Moody's -- China's decarbonization drive will fuel gas demand, while liberalization will intensify competition
Research Announcement:
Moody's -- China's decarbonization drive will
fuel gas demand, while liberalization will intensify competition
Hong Kong, August 19, 2022 --
» China’s decarbonization drive will sustain long-term gas demand, while liberalization policy will
intensify competition and trigger consolidation
» Most rated issuers can withstand drop in new gas connections due to recent property downturn
and thinner margins due to rising input costs
China’s greening of the economy will sustain demand for gas as a transitional fuel over the long
term. Meanwhile, the country’s further liberalization of the industry will ramp up competition and fuel
consolidation, according to Moody’s Investors Service in a new report.
“Given China’s decarbonization drive, the Chinese government will continue to promote gas
consumption during the 14th five-year plan, in absolute terms and the fuel’s share of overall energy
consumption. Although the property sector downturn will hurt new gas connections over the next
12-18 months and rising fuel costs will narrow margins, most rated gas issuers will maintain
sufficient financial headrooms,” says Qingqing Guo, a Moody’s Assistant Vice President and Analyst.
Domestic natural gas reserves and production have continued to increase in China, but consumption
growth has been even stronger, driven mainly by strong demand from industrial fuel and city gas
consumption, as well as gas-fired power generation. China has become the world’s largest natural
gas importer with increasing reliance on liquefied natural gas to meet the consumption gap.
The government’s liberalization of the natural gas industry will intensify competition. The government
aims to achieve a smoother cost pass-through mechanism and lower end-user prices, and has
relaxed restrictions on foreign investments in the industry and vertical integration between the
downstream and upstream sectors.
“We expect more consolidation to occur under the government’s liberalization policy given the
fragmented gas industry with over 2,000 city gas utilities companies. And although downstream
distribution is dominated by large top-tier players, they are seeking alternative revenue drivers along
the business chain,” added Guo.
Moody’s expects most rated issuers to have sufficient buffer to withstand lower new gas connections
over the next 12-18 months due to the property sector downturn and narrower margins due to higher
commodity prices.
Subscribers can access the report at:
http://www.moodys.com/researchdocumentcontentpage.aspx?
docid=PBC_1336781
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Ning Loh
Associate Managing Director
Project & Infrastructure Finance
Moody's Investors Service Hong Kong Ltd.
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
Qingqing Guo
AVP-Analyst
Project & Infrastructure Finance
MIS Beijing Shanghai Branch
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