaving
the profitability of gas supply operations largely intact, although some
compression of margins can be expected initially.
Investors also raised the possibility for APAC gas prices to decouple from
global oil prices in the medium term. Fitch believes there is increased
pressure from buyers to link APAC gas prices to a broader benchmark that
captures significantly lower gas prices currently available in the US - around
USD4 per mmbtu (million British Thermal units) versus USD mid-teens in APAC.
Fitch expects APAC gas transactions to gradually track a "basket of global gas
prices", but does not expect a material change to APAC gas prices in the
medium-term, particularly not before the region starts to see meaningful
quantities of shale gas exports from the US. Export of gas from the US is facing
a number of headwinds including opposition from environmental groups and slow
government approvals to convert unused gas import terminals into gas
liquefaction facilities. Higher gas exports from Russia to Asia over the
medium-term will also exert some downward pressure on gas prices in APAC.