OREANDA-NEWS. August 01, 2014. China National Petroleum Corporation is working on merging two of its subsidiaries to form a gas company that would compete against the privately-held gas companies. The two companies to be merged are part of CNPC’s largest listed unit, PetroChina Company Limited (0857).

The two companies being combined are Kunlun Energy Co. (0135) and PetroChina Kunlun Gas Co. The latter is mainly involved in distributing fuel to household, as the company covers over 100 cities thorough out China. PetroChina Kunlun Gas, which is a listed company, is a commercial gas supplier for CNPC.

PetroChina was looking for such a move last year as well but could not go through due to the corruption probes that lead to a few executives of the company getting terminated. The revived effort could cost Kunlun energy in the region of USD3 billion to buy Kunlun Gas.

The merger of the commercial and household fuel supply business under one unit will be beneficial, as the company sets itself up to handle the USD 400 billion deal with Russia for supplying gas to China by 2018.

As China works on curbing its pollution problems, the energy source will start shifting from coal to gas. This has led to a surge in the stock prices of gas companies over the past one year, and is expected to continue. But for CNPC, the downstream gas business drives lower margins so it aims to focus more on its upstream activities and make more investments there.

PetroChina Company Limited has seen its stock rise over 19% year-to-date, while the stock is slightly in the red during trading today.