Contents

Executive summary ........................................................................... 4
Industry outlook looks promising..............................................................................................4
Valuation ..................................................................................................................................4
Key risks...................................................................................................................................4
Major city gas utilities....................................................................... 5
Key points ................................................................................................................................5
Several industry consolidators have emerged ..........................................................................5
Access to capital and good operational track record are the key..............................................5
The big picture................................................................................... 8
Key points ................................................................................................................................8
Demand expected to outstrip supply........................................................................................8
Outlook for city gas operation........................................................ 10
Key points ...............................................................................................................................10
Plenty of scope for city gas network to grow.........................................................................10
Large, coastal cities will benefit first from increased supply ..................................................13
Regulatory environment favours the city gas sector...............................................................14
Reducing privatization opportunities (but still available) ..........................................................15
Threat from upstream players.................................................................................................15
Trend for city gas companies to move upstream....................................................................16
Towngas China ................................................................................ 17
Hong Kong & China Gas.................................................................. 31
XinAo Gas......................................................................................... 45
China Gas Holdings ......................................................................... 60
Appendix A: Gas tariff setting........................................................ 78
Upstream natural gas pricing ..................................................................................................78
Appendix B: The two-part tariff mechanism................................. 80
Background............................................................................................................................80
What exactly is a two part-tariff? ............................................................................................80
Appendix C: Upstream gas supply infrastructure ........................ 82
Key points ...............................................................................................................................82
Significant improvement in upstream gas infrastructure ........................................................82
Appendix D: Other players.............................................................. 86
Summary................................................................................................................................86
Zhengzhou Gas .......................................................................................................................86
Tianjin Tianlian Public Utilities Company .................................................................................87
China Oil and Gas Group.........................................................................................................88
Appendix E: Gas glossary ............................................................... 90
Gas fuel currently used in China..............................................................................................90