May 17th, 2012 | Global Times China Resources Gas buys AEI, PetroChina to develop new LNG facility
China Resources Gas Group announced Wednesday that it had agreed to buy gas distributor AEI China Gas Ltd for $237.7 million, one of the latest acquisition deals in the booming gas sector.
Hong Kong-listed China Resources Gas, which has 73 city gas projects in 16 provinces and is controlled by State-owned China Resources Holdings, said it would buy the entire issued share capital of AEI China, which operates 28 city gas projects, eight gas stations and four gas pipelines in 11 provinces, from US energy firm AEI Asia Ltd.
China has a fixed layout in the city gas sector, with only one gas distributor in one city, and the best way to expand market share is to acquire existing companies, Qian Li, a natural gas analyst with Shanghai-based energy consulting firm C1 Energy, told the Global Times Wednesday.
There are almost 600 small city gas distribution companies, which have weak bargaining power as most gas resources are controlled by power giants like Sinopec, Han Xiaoping, chief information officer at Chinese energy portal china5e.com, told the Global Times.
“Consolidation would help form larger companies with enhanced negotiation ability and improved services, which would be good for the sector,” Han noted.
Moreover, it is cost effective to buy companies at the moment, as the current sluggish capital market means that their market value is relatively low, he said.
China Resources Gas, which acquired Zhengzhou Gas in February, said in March that it expects to spend HK$6 up to HK$8 billion on acquisitions in 2012, compared with $3 billion last year.
Energy giants like PetroChina and Sinopec are also strengthening their presence in the fast growing sector.
Also Wednesday, PetroChina announced it would develop a LNG (Liquefied Natural Gas) export facility in Canada together with Shell Canada Ltd, Korea Gas Corporation and Mitsubishi Corp.
Sinopec and ENN Energy Holdings Ltd made a joint HK$16.7 billion ($2.2 billion) bid last December to buy gas distributor China Gas Holdings, which is still under an anti-monopoly investigation by the Ministry of Commerce.
China Gas Holdings, ENN Energy and China Resources Gas are among the largest gas players in China.
The natural gas sector has good prospects as prices are expected to be increased to better enhance resource utilization, following a pilot price reform in South China’s Guangdong and Guangxi that began on December 26, 2011, Qian said.
“Purchasing city gas companies can ensure profitability for buyers as the number of city gas users is on the rise. It is also in accordance with the adjustment of China’s energy strategies, as China is constantly increasing the investment in clean energy to cut the proportion of coal in overall energy use from the current 70 percent,” said Han.
By Chen Dujuan