OREANDA-NEWS. September 15, 2014. PetroChina has reported encouraging H1 results for its gas business, as government-led price reforms introduced last year have continued to improve profitability and ease the financial burden of the company’s loss-making gas imports.

Although H1 profit for PetroChina’s gas and pipeline segment fell by 81.3% year on year to RMB 4.1 billion (USD667 million), profit from operations increased by RMB 7 billion when excluding a RMB 20.2 billion gain made last year from the disposal of some of the company’s pipeline assets. Losses on imported gas were trimmed by RMB 3.2 billion to RMB 20.4 billion during H1, despite imports increasing by 17.6% year on year to 19.6 billion cubic metres. The company managed to cut its losses on piped gas from Central Asia by more than half to RMB 7.8 billion, despite taking an additional 1.2 bcm from the region during the period. PetroChina’s overall gas production in H1 increased by 7% year on year to 42.3 bcm, while gas sales grew by 16.4% to 55.7 bcm.

Gas price reform rolled out last year by the central government has been the main catalyst behind the improving profitability of PetroChina’s gas business. The company reported a 20.2% increase in the average realised price received for its gas during H1 to RMB 1.38 per cubic metre – equal to \\$6.44/MMBtu over H1. PetroChina will benefit from further price hikes next week, with gas prices for non-residential users set to increase by 20.5% – or RMB 0.4/cm – from 1 September. The company’s gas and pipeline segment profit was 89% higher than a H1 forecast by Macquarie, while analysts with Barclays called the segment a “differentiator” for PetroChina, and one that could generate even more value for the company if it continues to trim losses.

PetroChina suggested at an analyst briefing on Thursday that full-year profits for 2014 could be lifted by RMB 6 billion as a result of higher gas prices, while profits in 2015 could increase by about RMB 20 billion as a result of the price reforms, according to analysts with Nomura. The bank expects the National Development and Reform Commission – China’s top economic planning body – to raise gas prices again in the summer of 2015.

Mixed-ownership reforms Along with pricing reform, mixed-ownership reforms for state-owned enterprises have been another driver behind the improving profitability of PetroChina’s gas business. Having sold more than RMB 20 billion worth of pipeline assets last year, PetroChina is planning to sell additional pipeline assets, as well as parts of its marketing business.

The company is taking a phased approach to mixed-ownership reform of its marketing segment, and will carry out a pilot programme in the Xinjiang autonomous region before taking the reforms nationwide, Vice Chairman and President Wang Dongjin told reporters in a briefing in Hong Kong on Thursday. The company is also planning for the sale of the eastern segments of its first and second West-East Pipeline networks, owned by subsidiary PetroChina Eastern Pipelines. Analysts with Bernstein suggested on Thursday that the sale could be concluded during H2 2014, although PetroChina’s management noted during the press briefing that mixed ownership of its pipeline business was a complex undertaking. “Frankly speaking, the mixed-ownership reform of the pipeline system is much more complicated than the marketing segment [reforms],” Wang said.

Shale gas outlook Despite the improving outlook for its gas business, PetroChina’s shale gas efforts continue to be overshadowed by Sinopec – which announced earlier this week that the production capacity at its Fuling shale project in Sichuan would rise to 1.8 bcm/y by the end of 2014, and to 5 bcm/y next year. With just 100 million cubic metres of shale gas expected to be produced this year, Wang acknowledged that PetroChina’s shale programme was effectively 18 months behind Sinopec’s. He attributed the delay to the company’s Longwangmiao gas field in Sichuan, which is expected to reach a total production capacity of 11 bcm/y by the end of 2015 and will be one of China’s largest gas developments. PetroChina will spend RMB 7 billion this year on shale gas exploration and development.

Despite trimming downstream capital expenditure to improve overall profitability, the company reiterated on Thursday it has no intention of scaling back upstream spending. The company plans to drill 154 new shale gas wells in 2014 and 2015, and expects shale gas output to rise to 2.6 bcm by the end of 2015.