CITIC SEC: Increase in the degree of contract marketization, urban gas prices still have room to decrease

CITIC SEC released a research report stating that with the landing of the PetroChina gas price contract, the uncertainty of the purchasing cost of city gas companies has been largely resolved. With more market-oriented gas price contracts, it is expected to promote the gradual elimination of the dual-track pricing system of gas prices in the upstream and downstream sectors. Based on the bank's calculation of contract prices and its judgment on market supply and demand, the bank expects that the gross profit margin of city gas companies in 2025 is likely to continue to expand with factors such as falling import gas prices, further boosting performance recovery. Key points of CITIC SEC: PetroChina's annual natural gas pricing schemes for 2025-2026 are introduced. Compared to the contracts for 2024-2025, the proportion of regulated gas and non-regulated gas prices above the gate benchmark price remains the same. The proportion of regulated gas supply during the non-heating season has decreased from 65% in the previous year to 60%, and the proportion of floating non-regulated gas throughout the year has increased from 3% to 7%. The decrease in the proportion of regulated gas supply promotes a more market-based pricing mechanism. Compared to previous years' PetroChina natural gas pricing contracts, the price mechanism shows three major trends in change: 1) The continuous decrease in the proportion of regulated gas supply. The proportion of low-cost regulated gas during the non-heating season has decreased from 75% in 2022 to 60% in 2025, thereby raising the overall gas price level. 2) Further increase in the proportion of floating gas in non-regulated gas. Starting in 2023, the contract price includes a new portion of floating non-regulated gas, pegged to LNG spot prices. By 2025, the proportion of floating gas has increased to 7%. 3) Convergence of residential and non-residential gas prices. Before 2023, the price increase for residential and non-residential gas was different; in 2024, the price increase for both types of gas was capped at 18.5%, and this pricing standard continues in 2025. If the average import LNG price drops to 2.6 yuan per cubic meter, it is expected that PetroChina's comprehensive gas sales price will remain unchanged year-on-year. The bank uses an average gate price of 1.68 yuan per cubic meter for natural gas in each province and city as the benchmark price, and assumes that natural gas consumption during the non-heating season (April to October) accounts for an average of 57% from 2020 to 2024. Without considering peak gas consumption, when the average import LNG price in 2025 is between 2.6 to 3.0 yuan per cubic meter (2.96 yuan per cubic meter in 2024), PetroChina's gas price will increase by 0 to 3 cents per cubic meter year-on-year; when the price of imported LNG drops by 14%, the average selling gas price for the year will remain unchanged. For economically developed regions such as Shanghai and Jiangsu with gate prices exceeding 2 yuan per cubic meter, a 6% drop in imported LNG prices will keep the average selling gas price stable year-on-year. With multiple factors at play, the bank predicts that the overall purchasing cost of city gas companies is still expected to decrease, and the gross profit margin is expected to continue expanding. Risks: Slower growth in gas demand; significant fluctuations in LNG prices; delayed implementation of pricing policies; early termination of franchise rights; unexpected decline in connection services.