China's "fourth barrel of oil" to compete for natural gas market, can it make a leap?

In addition to "three barrels of oil", there is also a local state-owned enterprise located in Shaanxi Province. It is Shaanxi Yanchang Petroleum Group (hereinafter referred to as Yanchang Petroleum), known as China's "fourth barrel of oil."

In the past year, the action of extending oil in the natural gas field has been continuous.

On December 25 last year, Shaanxi Yanchang Oil and Natural Gas Co., Ltd. was officially listed in the Western Equity Exchange, trading 30% equity. After that, five investment companies were introduced to diversify the shareholding structure.

At the end of March this year, Yanchang Oil announced that its subsidiary Shaanxi Yanchang Oil and Natural Gas Co., LTD. (hereinafter referred to as Yanchang Natural Gas Company) was officially established.

The predecessor of Yanchang Natural Gas Company is Shaanxi Yanchang Oil and Natural Gas Co., LTD. The company was established in November 2015, wholly owned by Yanchang Petroleum, under the administration of Linzhen, Ansai, Yangjiawan, Yanchuan and Zhidan five natural gas liquefaction plants, production capacity of 1.1 million tons/year, is the country's largest LNG production and operation enterprises.

Yanchang Petroleum told interface news that Yanchang Natural Gas Company will rely on Yanchang Petroleum's natural gas resources, extend the natural gas industry chain, form an upper, middle and downstream industrial development model, and lay the foundation for the next step of integrating LNG resources.

In addition, Yanchang Petroleum is also carrying out preliminary studies on coastal LNG terminals and LNG trading business.

Compared with the "three barrels of oil", the development rate of extended oil in the natural gas industry was slightly slower. Now, it's starting to change.

Bet on natural gas

As a century-old oil company, Yanchang Oil is a rookie in the field of natural gas.

It was only in 2014 that it got the impetus to develop natural gas. That year, the international oil price ended its five-year high, falling from $100 / barrel to $55 / barrel, and continued to fall, and the performance of oil companies fell to the freezing point. During the year, Yanchang Oil's natural gas production was only 600 million cubic meters.

In 2015, Yanchang Oil suffered its first loss in a decade, with a net loss of 1.119 billion yuan and a net profit of 8.1 billion yuan less than the previous year. But that year, gas production from Yanchang Oil rose 183 percent to 1.7 billion cubic meters.

At this time, the domestic natural gas industry ushered in a golden period. "Three barrels of oil" have begun to lay out the natural gas industry, CNPC completed the integration of Kunlun Energy (00135.HK) and Kunlun Gas, and determined the only development platform in the field of comprehensive utilization of natural gas terminals.

In 2016, Yanchang Petroleum formally proposed to create a "gas based, oil and gas development, multi-resource exploration" situation. It is the first time that Yanchang Oil, which has been focusing on oil, has prioritized natural gas development.

In May 2017, The State Council issued Several Opinions on Deepening the Reform of the Oil and Gas System. At the end of the year, the civilian "coal to gas" vigorously promoted, the domestic natural gas industry rapidly set off a development boom, the annual natural gas consumption increased by more than 17%.

But the proportion of natural gas production of extended oil is still small. Last year, its natural gas production was 4.8 billion cubic meters, accounting for only 3 percent of the country's total gas production of 173.6 billion cubic meters. The company aims to produce 5.5 billion cubic meters by 2020.

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Source: Yanchang Petroleum 2017 Social Responsibility Report

Since the previous natural gas production is small, the natural gas from the extended oil production is generally used to meet the municipal gas around the Yan 'an area after liquefaction.

In 2012, Yanchang Petroleum put into operation two natural gas liquefaction plants in Linzhen and Yangjiawan; In 2014, another natural gas liquefaction station was built in Yanchuan, Zhidan and Ansai respectively.

Thanks to this, Shaanxi is one of the provinces with the largest number of LNG liquefaction plants in China, 70% of which live in northern Shaanxi.

However, it is difficult to extend the development of the oil and gas industry, and if you want to open up the market, you must solve the problem of long-distance transportation and sales channels of natural gas.

In addition, the international oil price in recent years has always been low, and the profit space of enterprises based on upstream production has been squeezed. Advancing into the natural gas consumption terminal has become a new profit growth point for oil companies.

Expanding the oil and gas industry chain has also become necessary to prolong the survival of oil.

In this context, Shaanxi Gas Group (hereinafter referred to as Shaanxi Gas) has become the most suitable "marriage" object for extending oil.

In September last year, Yanchang Petroleum increased capital and shares to Shaanxi Gas by means of asset placement, thereby holding 52.45% of Shaanxi Gas shares and becoming its controlling shareholder.