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

Shaanxi Gas listed company Shaanxi Natural Gas Co., LTD. (hereinafter referred to as Shaanxi Natural Gas, 002267.SZ) announced that after the completion of the above capital increase and share expansion, Yanchang Petroleum indirectly holds 55.36% of the shares of Shaanxi Natural Gas Company to achieve control of the company.

Shaanxi Natural Gas Company has 12 control and equity enterprises, with an annual allocation of 18.6 billion cubic meters of resources, more than 40 long-haul pipelines, a pipeline network mileage of 3,466 kilometers, a daily gas transmission capacity of 47.36 million cubic meters, and an annual gas transmission scale of 16.5 billion cubic meters, making it the provincial natural gas company with the longest pipeline network mileage, the largest gas transmission scale and the widest market coverage in China.

Shaanxi City Gas Industry Development Co., LTD., a wholly-owned subsidiary of Shaanxi Natural Gas Co., LTD., is a city gas enterprise with the broadest business scope in Shaanxi Province, mainly engaged in residential gas, industrial and commercial gas, gas station and gas station construction and operation.

Yanchang Petroleum told interface news that the integration of Yanchang Petroleum and Shaanxi Gas is progressing as scheduled, the approval has been completed, Shaanxi Gas has been fully included in the management of Yanchang Petroleum, and the management of major issues of the company has been fully docking.

The only "integration"

Holding Shaanxi Gas means that in addition to owning upstream resources, Yanchang Oil also owns midstream pipelines and downstream city gas.

In December last year, the National Oil and Gas Pipeline Network Group Co., Ltd. was established, and the oil and gas pipeline network assets belonging to the "three barrels of oil" were allocated to the company.

This also means that Yanchang Oil will become the only integrated upper, middle and downstream oil and gas producer in China.

Yang Jianhong, chief researcher of Beijing Shichuang Energy Consulting Company, believes that extending oil integration, from the point of view of Shaanxi Province, is conducive to the overall integration of oil and gas resources in the province and the development of provincial oil and gas industry, and improve the scale, intensification and specialization of its gas industry.

Together with Shaanxi Gas, it can greatly improve the supporting capacity of the pipeline network for extending oil to the consumer market, and can realize the balanced sales and consumption of natural gas produced by extending oil.

Shaanxi Gas can also rely on Yanchang Petroleum's self-produced natural gas as a stable supplementary gas source for Shaanxi province and the Fen-Wei Plain, and can rely on Yanchang Petroleum's entity industry investment and operation capacity to promote the construction of natural gas supporting branch pipe network and other infrastructure.

For the two sides "marriage", happy to see its success and the Shaanxi provincial government.

As a major energy province, petrochina Changqing Oilfield and Yanchang Petroleum are distributed in Shaanxi. However, with the increase of natural gas demand in recent years, Shaanxi has frequently experienced "gas shortage" in winter.

Only about 45 percent of Shaanxi's locally produced natural gas is for domestic use, while 55 percent needs to be exported. Its external market is mainly concentrated in North China, of which 82 percent of the gas supply to Beijing comes from Shaanxi.

Shaanxi Gas insiders have told the interface news that during the peak of winter gas use, petrochina sometimes cannot supply gas sources in accordance with the contract volume.

For a long time, CNPC is the largest gas source of Shaanxi gas, and the gas source of Yanchang Petroleum only accounts for about 20% of its total share.

After Shaanxi Gas is incorporated into Yanchang Petroleum, it will have a stable supplementary gas source, which is conducive to the realization of natural gas supply guarantee and regulation objectives in Shaanxi Province.

In recent years, CNPC has also expanded its territory in the urban gas market, which is bound to form a competitive relationship with Yanchang Petroleum.

A CNPC insider, who did not want to be named, told the interface news that LNG prices have long been market-oriented, and pipeline gas price control has been canceled, and after extending oil integration, higher profit growth will be achieved in the natural gas field, and the impact on CNPC's market share in Shaanxi.

In December 2018, petrochina set up the Shaanxi Branch of petrochina Natural Gas Sales (Kunlun Energy) in the Shaanxi city fuel market. At a symposium in September last year, Shaanxi Natural Gas said it hoped that CNPC natural gas Sales Shaanxi Branch would support the resource allocation of the Longnan sub-transmission station on the Sino-Guizhou liaison line and the capacity expansion of the Gaoling sub-transmission station on the second line of the West-East gas transmission.

Guo Jiaofeng believes that after the extension of oil integration, whether it can have an impact on the Shaanxi natural gas market pattern depends on the operation capacity of the two sides after integration.