The Impact Of The Epidemic Superimposed On Oil Prices, How Do Natural Gas Companies "Harden"?

Despite the impact of low oil prices on the economy of natural gas, the collapse of crude oil prices can ease the pressure on the cost side of upstream gas companies, conduct downstream and effectively reduce the cost of terminal gas consumption, and cooperate with the domestic implementation of the off-season price policy, which is expected to re stimulate the demand for terminal gas consumption.

The negative impact of the outbreak of the new crown pneumonia has not subsided, and the black oil swamp of the international oil price that has been "killing" halfway has tested the economy of natural gas. History is always strikingly similar. In 2015, under the circumstance of low international oil prices, China's natural gas industry has bid farewell to the period of rapid development.

It is worth noting that as the natural gas industry chain is facing the downstream users of the terminal users, the voice of the recent investment banks is fading. Citigroup's latest research report pointed out that, due to the global slowdown in economic growth, the outbreak of new crown pneumonia outbreak and the excessive supply of worries, international oil prices will continue to decline, will reduce sales forecasts for China's natural gas; big and securities also worried about the decline in oil prices or the reduction of natural gas competitiveness, so it lowered the target price of two domestic gas leading enterprises.

In fact, before the arrival of the new crown pneumonia epidemic, the global natural gas market showed signs of weakness due to oversupply. The appearance of warm winter overlay epidemic situation further aggravated the weakness of domestic natural gas consumption market. Despite the impact of low oil prices on the economy of natural gas, insiders told the twenty-first Century economic news reporter that the collapse of crude oil prices can alleviate the pressure on the cost side of upstream gas companies, conduct downstream and effectively reduce the cost of terminal gas consumption, and cooperate with the domestic early off-season price policy, which is expected to re stimulate the consumption demand of terminal gas consumption.

Gas enterprises under pressure

In March 16th, share prices continued to slump after China's 00384.HK. Since the collapse of international oil prices in March 9th, the company's stock price has fallen by more than 15%.

Since March 9th, China's gas, Kunlun energy (00135.HK), Huarun gas (01193.HK), new Austrian energy (02688.HK) and Hong Kong and China Gas (01083.HK) and other "five tigers" share price. Among them, Kunlun energy, new Austrian energy and Hong Kong and China gas have decreased by more than 25%, 12% and 14% respectively.

Citigroup recently lowered the target price of Chinese gas stocks: the target price of Huarun gas, China gas and Xin Ao energy was reduced from HK $48, HK $37.8 and HK $101 to HK $46, HK $33 and HK $96. In addition, the target price of Kunlun energy and new Austrian energy was reduced to HK $5.35 and HK $101 respectively from HK $9 to HK $102 per share.

Citigroup believes that the collapse of crude oil prices will hinder the pace of "coal to gas" in China. Therefore, the growth of natural gas retail sales volume of downstream natural gas distributors from 2020 to 2022 will be reduced. The bank further said that considering the correlation between the growth of China's natural gas retail sales and the trend of oil prices, the growth rate of natural gas retail sales of China's three largest natural gas distributors (Huarun gas, China gas and new Austrian energy) decreased from 10% to 21% in 2014 to 6% to 8% in 2015, considering the sharp drop in international oil prices in 2015. The volume of natural gas retail sales is increasing.

Big sum securities has similar reasons for reducing Kunlun's energy and new Austrian energy target price. The agency believes that the market is worried about the competitiveness or decrease of natural gas after the fall of oil prices, so it reduces the profit forecast and target price to reflect the expected decline in sales of natural gas.

So what is the "recurrent 2015 trend" that investment banks are worried about?

International oil prices continued to be low in 2015. The butterfly effect caused by low oil prices makes the application of natural gas in China's industry, automobile and other fields encounter the risk of "reverse substitution", and the economy of natural gas has been tested.

According to the National Bureau of statistics, in 2015, the apparent consumption of natural gas in China was about 193 billion 200 million, an increase of 3.4% over the same period last year, and the growth rate dropped by 6.2 percentage points.

Who is cheaper than oil and gas?

In the era of low oil prices, "who is cheaper than oil and gas" has become an unavoidable problem when looking at the prospects for the development of natural gas industry.

