Natural gas: Steady growth is still in sight

Industrial chain company influence geometry

The industrial chain of natural gas can be roughly divided into three links: upstream gas production, midstream gas transmission and downstream consumption. From the upstream perspective, although natural gas sales fell for the first time, it did not have much impact due to the high concentration of upstream exploration and production companies. In the first three quarters of 2022, petrochina ranked first in the "three barrels of oil" with a production of 93.329 billion cubic meters, a year-on-year increase of 5.1%, accounting for 58.31% of the total domestic natural gas production; Sinopec's natural gas output was 25.88 billion cubic meters, up 4.1% year-on-year, accounting for 16.17% of the country's total output; Although the production of CNOOC is only 11.885 billion cubic meters, with the development of Baodao 21-1, the first deep-water and deep gas field in China, the natural gas production of CNOOC increased by 20.6% year-on-year, which is the fastest growing company in the "three barrels of oil". From January to September 2022, the total production of "three barrels of oil" natural gas reached 131.094 billion cubic meters, accounting for 81.90% of the total national production.

From the perspective of midstream natural gas supply channel structure, domestic gas accounted for 55.07% in 2021, and imports included imported LNG and imported pipeline gas, accounting for 29.21% and 15.72% respectively. As domestic gas accounts for more than half, the vast majority of China's natural gas extraction and main pipeline transportation are completed by "three barrels of oil" and its companies.

From the perspective of downstream consumption, in 2021, China's urban gas consumption will account for 38% of the total natural gas consumption, industrial gas consumption will account for 36%, power generation gas will account for 18%, and chemical gas will account for 8%. The natural gas industry is characterized by high concentration in the upstream and more dispersed in the downstream, and the two biggest factors determining the performance of downstream natural gas sales companies are price and volume.

From the point of view of pricing, there are three main pricing models: 1. Cost plus pricing, the price of natural gas is determined according to the production cost plus reasonable profit of production and operation enterprises. This method is usually adopted by countries with rich natural gas resources in the initial stage of natural gas development, which is convenient for government supervision and can better protect the interests of consumers. It is also easy to underestimate the market value of natural gas, and blind expansion causes resource waste and aggravates the contradiction between supply and demand; 2. Market net return pricing is a pricing method in which prices of all links of the natural gas supply chain are formed by push-back based on the market value of natural gas in the terminal market. The drawbacks of cost plus pricing can be avoided by adopting market net return pricing; 3. Market competition forms the price. At present, the United States, Canada, the United Kingdom and other natural gas resources are rich and the market is mature. In addition to the transmission and distribution links are strictly regulated by the government due to the typical characteristics of natural monopoly, the import and terminal sales prices of natural gas are formed by market competition, and the typical characteristics of the price formed by market competition are determined by supply and demand.

China's natural gas pricing model mainly adopts the "market net return" pricing mechanism. The price of upstream natural gas is guided by the government and issued by the National Development and Reform Commission. The specific price is determined through negotiation between the supply and demand parties within the maximum price range stipulated by the government. Upstream gas supply units are usually determined according to their respective natural gas production costs or procurement costs as well as petrochina or Sinopec's internal pricing standards, and the actual floating space is very small.

The sales prices of natural gas for all types of downstream users are set by the pricing authorities of local governments, and the sales prices of other users have no floating space, except that some industrial users and CNG wholesale can negotiate the upper limit of the prices set by the local pricing authorities.

From the perspective of volume, the natural gas sales company usually signs a one-year written contract with the gas supplier every year, in which the purchase price of natural gas, the gas supply or the determination method of the gas supply, the measurement method, the quality requirements, the settlement method and other matters are agreed. The annual gas purchase is usually agreed in the contract, or it is agreed that the company will submit the gas consumption plan to the gas supplier every month or quarter, and then the gas supplier will determine the gas supply plan to the company next month or next quarter according to the actual supply and demand balance. The measurement of the actual purchased gas is usually confirmed by the two parties to the contract at the natural gas pipeline junction at regular intervals every day according to the flow meter display. In general, the consumption of natural gas in each city will not change much.