20171229-招商证券_香港_-Gas_sector__Further_fight_for_blue_sky_in_Northern_China_6页_744kb

Gas Sector in Northern China: Industry Report Summary

Core Content

This report provides an analysis of the gas sector in Northern China, focusing on the "2017-2021 Winter Clean Heating Plan" and its implications for the industry and key companies. The plan aims to reduce air pollution by promoting clean heating solutions and increasing natural gas usage across 14 provinces, with a particular emphasis on the "2+26 cities" region. The report highlights the expected increase in natural gas demand, infrastructure development, and the financial outlook for major players in the sector.

Main Points

1. Clean Heating Plan Overview

• Objective: To further combat air pollution by promoting clean heating methods.
• Scope: Covers 14 provinces in Northern China.
• Target: Achieve a clean heating rate of over 70% by 2021, reducing coal burning by 150 million tons.
• Gas Heating Demand: Expected to create an incremental natural gas demand of 23bn cu m in "2+26 cities" over 2017–2021.

2. Key Components of the Plan

• Residential Heating: Wall-hung gas heaters for 12 million households will contribute 9bn cu m.
• Industrial Heating: New or upgraded 11GW gas-fired cogeneration plants and 50k steam tons gas-fired boilers will add 17.1bn cu m.
• Distributed Energy: 1.2GW distributed natural gas energy will add 0.9bn cu m.

3. Gas Supply and Infrastructure Development

• Supply Increase: Natural gas supply in six provinces will rise from 36bn cu m in 2016 to 124bn cu m in 2021.
• Pipeline Expansion: 8 new main trunk pipelines will be built, increasing transmission capacity by 75bn cu m/year.
• Branch Pipelines: 42 branch pipelines with a total capacity of 58bn cu m will be constructed in "2+26 cities".
• Storage Facilities: Emergency storage capacity will increase by 837mn cu m, with daily extraction capacity rising to 70mn cu m by 2021.
• LNG Terminals: The government will accelerate the construction of LNG terminals in Beijing-Tianjin-Hebei and Shandong, aiming to increase gasification capacity to 165mn cu m/day.

4. Positive Impact on Companies

• China Gas (384 HK): Expected to benefit due to its strong presence in Northern China. Rating: BUY, Target Price: HK$29.0, Upside: 34.2%.
• ENN Energy (2688 HK): Also expected to benefit, with LNG import business helping to lower costs. Rating: BUY, Target Price: HK$66.0, Upside: 18.4%.
• CR Gas (1193 HK): Rating: NEUTRAL, with Target Price: HK$28.20 and Upside: -0.5%.

Key Financials

Note: 2017–19E refer to fiscal years ended 31 Mar 2018–20E for China Gas.

Investment Recommendations

• Industry Rating: OVERWEIGHT – Expect the sector to outperform the market over the next 12 months.
• Company Ratings:
  • BUY: China Gas and ENN Energy
  • NEUTRAL: CR Gas

Key Challenges and Solutions

1. Challenges

• Low Domestic Production: Affected by low oil prices.
• Slow Non-Conventional Gas Development: Due to environmental concerns and pricing issues.
• LNG Terminal Construction: Difficult and time-consuming.

2. Solutions

• Diversified Gas Supply: Encouraging private enterprises and city gas operators to open new gas sources.
• Infrastructure Investment: Expansion of pipelines, storage facilities, and LNG terminals.
• Financial Support: Increased government funding for coal-to-gas projects and new investment models (loans, bonds, securitization).
• Operational Reforms: Introduction of PPP models, tier-pricing, and seasonal pricing to reduce costs.

Conclusion

The "2017–2021 Winter Clean Heating Plan" is a significant policy initiative aimed at reducing air pollution and promoting natural gas usage in Northern China. It is expected to drive incremental demand, improve gas supply infrastructure, and support the financial performance of companies like China Gas and ENN Energy. The plan also emphasizes the importance of government support, market liberalization, and operational efficiency in achieving long-term sustainability and growth in the gas sector.