China Gas, Sinopec near venture deals

City natural-gas distributor China Gas, which fended off a hostile takeover bid last year from rival ENN Energy and oil and gas major China Petroleum & Chemical (Sinopec), has made steady progress in negotiations with Sinopec on forming joint ventures, according to its finance chief.

The two firms were in advanced talks on setting up a venture to distribute liquefied petroleum gas (LPG) produced by Sinopec's oil refineries and sell compressed natural gas (CNG) at its petrol stations, China Gas chief financial officer Eric Leung Wing-cheong said.

"We are also in talks on Sinopec's possibility to raise its stake by buying more China Gas shares," Leung said. "From China Gas' point of view, we would prefer that the sale of shares and the joint-venture agreements be negotiated and signed as a package."

Frank Li Yuntao, the general manager of investor relations at China Gas, said the talks were "in the final stages".

Leung said China Gas would inject its LPG distribution assets into the proposed joint venture, and the company would become a non-exclusive distributor of the gas from Sinopec in regions where China Gas has LPG storage facilities.

China Gas' retail sales of the gas amount to about 1 million tonnes a year, while Sinopec's domestic refineries produce about 12 million tonnes a year.

On the proposed CNG joint venture, Leung said Sinopec might let China Gas convert some of its 30,000 petrol stations in select cities in more than 10 provinces so that they can also sell the gas to private cars and commercial vehicles. Sinopec may share some of the profit from the CNG retailing business.

China Gas runs about 160 CNG stations that serve taxis and buses in suburbs. Leung said the firm aimed to add 30 to 40 such stations each year.