Reportedly, the State-owned Assets Supervision and Administration Commission (SASAC) of Shanxi Province recently plans to set up Shanxi Gas Group Co., Ltd. The company will be regrouped and integrated through ways like asset transfer, equity transfer and equity cooperation. The regrouping covers 100 percent state-owned equity of Shanxi Guoxin Energy Corporation Limited (600617.SH), gas sector of Shanxi Jincheng Anthracite Mining Group Co., Ltd., gas sector of Taiyuan Coal Gasification (Group) Corporation Limited, 100 percent state-owned equity of energy industry under Shanxi Energy & Traffic Investment Co., Ltd., 30 percent equities of Shanxi Coal Bed Methane Limited Liability Company held by Shanxi Coal IMP. & EXP. Group Co., Ltd.
After the reorganization is completed, Shanxi Gas Group will become the first provincial-level natural gas company in China that integrates gas exploration, development, pipeline and gas terminal.
In response, two listed companies issued a notice, confirming the matter.
On November 25, Shanxi Guoxin Energy Corporation Limited (600617.SH) issued an announcement, confirming the fact that the State-owned Assets Supervision and Administration Commission of Shanxi Provincial Government will organize Shanxi Gas Group. But Shanxi Guoxin Energy Corp. has not yet received any formal documents on the organization, and any specific implementation plan.
The announcement said that this time the 100 percent stake of Shanxi Guoxin Energy Corp. will be transferred to Shanxi Gas Group. At present, the program does not involve the listed company. Therefore, it will not result in change in the listed company’s controlling shareholder and actual controller.
It is learnt that Shanxi Guoxin Energy Corp. is a leading gas pipeline enterprise in Shanxi. It has built more than 5,000 km of long-distance pipelines, accounting for more than 90 percent of the total distance of Shanxi Province. In 2016, the company sold over 3.3 billion cubic meters gas.
"At present, Shanxi Guoxin Energy Corp.’s gas is mainly provided by PetroChina. After the establishment of Shanxi Gas Group, the company is expected to acquire low-cost coal-bed methane as an important supplementary gas source," said Guo Lili, an analyst at Founder Securities.
Later, Shanxi Blue Flame Holding Company Limited (000968.SZ) also said in an announcement on the evening of November 26 that it is reported that the SASAC of Shanxi Provincial Government plans to set Shanxi Gas Group and considers consolidating assets and personnel of the gas industry owned by its controlling shareholder Shanxi Jincheng Anthracite Mining Group Co., Ltd. into Shanxi Gas Group. Shanxi Jincheng Anthracite Mining Group verified the news with the SASAC of Shanxi Provincial Government, and found it true. However, Shanxi Jincheng Anthracite Mining Group has not received any formal documents on the organization, and any specific implementation plan.
Guo Lili also said that the reorganization of the gas industry chain in the province will improve the concentration of the gas industry in Shanxi Province, reduce competition and internal friction among state-owned enterprises (SOEs) in the same industry and promote "gasification in Shanxi" strategy. For the upstream mining enterprises, their technical strength will be enhanced after the reorganization and their downstream customers will be more stable. For the midstream pipeline transportation companies, the consolidation will promote the reform of natural gas price system. For downstream gas distributors, they will be able to obtain lower-cost, stable gas source.
It should be mentioned that as a traditional coal province, Shanxi is transforming into a resource-based economy demonstration area.
According to the Shanxi Provincial Coalbed Methane (CBM) Exploitation Plan (2016-2020), by 2020, Shanxi will strive to achieve a CBM extraction volume of 20 billion cubic meters and ground production capacity to reach 300-400 billion cubic meters a year. This means that Shanxi Province will become another big natural gas producing area in China.
However, meanwhile, due to the existence of competition in the market, major provincial-level gas companies in Shanxi Province have not been able to achieve interconnection due to competition, resulting in an increase in pipeline transportation costs and a low operating efficiency of the pipeline network.
"The establishment of a provincial-level natural gas company in Shanxi Province will facilitate the integration of resources in the province." Liu Guangbin, an analyst at Sublime China Information Co., Ltd., told the Securities Daily that for a long time there are abundant natural gas resources in Shanxi Province, which mainly are CBM in the local. However, as mining companies are diversified and cannot well integrate the resources, the CBM resource in the province did not bring too much benefit to the province. In other words, it brings no more advantages in gas utilization to Shanxi Province than other cities. After the completion of the integration, Shanxi Gas Group will continue its efforts in the upper and middle reaches and transform CBM into the driving force behind the development of the local natural gas market.
In his view, if the provincial gas company can bring actual benefits to the province's natural gas market, for example, investing heavily in pipe networks and other infrastructure and implementing pricing mechanism reforms, this will be conducive to the development of the market. However, if it merely forms a market monopoly as an intermediary and does not bring more benefits to the local market, it may also become an obstacle.
Translated by Jennifer Lu, Coral Zhong
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