The Zhitong Finance App learned that Haitong International released a research report stating that as of April 2024, 125 regions across the country have announced gas fee increases one after another. Among them, the Chengdu region increased 0.16 yuan/square meter, the Shenzhen region increased 0.31 yuan/square meter, the Tianjin region increased 0.29 yuan/square meter, and the Fuzhou region increased 0.45 yuan/square meter. The overall average increase was around 10%. It is recommended to focus on urban gas companies that benefit from the gradual realization of favorable prices on the consumer side, and also account for a relatively large share of overseas gas purchases, and have excellent fundamentals and environmental, social, and governance performance, such as China Resources Gas (01193), Xinao Energy (02688), and Kunlun Energy (00135).

Haitong International's main views are as follows:

The country's apparent consumption and imports of natural gas have increased.

From January to January 2024, the total apparent domestic gas consumption was 72.51 billion cubic meters, up 14.8% year on year. Demand picked up, and natural gas consumption returned to the growth path. According to data from the National Bureau of Statistics, natural gas production reached a record high. In March 2024, industrial natural gas production was 21.6 billion cubic meters, an increase of 4.5% over the previous year. In terms of natural gas imports, natural gas imports maintained relatively rapid growth, with imports of 10.76 million tons of natural gas, an increase of 22.0% over the previous year. In March 2024, China imported 6.65 million tons of LNG, up 24.1% year on year; PNG imports were 4.11 million tons, up 17.1% year on year.

Global natural gas prices fluctuate at a low level, and international gas prices are conducive to reducing comprehensive urban fuel procurement costs.

China's natural gas sources mainly include domestic natural gas, imported pipeline gas, and imported liquefied natural gas (LNG). China's gas production and imported LNG account for about 60% and 25% respectively. Domestic gas costs are low and relatively stable, while LNG imports mainly depend on countries such as Australia, Qatar, Malaysia, and Russia.

Since 2023, overseas natural gas prices have fluctuated downward, and hit a three-and-a-half-year low in February 2024. The price drop caused producers to reduce new drilling activities in February. Meanwhile, recently, one of the three liquefaction plants at Freeport (Freeport), an important export point for US liquefied natural gas (LNG), has been offline since late January, and the low level of overseas gas prices has rebounded.

According to CME data, the spot price of Northeast Asia arriving in Hong Kong in China (DES) was 10.133/MB10, up 7.57% from the previous month, down 12.8% from the previous year; the TTF spot price was 10.528 US dollars/million British heat, up 20.71% month-on-month and 19.2% year-on-year.

After the implementation of the gas smooth price mechanism, urban combustion companies' resident-side profits are expected to recover.

In recent years, urban fuel companies have been under pressure on the operation and cash flow of urban fuel companies that consume large amounts of gas because upstream prices cannot be transmitted to downstream residents, while industrial and commercial companies account for a relatively large share of the normal price.

In June 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”, which states that the sales price of natural gas will be linked to the procurement costs of gas companies. In 2023, the gross margin of major gas companies Kunlun Energy and Xinao Energy was 0.5 yuan/square, and China Resources Gas and Ganghua Smart Energy had gross margins of 0.51 yuan/square. The gross margin of Kunlun Energy remained the same as in 2022. Xinao Energy, China Resources Gas, and Ganghua Smart Energy respectively increased 0.02 yuan/square, 0.05 yuan/square, and 0.08 yuan/square compared to 2022. Achieving favorable prices on the residential side is conducive to the gradual restoration of urban combustion companies' profits.

Risk warning:

1. Geopolitical factors; 2. Risk of energy price fluctuations; 3. Natural gas policy falls short of expectations.