China's gas price hike positive for companies

A natural gas price increase kicking off in China on Wednesday will significantly boost the profitability of Chinese gas companies, Moody's said on Monday. The rating agency said the price rise is credit positive for China's upstream natural gas suppliers, particularly China National Petroleum Corporation (CNPC), which supplies around 70 percent of natural gas that the country consumes. The National Development and Reform Commission (NDRC) said on June 28 it will increase the wholesale price of natural gas for non-residential users and expand the use of a market-based pricing mechanism. According to the commission, the average natural gas price at gate stations (where trunk pipelines connect with local gas distribution networks) will increase by around 15.4 percent to 1.95 yuan (0.31 U.S. dollars) per cubic meter. The tariff for residential users will not increase. "The price increase will significantly lift the profitability of CNPC's natural gas business," said Hu Kai, senior credit officer at Moody's. Hu estimated a 15 percent increase in the gas wholesale price and gas sales volumes to non-residential users will raise operating profit of CNPC's natural gas and pipeline segment by about 30 billion yuan. This is around 16 percent of CNPC's 2012 operating profit. The price hike will also benefit China Petrochemical Corporation and China National Offshore Oil Corporation, according to Moody's. "We believe these changes signal central Chinese government's intention to resolve the structural problems of the natural gas industry so it can be developed on a sustainable basis," Hu wrote in a report. The NDRC last raised natural gas prices in 2010.