At present, the global natural gas market is in an oversupply situation, which makes the price of major international natural gas markets dive. "Excess supply capacity overlay warm winter weather, reduce LNG (liquefied natural gas) spot market demand, natural gas prices continue to decline." Xiong Wei, head of the pipeline gas trading department of the Shanghai petroleum and natural gas trading center, told the twenty-first Century economic news reporter that considering the outbreak of the epidemic also brought about dramatic reductions in gas consumption in various industries, coupled with the warm winter weather in the northern hemisphere, the situation of supply exceeding demand intensified and natural gas prices will continue to bear pressure.

In order to boost consumption, in February 22nd, the NDRC announced ahead of schedule the implementation of the natural gas price policy in the off season, and by reducing the gas price to stimulate terminal demand.

China's natural gas mainly uses four fields: industrial fuel, town gas, power generation gas and chemical industry. According to the China natural gas development report (2019), in 2018, the proportion of natural gas consumption in the above four fields was 38.6%, 33.9%, 17.3% and 10.2% respectively. Among them, the consumption of industrial fuel and town gas accounts for 72.5% of total consumption, which is the main consumption area of natural gas.

In the latest research report, Everbright Securities pointed out that under the low oil price scenario, the competition between natural gas and other oil and gas products is transportation fuel and industrial fuel. According to the data provided by Wind, in February 22nd, when the national development and Reform Commission requested the implementation of the natural gas price policy for the off-season implementation, the latest industrial gas price of the platform was basically flat with the price of fuel oil, and the latest LNG price was still lower than the retail price of diesel oil. This means that from the direct cost point of view, the price of natural gas has certain advantages.

But another risk is worth paying attention to. According to the domestic oil price adjustment mechanism, at 24 o'clock in March 17th, the domestic gasoline and diesel price will usher in a new adjustment window, and the new gasoline and diesel price will reduce the oil and gas price difference. However, in the view of CICC, if the international oil price falls further, the price of LNG will be more flexible downward.

In a recent research report, CICC pointed out that if the international oil price goes further down, the price of domestic refined oil will hit the bottom line price, and the domestic refined oil prices will no longer be lowered. The economic advantages of LNG as fuel will be further expanded. "

Xiong Wei told the twenty-first Century economic report that China's import pipeline gas and LNG long association pricing are closely related to oil prices. After the sharp fall in international crude oil, the import pipeline gas and LNG long price will be lowered, so as to ease the price upside down of the long association.

According to the current crude oil price, the price of natural gas is lower than that of the coastal city's benchmark gate station, which is equivalent to the import price plus gasification cost and short distance pipeline transportation cost. Xiong Wei said.

Sacrifice for price

In March 16th, the National Bureau of Statistics announced the situation of energy production in China from 1 to February this year. Data show that from 1 to February, China's natural gas production still maintained a relatively rapid growth. Among them, the output of natural gas is 31 billion 400 million cubic meters, and the daily average output is 520 million cubic meters, up 8% over the same period last year. The import of natural gas is 17 million 800 thousand tons, an increase of 2.8% over the same period.

But a faster increase in production speed will undoubtedly widen the gap between supply and demand.

The first quarter of the year is the traditional peak season for consumption of natural gas in China. However, under the influence of epidemic and warm winter factors, the domestic supply and demand situation of natural market has disappeared in recent years. Even though the consumption of gas in cities and towns has been increasing due to the epidemic, the consumption of natural gas has been dragged down because of the decline in the largest proportion of industrial gas.

In February 22nd, in order to support enterprises' resumption of production and resumption of work, the NDRC issued the circular on lowering the cost of non resident gas to support enterprises' resumption of production and resumption of production at a phased stage.

Directly reducing the price of gas will undoubtedly lead to the loss of Gas Co profits. However, the sacrifice of "price to volume" is a feasible strategy for China's natural gas industry to cope with the impact of the epidemic and low oil prices. Everbright Securities public environmental analyst Wang Wei team believes that reducing the price of natural gas to stimulate demand for terminal gas will become effective means to hedge low oil prices.

In addition, unlike the 2015 low oil price cycle, today's environmental regulatory upgrading and "coal to gas" policy drive support the long-term growth expectation of China's natural gas industry, so the "price to volume" situation will only exist for a short time.

Xiong Wei told the twenty-first Century economic news reporter that after the effective control of the epidemic situation, the cost of superimposed gas purchase and other factors will accelerate the recovery of urban gas and industrial gas consumption. Therefore, for urban gas enterprises, the next step is to strengthen the development of high-end market and scale users, expand non oil and gas business, build "Internet + energy" life circle around gas equipment, smart home, gas insurance and other fields, and accelerate the development of information, unmanned and intelligent direction.

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