PetroChina to buy more gas overseas despite losses
Firm to boost imports to meet demand for clean energy even as retail prices remain below costs
PetroChina, the nation's largest oil and gas producer, will continue to boost natural gas imports even though mounting losses have substantially weakened its cash flow and increased its debt burden.
"PetroChina will boost natural gas [imports] from overseas, including Central Asia and Russia, to meet the demand for clean energy," Reuters quoted chairman Zhou Jiping as saying after the company's annual general meeting in Beijing.
PetroChina, which accounts for about 70 per cent of the nation's gas output, lost 41.9 billion yuan (HK$53 billion) last year on gas imports.
The losses stem from state-stipulated retail prices being below import and distribution costs as Beijing has not raised gas prices since mid-2010 for fear of stoking inflation and inducing social unrest.
Losses deteriorated to 14.5 billion yuan in the first quarter from 11.9 billion yuan in the previous quarter on rising imports, according to a Citi research report, since PetroChina has multiple contractual commitments to buy certain quantities of gas every year.
The bank expects PetroChina's gas imports to rise 21 per cent to 34 billion cubic metres this year, although import losses are forecast to be similar to last year's, assuming the national average city-gate gas selling price to rise 7 per cent this year and 15 per cent next year.
Analysts said Beijing was under pressure to raise gas prices as the nation had signed deals to import up to 95 bcm of gas in 2015, compared with 28 bcm in 2011, with the share of imports in consumption expected to rise to 40 per cent from 21.6 per cent. Import prices are much higher than domestic prices.
Domestic output growth has slowed to 5 per cent as rising imports have taken the market share of domestic output and funding constraints have led to weaker domestic reserves, analysts at brokerage Sanford C. Bernstein said. Domestic output growth averaged 11.8 per cent in the five years to 2011.
"While [Beijing] tries to encourage gas use in China, the gas chain is increasingly unstable. The government may not like it, but either gas prices will need to rise or supply and consumption will slow," the report said.
A Macquarie Securities report estimated PetroChina would remain in negative free cash flow - cash flow from operation minus capital expenditure for capacity expansion - unless mainland gas prices were doubled by 2016.