PetroChina gas flagship reports better-than-expected interim profit, eyes increased supply from Qatar, Russia

Kunlun Energy looks to offset impact of tariff imposed by China on US gas, as chairman says mainland will again face tight gas supply this winter

PUBLISHED : Wednesday, 29 August, 2018, 9:13pm
UPDATED : Wednesday, 29 August, 2018, 11:01pm

Kunlun Energy, the listed natural gas distribution flagship of oil and gas giant PetroChina, will be able to offset the impact of a tariff imposed by China on US gas through additional procurement from Qatar, Australia and Russia, its chairman said on Wednesday.

“We are not worried, as we have signed new gas procurement contracts … some are spot market deals, some medium and longer term contracts,” Ling Xiao told the media, when asked if the tariff – imposed as part of the ongoing US-China trade war – will cut throughput at three of its liquefied natural gas receiving terminals in Jiangsu, Tangshan and Dalian.

PetroChina to build more gas import terminals as Beijing aims to trim trade surplus with US

Our existing suppliers in Qatar, Australia and Russia are also interested in raising supply volumes to us
Ling Xiao, chairman, Kunlun Energy

“Our existing suppliers in Qatar, Australia and Russia are also interested in raising supply volumes to us … we are also in talks to secure new long-term contracts to replace older, higher priced ones.”

Ling was speaking a day after Kunlun posted a better-than-expected 21.4 per cent year-on-year increase in net profit for the year’s first half. At 3.1 billion yuan (US$453.99 million), this figure represents 62.9 per cent of the 4.93 billion yuan full-year average forecast by 10 analysts polled by Bloomberg.

The completion of a long distance pipeline by PetroChina next year will also bring new supply from Russia’s far east to Kunlun, which has signed 11 agreements to distribute gas in markets along the pipeline so far this year.

The United States is most likely to resell the gas originally destined for China to Europe, whose procurement from the Middle East and Russia will fall, making room for China to buy from the latter, Ling said, adding: “The global gas market remains amply supplied.”

PetroChina seeks more ‘Belt and Road’ acquisitions, lifts gas output to feed China’s war on air pollution

PetroChina has a 25-year contract to buy 1.2 million tonnes per year of LNG from Cheniere Energy, a leading US exporter. The first shipment arrived in China recently.

Ling said it was almost certain mainland China will once again face a tight gas supply this winter, and added that local governments will have to balance residential heating needs with industrial users’ gas demands.

He also said the trade war between Washington and Beijing could result in a slowdown in China’s manufacturing sector, which would reduce its gas demand. This could put a slight squeeze on profit margins at Kunlun, as its customers capacity to buy more expensive gas will be weakened.

This is expected to be largely offset by Beijing’s resolve to force more factories to replace coal-fired boilers with cleaner gas-fired ones, amid its ongoing war on air pollution, he said.

As Beijing fights air pollution, natural gas producers stay warm and happy despite shortages

Ling said Kunlun, a late comer to the retail gas distribution market, will step up efforts to win more distribution projects in newly set up industrial estates and urbanisation projects in rural areas.

The company reported a 125 per cent year-on-year jump to 1.31 billion yuan in first half net profit at its gas retailing operation, where the sales volume grew by 18.6 per cent.

But profit from long-distance gas transmission tumbled by 35 per cent to 1.24 billion yuan, as an 8 per cent return cap imposed by Beijing led to sharp cuts in transmission tariffs.

Profit from oil and gas production rose by 113 per cent to 343 million yuan on the back of higher oil prices, as profit from LNG processing and handling at its terminals soared 12-fold to 515 million yuan.

Kunlun shares closed on Wednesday up by 8.2 per cent at HK$8.01.