The continuous deepening of China’s oil and gas system reform and the official operation of the National Pipeline Network Group have given birth to a new competitive landscape in the oil and gas industry chain. As the urban gas industry downstream of the natural gas industry chain, it has moved from the “golden ten years” of staking horses and enclosing territory and expanding territory to the era of “Spring and Autumn and Warring States”.
Recently, Town and China Gas Co., Ltd. (01083.HK) and its parent company Hong Kong and China Gas Co., Ltd. (00003.HK) issued a joint announcement announcing that Town and China Gas has Completed the capital increase to Shanghai Gas Co., Ltd., directly holding a 25% stake in the latter. This is the first step for the two major city gas giants to join forces in depth. According to the cross-shareholding agreement signed last year, Shanghai Gas will also hold 25% of Hong Kong and China Gas to achieve “two-way access.”
In the highly competitive urban combustion industry, this is a very rare cooperation model. Hong Kong and China Gas is one of the largest city gas in the Mainland. The total sales volume of Hong Kong and China Gas and Hong Kong and China Gas in Mainland China in 2020 will reach 26.9 billion cubic meters. Shanghai Gas has a market share of more than 95% in the local terminal market in Shanghai. As of 2019, the city’s natural gas supply scale was nearly 9.8 billion cubic meters.
Ji Weiyi, Executive Director and Chief Operating Officer of Hong Kong China Gas, said in a news interview that after the natural gas pipeline network and other midstream infrastructures are independently operated and interconnected, Shanghai Gas’s upstream imports The gas source, the Yangshan Port Liquefied Natural Gas (LNG) terminal, the Hong Kong and China Gas and Hong Kong China Gas’s Hong Kong and China Jintan Gas Storage, and the downstream market foundation will form a unique and complete “production, supply, storage and marketing” industrial chain. The two companies will start from the Yangtze River Delta region and expand their market coverage to the whole country with the progress of the national pipeline network reform.
A cross-shareholding transaction with a consideration of 4.7 billion yuan
Shanghai Gas and Hong Kong and China Gas’s holding parent company, Hong Kong and China Gas, can be described as having the same root and the same origin. It originated from the “self-burning houses” opened by British merchants in Shanghai and Hong Kong in the 1860s. At present, Shanghai Gas has developed into one of the largest comprehensive urban gas operation companies in China that integrates natural gas pipeline network investment, construction and operation, gas procurement, transmission and distribution, dispatching, sales and service.
However, compared with Beijing Gas, which is also a super-large single city gas supplier and actively expands its business layout outside of Beijing, Shanghai Gas is the envy of its peers. With the advantages of multiple gas sources and international resource channels, the market area is highly concentrated in Shanghai.
The “mixed reform” has become a breakthrough point for it to move towards the whole country. Shanghai Gas is a “Double Hundred Enterprise” listed in the “Double Hundred Action” of the State-owned Assets and State-owned Enterprise Reform of the State Council and a pilot enterprise for the “Mixed Reform” of the National Development and Reform Commission. The mixed reform plan was approved by the Shanghai State-owned Assets Supervision and Administration Commission in October 2018. Shanghai Gas hopes to use the “catfish effect” by introducing strategic partners to stimulate the vitality of state-owned enterprises. After some fierce bidding, Hong Kong and China Gas became a strategic partner for the introduction of Shanghai Gas’s mixed reform. 
Hong Kong China Gas and Shanghai Gas signed a gas source synergy framework agreement. The third from the right is Hong Kong China Gas Executive Director and Chief Operating Officer Ji WeiyiThe announcement issued by Hong Kong China Gas in October last year disclosed that it invested 4.7 billion yuan to acquire 25% of Shanghai Gas’s equity and will issue ordinary shares to Shanghai Gas to achieve a reverse 25% shareholding. In April of this year, the two parties extended their cooperation and signed a gas source coordination framework agreement. According to the agreement, Shanghai Gas will rely on resource facilities such as Yangshan Port and Wuhaogou Liquefied Natural Gas to provide gas source supply and dispatching requirements for Hong Kong and China Gas in various regions, realizing the deep integration of resources between the two parties. Hong Kong and China Gas will rely on Shanghai Gas’s resource advantages in the Yangtze River Delta, and cooperate with Jiangsu and Zhejiang city gas project companies as the first batch of download pilots to further extend cooperation in resource procurement and market sales development.
Ji Weiyi told the news that the two parties are currently promoting Shanghai Gas’s 25% stake in Hong Kong China Gas. This deep binding is to integrate their respective advantages. “Shanghai Gas and its parent company, Shenergy Group, have a very early layout for the upper and middle reaches, especially with the Yangshan Port LNG terminal with a construction scale of 6 million tons per year. For Shanghai’s natural gas consumption market, Shanghai Gas’s The gas capacity is relatively surplus. Hong Kong and China Gas and Hong Kong China Gas hold and participate in a large number of city gas and gas storage projects in the Yangtze River Delta region. The resources of the two parties have strong synergy. With imported gas resources and receiving stations The terminal, through the interconnected national pipeline network, can supply gas to the city gas companies of Hong Kong and China Gas.”
