Despite being caught between high costs and government-regulated low sale prices, ENN Energy Holdings, formerly known as Xinao Gas, has managed to expand and increase earnings in the first half. One of the mainland's largest piped-gas suppliers, the company saw revenue grow 25.6 per cent to more than 5.04 billion yuan (HK$5.7 billion) from last year. Gross profit rose 16 per cent to 1.42 billion yuan. In the first half, ENN secured nine new projects to provide natural gas to more than 3.8 million people on the mainland and obtained rights to operate piped natural gas projects in Vietnam. It has made these considerable strides in the face of fierce competition from large state-owned companies like PetroChina, which is also expanding its distribution chain. Unlike PetroChina, ENN had limited access to natural gas resources as almost 90 per cent of its supply came from state-owned companies like PetroChina, executive director Wilson C.N. Cheng said. As the National Development and Reform Commission raised the price of domestically produced onshore natural gas by almost 25 per cent in June, ENN's costs have gone up. But it has not been able to pass on this added cost to consumers as the government strictly regulates natural gas prices for residential customers. 'They are trapped in between,' said Ye Yingmin, general manager of Beijing-based chemical consulting firm Chem1. Ye said Beijing regulated residential natural gas prices to control inflation and a much better option for the company was to cater more to commercial customers as the government did not cap pricing in that field. That is also the strategy ENN has been adopting in the past years. Its commercial and industrial costumers now account for 70 per cent of its revenue. Beijing, however, strictly controls the amount of natural gas allotted for industrial purposes because gas supply is scarce. This could inhibit the company's growth in the long term, Ye said. An imperfect pricing system coupled with strong demand left China short of nine billion cubic metres of natural gas last year, according to Lee Yuk-kei, an analyst at Core Pacific-Yamaichi. The dilemma that ENN faces is also shared by companies such as Towngas China and China Gas Holdings, and JP Morgan analysts said in a recent report that ENN was relatively well positioned vis-a-vis its peers.