Lack of Russia deal lifts PetroChina's shares

PUBLISHED : Saturday, 18 June, 2011, 12:00am
UPDATED : Saturday, 18 June, 2011, 12:00am

PetroChina's share price bucked the market gloom yesterday, going up by as much as 5 per cent on speculation it would benefit from Beijing and Moscow's failure to reach a long-term gas supply agreement this week.

However, analysts said the speculation lacked basis because it did not factor in any deal for Russia to supply gas to China, which has been under negotiation for eight years. Such a deal could hurt PetroChina's profit, given the high gas price sought by Russia compared with current mainland prices. But it could benefit distributors whose sales growth is limited by supply capacity.

'The shares speculation seems logical given PetroChina stocks gained and those of downstream gas distributors fell,' said UOB Kay Hian Securities analyst Wang Aochao. 'The problem is most analysts have not factored in a gas deal between the two nations into their forecasts on PetroChina's profit.'

PetroChina's share price gain proved short-lived, however. It ended the day only 1.5 per cent higher at HK$10.88. Major gas distributor ENN Energy Holdings tumbled 5.8 per cent to HK$26.2 after rising 5 per cent in the previous four trading days on speculation of a potential gas deal. The Hang Seng Index lost 1.2 per cent yesterday.

PetroChina is making losses on its current imports of natural gas from Central Asian nations Uzbekistan and Turkmenistan. Beijing has kept domestic prices lower than international levels to support growth in demand for the cleaner energy as a replacement for highly polluting coal.

Analysts expect mainland gas prices to rise by 20 per cent annually in the next five years to narrow the gap with international levels as imports increase. But with consumer price inflation at a 34-month high last month, Beijing has yet to raise gas prices this year after a 25 per cent increase last year.

Russia wanted to sell gas to China for at least US$300 per thousand cubic metre, while China wanted to pay no more than US$250, Reuters quoted unnamed industry insiders as saying. Russia is seeking to diversify away from its mainstay market, Europe, which can pay higher prices.

China's gas demand has grown an average 18.4 per cent annually in the past five years.