The key link in the chain is the natural gas pipeline interconnection. Before the oil and gas reforms, the “three barrels of oil” imported LNG resources through long-term agreements or spot purchases were delivered to receiving stations located in coastal areas and transported by upstream companies such as China National Petroleum Corporation to urban gas gates, and then passed through the urban pipeline network. Wait for the “capillaries” to be exported to natural gas users of different pressure levels.
In recent years, although city gas companies are very enthusiastic about importing LNG, it is not easy to borrow the “three barrels of oil” to invest in the construction of receiving stations. In addition to obtaining terminal permits and submitting applications, there is also a window period given by the “three barrels of oil”.
As the reform of the oil and gas system advances in depth, the National Pipeline Network Group, which receives assets such as the “three barrels of oil” pipeline and receiving stations, will operate in 2020 until the end of March 2021 , The integration of domestic oil and gas backbone pipeline network assets has been fully completed. After the establishment of the pipe network group, foreign-funded enterprises and private enterprises can also use the pipeline transmission infrastructure that is fair and open to third parties. This is a key change in the market. The goal of China’s oil and gas market reform is to form “X+1+X”: a unified and efficient oil and gas pipeline network across the country, forming a strong “middle”, with full competition in the upstream and downstream markets, with the upstream being multiple gas sources and the downstream being terminal sales.
“The establishment of the National Pipe Network Group has made the urban gas industry the possibility of resource sharing.” Ji Weiyi believes that the natural gas industry will continue to be in Period of rapid development. The Yangtze River Delta region is one of China’s main LNG markets. Shanghai and its neighboring provinces have clearly set targets for natural gas consumption growth in the “14th Five-Year Plan”. After the formation of the “One National Network”, the target market for Hong Kong China Gas and Shanghai Gas is not only in the Yangtze River Delta, but in the whole country. “Where the national pipeline goes, the market will extend from it. Advance step by step.”
The layout of Hong Kong and China Gas and Hong Kong China Gas’s coastal receiving stations
The cooperation between Shanghai Gas and Hong Kong China Gas has extended the market reach of Shanghai Gas to In addition to Shanghai, it has also enriched the industrial chain layout of Hong Kong and China and its parent company in East China. “We have been looking for various import channels.” Ji Weiyi told the news.
Hong Kong and China Gas is one of the first city gas companies to set up domestic receiving terminals, and has participated in the Guangdong Dapeng Terminal, the first LNG terminal in the Mainland. As a shareholder, Hong Kong and China Gas has the right to use the Dapeng terminal. In addition, the Shenzhen Huaan LNG terminal, which is wholly-owned by Shenzhen Gas, a company that the group shares, will also be put into operation in 2019.
However, it is the Tangshan Caofeidian and Cangzhou Huanghua Port receiving stations that will enable Hong Kong and China Gas to obtain greater air source protection capabilities.
In the Tangshan project, Hong Kong China CoalQi’s way of participation is very special. In August 2020, Hebei Xintian Green Energy Co., Ltd. announced that it signed an agreement with Tangshan Haohua, a wholly-owned subsidiary of Hong Kong and China Gas. Hong Kong and China Gas designated Tangshan Haohua to fund the construction of two 200,000 m3 storage tanks in the Tangshan LNG project. After the project is put into production, the project company will provide Tangshan Haohua with supporting services such as operation management, LNG unloading, gasification export, and liquid export, and will charge service fees. In other words, Hong Kong and China Gas has obtained the channel to import LNG independently, and will be able to import upstream resources from the Tangshan LNG receiving station at the end of next year.
Ji Weiyi revealed that Hong Kong and China Gas is still advancing the Huanghua Port LNG receiving terminal project in Cangzhou, Hebei, in which it is participating. According to public information, the total investment of the Huanghua Port project is about 6 billion yuan, and the design scale of receiving and processing capacity is 3 million tons per year. After the project is completed and put into operation, it will focus on meeting the gas demand in central Hebei and southern Hebei, and will form a mutual relationship with the Tangshan Caofeidian receiving station. The power of the corner guarantees supply to the Beijing-Tianjin-Hebei region. 
Hong Kong and China Jintan Gas Storage
In addition, Hong Kong and China Gas and Hong Kong and China Gas have built Jintan underground salt cavern gas storage in Jintan, Changzhou, Jiangsu. The role of gas storage is to store the surplus gas during the low peak period of gas consumption, and to extract the gas supply at the peak of gas consumption, and to play the role of underground gas storage in the peak shaving and valley filling of the natural gas supply chain.
“From South China, North China, to East China, a relatively uniform midstream layout covering the entire coastal area is formed.” Ji Weiyi said that at present it is still based on the “three barrels of oil”. “The mode of gas purchase is the main one. In addition, Hong Kong and China Gas is also discussing some long-term contracts. In the future, it also hopes to lock in the amount of resources through some long-term contracts, so as to improve the ability of independent protection of resources in winter.