CNPC to bring gas units under one fold

(Bloomberg) Updated: 2014-07-18 07:17

CNPC is positioning itself to take advantage of its $400 billion deal with Russian supplier OAO Gazprom in May, the largest contract in natural-gas history. Under the accord, Russia will supply China with 38 billion cubic meters of natural gas a year from as early as 2018.

Former Kunlun Gas general manager Zhao Yongqi was appointed as Kunlun Energy's chief executive officer in December, a move that may help facilitate Kunlun Energy's acquisition of the gas unit, according to Shi of UOB.

Kunlun lost two chairmen - Li Hualin and Wen Qingshan - in August and December, as the government's crackdown on corruption zeroed in on CNPC. Wu Enlai was named as the company's new chairman last month. The company officials said the asset injection assumes no new scandals at Kunlun Energy or its parent.

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Kunlun Gas was established in Beijing in 2008 with registered capital of 6 billion yuan, according to its website. Its distribution business has an annual capacity of more than 5 billion cubic meters. The company does not provide financial data such as revenue or income on its website.

Cost savings could come from linking the two sets of infrastructure for urban retail sales and out-of-town LNG stations used by trucks, and by sharing pipeline and storage facilities. Kunlun Gas could also draw upon fuel from the LNG terminals run by Kunlun Energy.

Investors' appetite for Kunlun Energy's stock has not recovered from the graft investigation, said Laban Yu, a Hong Kong-based analyst at Jefferies Group LLC. The probe also snared other top CNPC officials, including former chairman Jiang Jiemin and deputy general manager Wang Yongchun.

"Many do worry about whether the new management at parent level will retain the commitment made by all the former leaders," Yu said. "The unreserved support from CNPC is the kind of special edge that no other natural gas supplier can compete with in China's market."

CNPC began to consolidate its natural gas business in 2009, allowing Kunlun Energy, formerly known as CNPC Hong Kong Ltd, to acquire LNG and pipeline assets and serve as CNPC's only platform for commercial LNG sales. The moves boosted CNPC's Hong Kong shares more than fourfold that year.

Kunlun Energy built more than 600 LNG fuel stations across the country in 2013, the company said in its annual earnings statement. The company's LNG processing capacity reached 7.18 million cubic meters in May and may expand to 17.38 million cubic meters by the end of the year, Goldman Sachs Group Inc said in a research note earlier this month.

Besides the Kunlun Gas deal, CNPC is also considering adding PetroChina's share of the Tangshan LNG terminal to Kunlun Energy, the company officials said. Kunlun already owns the group's two other large LNG facilities in Jiangsu and Liaoning provinces.