中国燃气公用事业：液化天然气供应枯竭导致燃气增长停滞

China Gas Utilities: Gas growth stalls as LNG flows dry up Neil Beveridge, Ph.D.+852 2123 2648neil.beveridge@bernsteinsg.com distributors grew retail gas sales by 0-2% in 2025, not helped by the relatively sufficientgas supply. The new connection declines, and growth slowdown in extended businesseshave been weaker than our expectations. As such, Chinese gas distributors reported5-15% earnings decline in 2025. For 2026, the escalation of conflict in the Middle Easthas triggered 20% disruption to global LNG supply. China has struggled to expand gasuse when LNG imports decline, as seen in both 2022 and 2025. Furthermore, the declinein connection fees is expected to persist in 2025, with most companies anticipating adecrease of 10-30% drop, which is worse than what we expected. Brian Ho, CFA+852 2123 2615brian.ho@bernsteinsg.com Hengliang Zhang+852 2123 2629hengliang.zhang@bernsteinsg.com We now expect zero growth in China’s natural gas demand in 2026, but it shouldaccelerate to 8% in 2027.China’s gas demand growth slowed sharply to 1% in 2025,driven by flat industrial demand amid property-related weakness, partly offset by resilientresidential/commercial consumption and strong gas-fired power generation. Following theMiddle East conflict, we now forecast zero growth in China’s natural gas demand in 2026,assuming a six-month disruption to Qatar’s LNG supply. For companies, Kunlun targets 3%growth in gas sales volumes, followed by CR Gas with low- to mid-single-digit growth andTowngas at 1%. China gas demand grew by 1% in 2M26. remain high.Gross dollar margins improved slightly in 2025. The overall gas supply wasrelatively sufficient in 2025 and gas procurement costs under contracts with the threemajor oil companies showed a slight downward trend. However, higher LNG prices islikely to raise procurement costs for distributors with exposure to LNG imports and posesa downside risk to margins. The mitigating factor is that 2026 gas contracts with thethree major oil companies remain largely unchanged in terms of cost, and these contractscontinue to cover the bulk of gas supply for Chinese distributors. We have lowered our price targets for ENN, Towngas, and China Gas to reflectreduced EPS forecasts.We are seeing encouraging signs in cash flow generation andshareholder returns. Capex cuts across the sector exceeded our expectations, with KunlunEnergy sustaining the most attractive free cash flow yield of 11%. CR Gas and Towngasalso delivered better than expected capex reductions. Overall, we see increasing certaintyaround the sector’s ability to generate sufficient cash flow to support dividend payments(around 5%). We maintain our Outperform ratings on ENN and Kunlun Energy, given theirbest-in-class free cash flow generation and clear dividend frameworks. BERNSTEIN TICKER TABLE INVESTMENT IMPLICATIONS The shutdown on 20% of the world’s LNG supply changes the supply outlook for 2026, with zero growth in gas likely in 2026 inChina. While this is good for thermal coal it is less good for gas. While we had been expecting a wave of supply we now expectminimal growth in 2026, with earnings growth deferred until 2027. While we do expect gas volumes to pick up next year, LNG’sreputation as a low cost, reliable source of energy has been tarnished. Although this means China is likely to look to pipeline gasfrom Russia and Central Asia, this is still some years off. While China’s gas utility stocks are undemanding in terms of valuation,there seems little to get excited about in the near term. We rate ENN and Kunlun as Outperform, CR Gas and Towngas as MarketPerform and China Gas as Underperform. VALUATION COMPS TABLE DETAILS China’s gas distribution sector has underperformed in 2026. Although share prices held up relatively well prior to March, thesector has experienced a notable pullback since then. From a macro perspective, the escalation of conflicts in the Middle Easthas disrupted roughly 20% of global LNG supply (around 80MTPA), driving spot LNG prices above US$15/mmbtu. Persistentlyelevated spot prices are likely to compress margins for Chinese gas distributors, echoing the experience in 2021-22 whenLNG prices spiked beyond US$40/mmbtu. Higher gas prices also pose a headwind to demand, as end-users increasingly seekalternative fuels. As a result, we now expect flat gas demand growth in China this year. On the other hand, gas distributors’ full-year 2025 results were weaker than expected. Net profit declined by 0-10% for mostplayers, reflecting stagnant gas demand and a continued decline in new connections (down 15-25% y-o-y), despite newconnections now contributing less than 20% of overall profits. Extended businesses, previously viewed as the sector’s secondgrowth engine, continue to expand, but at a much slower pace than anticipated (around 5%). While Integrated Energy sales andValue Added Services remain closely tied to China’s broader economic conditions, these segments are facing pressure fromthe ongoin