Xinao considers expansion slowdown

PUBLISHED : Thursday, 25 July, 2002, 12:00am
UPDATED : Thursday, 25 July, 2002, 12:00am

Mainboard-listed Xinao Gas (Holdings) is considering slowing down its aggressive geographical expansion in China from next year, according to general manager Yang Yu.

Mr Yang said the slowdown would be due to a lack of suitable new projects in the downstream area of a planned US$8.5 billion pipeline to bring cheaper natural gas from Xinjiang province to Shanghai after 2004.

The Hebei-based natural gas distributor has been building natural gas distribution networks in 23 mainland locations, covering a combined population of 5.5 million, along China's eastern coast.

Most of the expansion took place after Xinao's public float in Hong Kong in May last year.

Mr Yang said the fast growth had largely been driven by the rush to acquire new projects in the downstream area of the west-east main gas pipeline.

Chinese partners, led by domestic oil major PetroChina, earlier this month signed a framework joint venture pact with a consortium of foreign oil giants, including Royal Dutch/ Shell, ExxonMobil and Russia's Gazprom, to build the pipeline.

'If we do well . . . we might acquire some more [gas distribution] projects [in the area] in two or three years.' Mr Yang said.

The pipeline's construction would bring long-term cost reductions for Xinao's operations in its downstream area, he said.

In May, Xinao began supply of liquefied natural gas (LNG) to Bengbu, its largest project so far and one of the 58 cities along the planned west-east pipeline.

LNG now sells at 1.9 to 2.1 yuan per cubic metre, compared with 1.8 yuan expected for natural gas transported through the west-to-east pipeline.

However, the pipeline could drive a bigger wedge between natural gas and LNG prices in the area. That might hurt Xinao's revenue from gas usage charges at the start-up stages of new projects, before local gas demand justified a connection with the main pipeline, Mr Yang said.