Beijing's policy to cut coal use to benefit gas distributors: China Gas

A mainland policy designed to cut coal use across the nation will benefit natural gas distributors as more cities take up the task of cleaning up the air, says the country's largest piped-gas distributor, China Gas.

Under the policy, local governments are supposed to phase out coal-fired heating in homes, commercial buildings and factories and replace it with heaters that use natural gas - even as demand for natural gas outstrips supply by a large margin on the mainland.

China Gas, the largest gas distributor by number of networks across the nation, expects to start earning extra revenue from the policy from 2016. By 2020, the firm would sell more than 10 billion cubic metres of gas, said Eric Leung, the firm's deputy managing director and chief financial officer.

The company said it stands to benefit most from the switch because it had the biggest piped-gas network of all distributors, which gives it exclusive reach to most cities. It currently has supply networks in 195 cities, around 80 more than its second-ranked rival ENN Energy Holdings, Leung said.

China Gas is not making a profit on half of the 195 city networks, Leung added, either because the projects were new and had not yet reached the break-even point or because they had yet to begin operation. "We expect piped-gas sales to grow 25 per cent every year over the next five years as more city projects mature. So I expect the number of profitable city projects to rise to 150 by 2015," he said.

China Gas also plans to expand its mainland network of compact natural gas (CNG) and liquefied natural gas (LNG) refueling stations to 600 by 2015, an increase from the 165 presently located in 38 cities. These stations have the widest profit margins - around 35 per cent - of the company's products, Leung said.