The Zhitong Finance App learned that Tianfeng Securities released a research report saying that as of March 15, 2024, price linkage mechanism documents or price adjustment notices had been issued, involving 125 administrative units at the city and county levels. In regions where the extent of price adjustments has been determined, the average price increase for basic residents is 0.26 yuan/cubic meter. In 2024, gas price linkage mechanisms in various regions will continue to advance, which will benefit urban combustion companies to fix gross margins. In 2024, the bank is optimistic that the fall in international gas prices will drive upstream costs down, while demand for natural gas is expected to rise further. It is recommended to focus on Xinao Energy (02688), China Resources Gas (01193), Shenzhen Gas (601139.SH), China Gas (00384), etc.

Tianfeng Securities's views are as follows:

International gas prices are falling, and upstream purchaser-side costs are expected to decline

Since 2024, international gas prices have continued to fall. Among them, the average price of European gas TTF from January to February 2024 was about 27.8 euros/megawatt-hour (2.1 yuan/square meter), a decrease of 32.4% compared to the average price in 23; the average price of JKM in Northeast Asia from January to February 2024 was about 10.4 US dollars/million British thermal heat (2.5 yuan/square meter), compared to the average price drop of 27.9% in 23.

The fall in international gas prices has led to a decline in domestic spot LNG import prices. From the beginning of 2024 to March 19, the average arrival price of spot LNG imported from China was about 2.12 yuan/square meter, and the average price of domestic LNG leaving the factory was about 3.33 yuan/square meter. The price of imported spot natural gas already had a certain cost advantage.

On the one hand, the reduction in natural gas import costs is expected to directly reduce the procurement costs of urban fuel companies. On the other hand, the three major oils have a large say in domestic gas supply, and the decline in sea gas prices may indirectly drive the decline in urban fuel procurement costs by reducing the procurement costs of the three major oils.

Terminal net prices continue to advance

In 2023, the National Development and Reform Commission issued the “Guiding Opinions on Establishing and Improving the Upstream and Downstream Price Linkage Mechanism for Natural Gas” (Development and Reform Price (2023) No. 682). Under its guidance, various provinces and cities have initiated or accelerated price linkage reforms. As of March 15, 2024, price linkage mechanism documents or price adjustment notices have been issued, involving 125 administrative units at the city and county levels. In regions where the extent of price adjustments has been determined, the average price increase for basic residents is 0.26 yuan/cubic meter. In 2024, gas price linkage mechanisms in various regions will continue to advance, which will benefit urban combustion companies to fix gross margins.

Demand is gradually recovering, driving gas volume growth

In terms of total volume, in 2023, the country's apparent consumption of natural gas reached 394.53 billion cubic meters, an increase of 7.6% over the previous year, and there has been a restorative increase. Structurally, industrial fuel replaced urban gas as the largest consumer of natural gas. Since 2023, the industrial side has recovered steadily, moderately positive. According to data from the National Bureau of Statistics, the year-on-year growth rate of domestic industrial value added was basically maintained at around 4% in 2023; from January to February 2024, the value added of industries above scale actually increased by 7.0% year on year, an increase of 4.6 pct compared with the same period last year. Among them, the electricity, heat, gas and water production and supply industries increased 7.9%.

In 2024, the overall demand for natural gas is expected to continue to grow with the gradual release of downstream demand, especially driven by demand on the industrial side, which accounts for a large share.

Risk warning: The macroeconomic growth rate fell short of expectations; international and domestic gas prices fluctuated beyond expectations; the implementation of residents' favorable price policies fell short of expectations, etc.