China Gas May Increase LPG Sales Sixfold on Expansion (Update2)
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By John Duce
Dec. 7 (Bloomberg) -- China Gas Holdings Ltd., the Hong Kong-listed supplier of the fuel to homes and businesses on the mainland, expects liquefied petroleum gas sales to surge sixfold as the company expands its distribution network to 300 cities.
Sales of bottled LPG may rise to 3 million tons by March 2012 as the company extends sales beyond the 113 cities it currently sells the fuel in, Chief Financial Officer Eric Leung said in an interview. The shares reached a two-year high today.
The government aims to increase the nation’s use of gas to reduce reliance on more polluting coal. China Gas, which sold about 500,000 metric tons of LPG in the last financial year, will mainly target areas not linked by pipelines, Leung, 60, said at an LPG storage base on Xiaomen island off Wenzhou city in Zhejiang province on Dec. 3.
“The company’s target of increasing LPG sales is realistic as demand for LPG is huge, being a cheap form of fuel, and many villages and rural areas don’t have access to piped gas,” said Shi Yan, an energy analyst at UOB-Kay Hian in Shanghai.
China Gas’s expansion comes after the company signed an LPG supply agreement with a unit of the nation’s biggest oil company PetroChina Co. The utility has an advantage over rivals because of the supply accord and China Gas’s LPG storage and distribution network, Shi said.
Utilities including China Gas, Xinao Gas Holdings Ltd. and China Resources Gas Group Ltd. have more than doubled in Hong Kong trading this year, outpacing the 55 percent gain in the benchmark Hang Seng index, as they increase supplies to meet demand in the world’s fastest-growing major economy.
China Gas rose 6.4 percent to HK$3.64 today, the highest since Dec. 6, 2007, compared with the 0.8 percent decline in the Hang Seng index.
Rural Areas
The fuel distributor will extend its network in the southern provinces of Guangdong, Guangxi, Fujian, and Jiangsu, Anhui and Zhejiang in the east, Leung said.
“We have largely concentrated on our piped natural gas projects, but our supplies of LPG will allow us to move into new cities and also target suburban and rural areas which are not connected to gas pipelines,” Leung said.
China Gas will invest as much as 200 million yuan over the next three years to build LPG bottling stations and retail outlets in the target cities and districts, according to Leung.
The company estimates about a third of China’s population has access to piped gas. “It means there’s tremendous potential for the sale of bottled LPG in areas still not served by pipelines,” Leung said.
China Gas aims to generate about 18 billion yuan ($2.6 billion) in revenue from LPG by 2012, said Investor Relations Manager Frank Li. LPG sales reached HK$2.2 billion ($284 million) last year, or about a third of total revenue.
Nationwide Demand
Chinese companies have invested $30 billion over the past five years building pipelines to transport gas from Sichuan, Xinjiang and Ordos in Inner Mongolia to urban centers in the east, Sanford Bernstein & Co. said in an Oct. 13 report.
PetroChina estimates that the nation’s gas demand will rise to 215 billion cubic meters by 2015 from about 80 billion cubic meters last year, President Zhou Jiping said on Aug. 28.
The government is likely to ease controls on gas prices in the first quarter and link them to the international market, Leung said. This could result in gas prices rising 10 percent annually for the next five years, he said.
PetroPower (Shanghai) Holdings Ltd., China Gas’s LPG division, is considering listing shares in Shanghai or Shenzhen within three to five years, said Pang Yingxue, the unit’s president.
PetroChina is in preliminary talks on buying a stake in China Gas’s LPG unit, Leung said.
To contact the reporter on this story: John Duce in Hong Kong at Jduce1@bloomberg.net
Last Updated: December 7, 2009 03:26 EST
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