Cinda Securities released a research report stating that as the global natural gas supply-demand dynamics gradually shift toward a buyer's market, gas prices are expected to decline from 2026 onward, bringing cost advantages to domestic city gas companies and stimulating price-sensitive demand. Additionally, residential gas price adjustments and market-oriented gas pricing reforms are expected to enter a favorable window, jointly driving industry profit recovery. The firm believes city gas companies have entered an era of bond-like valuations, offering long-term allocation value, and recommends focusing on opportunities in the sector during the gas price downtrend.
**Global Supply-Demand Dynamics: North American Supply Expands, Demand Shows "West Strong, East Weak" Pattern** Since 2025, global natural gas supply and demand have exhibited a "tight early, loose later" trend temporally and a "West strong, East weak" pattern spatially. On the supply side, LNG capacity has steadily increased, with U.S. exports leading significantly, further concentrating global LNG supply in North America and the Middle East. On the demand side, Asia's market fundamentals remain weak, with LNG imports sharply declining, primarily due to reduced Chinese demand. Europe, however, has seen strong demand for pipeline gas substitution, driving high LNG import growth. Price-wise, the year has shown a "high early, low later" trend, with structural changes such as the return of the "European premium" and a systemic rise in U.S. Henry Hub (HH) gas prices driven by exports.
Looking ahead to 2026–2029, as new liquefaction capacities in the U.S., Qatar, and other regions come online, the global natural gas market will further transition into a buyer's market, with Eurasian gas prices expected to decline.
**Domestic Market: Russian Gas Displaces LNG Imports, Price Declines Drive Demand Recovery** Domestic gas production has steadily increased, while pipeline imports via the China-Russia Eastern Route have risen year-on-year. High prices have suppressed LNG imports, reducing China's reliance on foreign gas. Demand has shown a "low early, high later" recovery trend, with China Petrochemical Economic & Technology Research Institute forecasting a 1.2% year-on-year increase in China's natural gas apparent consumption for 2025.
**Shifts in City Gas Revenue Structure: Declining Connection Fees, Stagnant Core Business, and New Growth Drivers** City gas companies' revenue structures have undergone significant changes: 1) Connection fee income and profits have plummeted due to the real estate downturn, reducing associated risks. 2) Slowing natural gas consumption growth has pushed core gas sales into a stock competition phase. 3) New businesses like integrated energy have emerged as secondary growth drivers.
Companies have adopted varied strategies based on their exposure to risks and opportunities. For example, China Gas saw rapid risk exposure but also early mitigation, while China Resources Gas demonstrated resilience due to its presence in core cities and synergies with group real estate. ENN Energy actively reduced reliance on connection fees, maintaining moderate exposure. In new business segments, ENN leads in integrated energy with early expansion and rich experience, while China Gas excels in value-added services.
**Industry Consensus: Building Independent Resource Pools with Downstream Focus** Following the high-price, tight-supply market of 2022–2023, building diversified, self-controlled resource pools has become an industry consensus to reduce reliance on traditional suppliers and gain cost advantages in a future low-price cycle. ENN Energy leads in resource pool development, with China Gas and China Resources Gas accelerating their efforts. By 2026–2027, as overseas LNG contracts take effect, companies' resource pools will further solidify, reshaping cost structures and profit flexibility.
Downstream demand is expected to be driven by high-end industrial and power plant gas usage. Competitive advantages and strategic choices shape companies' downstream structures—Kunlun Energy and ENN focus on industrial and commercial users, China Resources has the strongest commercial base, while China Gas serves the largest residential segment.
**Future Trends: Buyer’s Market Reshapes Competition, Cost Reductions Boost Profit Flexibility** The transition from a seller's to a buyer's market may bring the following changes for city gas companies: 1) Lower procurement costs for market-based gas sources. 2) Intensified downstream competition, pressuring end-user prices as large industrial and power plant users demand discounts. 3) Cost declines may stimulate price-sensitive demand. 4) Residential price adjustments and gas pricing reforms could advance.
ENN Energy, with its forward-looking resource pool strategy, is well-positioned to benefit from this shift. China Gas presents strong turnaround potential due to its high residential gas share and long-term contracts, while China Resources Gas remains stable but lacks upside. Kunlun Energy may face challenges under the new market dynamics.
**Valuation: Long-term Allocation Value, Focus on Opportunities During Gas Price Decline** With the end of high connection fee profits, city gas valuations have shifted from growth to bond-like assets, with average P/E ratios dropping from 15–20x to 8–12x. Hong Kong-listed city gas companies now offer rising dividend yields (averaging ~4.9% in 2024), alongside declining capex and stable operating cash flows. Driven by profit recovery and dividend growth, the sector holds long-term allocation value.
**Risks:** Weaker-than-expected economic growth dampening gas demand; delays in upstream LNG capacity expansion; geopolitical risks disrupting supply; sharp rises in global oil and gas prices; slower-than-expected residential price adjustments.
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