Soochow: Annual natural gas contract pricing plan introduced. Expected city fuel purchase costs to decrease by 2025.

Soochow released a research report stating that the annual natural gas contract pricing scheme for 2025-2026 will be introduced, with slight increases in contract prices for PetroChina (00857) and decreases in coastal prices, as well as decreases in contract prices for Sinopec (00386). It is expected that the purchasing cost of urban gas in 2025 will decrease. With ample supply, gas companies can optimize costs; price mechanisms will continue to be adjusted and demand will increase. It is necessary to pay attention to the impact of policy changes related to US LNG, and whether companies with American gas sources can eliminate the impact through resale or other methods. 1) Lowering costs to stimulate purchases and promoting price stability; 2) Releasing overseas gas sources, focusing on companies with high-quality long-term resources, flexible scheduling, and long-term cost advantages. Key points from Soochow are as follows: Annual natural gas contract pricing scheme to be introduced in 2025-2026 PetroChina will decrease the proportion of regulated gas while increasing the proportion of market-based CLD; it is estimated that contract prices in 2025 will increase by 3 points, decrease by 3 points in coastal areas, and increase by 8 points in inland areas. If CLD prices decrease by 10% in 2025, then PetroChina's contract prices can remain the same as the previous cycle. According to the contract scheme for 2025, 1) Regulated gas: The proportion of non-heating season regulated gas resources will decrease from 65% to 60%, while the proportion in the heating season remains the same, with the price increase maintained at 18.5%. 2) Non-regulated gas: For the fixed price part, the proportion of resources in the heating season and non-heating season will be adjusted from 32% and 42% to 33% and 38%, with the price increase maintained at 70% (the price increase in new provinces like Gansu, Qinghai, Ningxia, Shaanxi, Mongolia, Heilongjiang, Jilin, Yunnan, Guizhou and Chongqing will not be less than 80%), showing a significant difference from the previous cycle where the price increases by 80% in coastal areas and 70% in inland areas; the proportion of resources for floating prices will be increased from 3% in the previous cycle to 7%, with pricing still referencing the "CLD" price of the Shanghai Petroleum and Natural Gas Exchange. 3) Peak load: The increase percentage from the previous cycle of 100% will decrease to 90%. Overall, the gas price in the 25th year contract will increase from 2.47 yuan/cubic meter in the previous cycle by 3 points to 2.50 yuan/cubic meter, showing a trend of price decrease in coastal areas and increase in inland areas. The contract gas price in coastal regions will decrease from 2.70 yuan/cubic meter in the previous cycle by 3 points to 2.67 yuan/cubic meter, while in inland regions, the contract gas price will increase from 2.20 yuan/cubic meter in the previous cycle by 8 points to 2.28 yuan/cubic meter. If CLD prices decrease by 10% in 2025, then PetroChina's contract prices can remain the same as the previous cycle. Sinopec will increase the proportion of basic resources and decrease the price increase rate; the market-based pricing ratio will decrease from 50% to 35%, with an estimated decrease of 9 points in contract prices for the 25th year. According to the contract scheme for 2025, 1) Government guidance price category: There are no changes to the proportions (30%) or price increase rate (18%) compared to the previous cycle. 2) Basic quantity: The proportion of resources will increase from 20% to 35%, and the price increase rate outside the heating season will decrease from 40% to 30%, while in the heating season it will decrease from 60% to 50%. 3) Pricing quantity: The proportion of resources will decrease from 40% to 30%, and pricing will still reference Sinopec's comprehensive long-term pricing. 4) Sequential pricing quantity: The proportion of resources will decrease from 10% to 5%, and pricing will still reference the "CLD" price index of the Shanghai Petroleum Exchange. Overall, the gas price in the 25th year contract will decrease by 9 points from 2.46 yuan/cubic meter in the previous cycle to 2.37 yuan/cubic meter. It is expected that the national urban gas purchasing cost will decrease in 2025 Looking at the natural gas production structure in 2023, PetroChina accounts for 58% and Sinopec accounts for 17%, together making up 75% of the national production. Considering the conclusions mentioned earlier, with the 25th year contract prices for PetroChina increasing by 3 points and for Sinopec decreasing by 9 points, it is expected that the comprehensive prices for PetroChina and Sinopec's contract quantities will remain stable. At the same time, it is observed that PetroChina and Sinopec are anticipating a decrease in market prices, with PetroChina reducing the increase percentage in the peak load of the 25th year contract from 100% in the previous cycle to 90% and Sinopec directly lowering the price increase rate for the basic quantity. With the easing of tensions between Russia and Ukraine, concerns about supply have decreased, leading to the prediction that the national urban gas purchasing cost will decrease in 2025. Risk warning: Economic growth is below expectations, extreme weather, changes in international situations, and safety operations.