China pollution

How natural gas seller Blue Sky plans to profit from China’s bad air problem

Blue Sky plans to spend up to HK$2 billion annually during the next two years to bolster deliveries of cleaner-burning natural gas to mainland cities

PUBLISHED : Tuesday, 25 October, 2016, 5:35pm
UPDATED : Friday, 12 January, 2018, 2:59pm

Blue Sky Power, a natural gas distribution and low-emissions energy projects development unit of state-backed Beijing Enterprises, plans to spend HK$1.5 billion to HK$2 billion annually in the next two years on project development and acquisitions that could see its gas sales volume jump multifold.

Discussions for the company to buy assets from gas distribution-to-beer production conglomerate parent Beijing Enterprises, the Hong Kong-listed flagship of the capital’s municipal government, are under way.

“There are some commercial considerations [for assets to be injected into Blue Sky], but they have not been mature enough for any announcement to be made,” Blue Sky co-chairman and non-executive director Zhi Xiaoye told reporters on Tuesday.

Zhi is the general manager of Beijing Gas Group, the principal natural gas subsidiary of Beijing Enterprises, in which he also serves as vice-president.

Beijing Enterprises has an exclusive gas distribution concession in the capital. It is also owns 24.6 per cent of Hong Kong-listed China Gas, which started its gas business more than a decade ago as a private enterprise until Beijing Enterprise became its largest shareholder in 2013.

China Gas had exclusive gas distribution concessions in 305 cities in mainland China at the end of March, compared with 34 for Blue Sky at the end of June.

Beijing Enterprises became Blue Sky’s largest shareholder with a 24 per cent stake after buying HK$970 million worth of the latter’s new shares in May. It also paid HK$350 million for a bond convertible into the latter’s shares that could raise its stake to just under 30 per cent.

Blue Sky’s gas sales jumped 200 per cent year on year in the first half of the year to 53.9 million cubic metres.

Blue Sky’s Hong Kong-listed shares ended unchanged on Tuesday at 66 HK cents. The stock has risen 29 per cent over the past year.

Co-chairman and executive director Tommy Cheng Ming-kit said the second-half volume was expected to surge “several-fold” from the first half and “such kind of growth” was expected to last one to two more years.

By contrast, China Gas’ sales amounted to 5.37 billion cubic metres in the six months to March while those of Beijing Enterprises was 7.3 billion in the first half of the calendar year.

Cheng said Blue Sky would focus on adding new projects in coastal regions with access to cheap imported liquefied natural gas and hinterland regions close to gas fields.

Asked about the market position differentiation of the three gas distribution platforms under Beijing Enterprises, Zhi said their relations with each other were “complementary and not competitive”.

“For example, there are possibilities for Blue Sky to cooperate with China Gas on distributed energy projects, online commerce services for gas users and the trading of liquefied natural gas,” he said.

Distributed energy refers to local power, heat and cooling generation and consumption, which does not require long-distance power grid transmission and is typically fuelled by low- or no-emission energy sources such as natural gas, wind and solar.

Cheng said Blue Sky had already been supplying LNG to gas-refuelling stations of Beijing Enterprises and would seek to replicate distributed energy projects outside Beijing.

Beijing Enterprises was building a gas-wind-solar integrated distributed energy project to supply the capital’s new municipal government headquarters under construction in Tongzhou, a southeastern district of Beijing, Zhi said.

Asked of the impact of Beijing’s policy to cap from January 1 long-distance gas pipelines’ return on assets at 8 per cent, lower than the about 12 per cent enjoyed by Beijing Enterprises, Zhi said it would “certainly” hurt profit but the degree depended on how much it would be offset by higher demand due to lower transmission tariffs.

It operates the three-line giant pipeline system that links gas fields in Shaanxi province to Beijing. A fourth line is under construction and is scheduled to come on stream by the end of next year.

Blue Sky will soon be renamed Beijing Gas Blue Sky, subject to shareholders’ approval.