Analysis of the Impact of Natural Gas Price Inversion on Cash Flow of City Gas Companies

Based on the professional materials and market data I have collected, I will provide you with a systematic and comprehensive analysis of

.

Natural gas price inversion refers to the phenomenon where

, and in the city gas industry, it is mainly manifested as:

• Wholesale-Retail Inversion
  : The natural gas purchase price (wholesale price) of city gas enterprises from upstream suppliers is higher than the sales price (retail price) to end-users
• Residential Gas Price Inversion
  : The sales price of residential gas is lower than procurement cost, usually due to the lag of residential gas price adjustment behind upstream cost changes
• Marine-Land Price Inversion
  : Phased divergence between international imported LNG prices and domestic natural gas prices

According to the latest market data, the domestic natural gas market from 2024 to 2025 presents the following characteristics[1]:

Indicator	2024 Data	2025 Forecast
National Natural Gas Apparent Consumption	Approximately 426.5 billion cubic meters, up 8.6% year-on-year	Growth slows to approximately 5%
Domestic Natural Gas Production	Approximately 250 billion cubic meters	Approximately 260 billion cubic meters
Average LNG Import Price	Approximately 3,500 yuan/ton	Approximately 3,100 yuan/ton
Average Imported Pipeline Gas Price	Approximately 2,600 yuan/ton	Approximately 2,500 yuan/ton

: As of June 2025, the prices of US HH/European TTF/East Asian JKM/Chinese LNG ex-factory/Chinese LNG CIF are 0.9/3.5/3.6/3/3.6 yuan per cubic meter respectively, with significant price differences between domestic and international markets[2].

:

Upstream procurement cost ↑ → Lag in sales price adjustment → Narrowing/inversion of gas sales gross margin → Insufficient operating cash inflow to cover outflows

:

1. Revenue Side
   : The lag of terminal gas price adjustment behind upstream cost changes leads to cash inflow from actual sales revenue being unable to cover cash outflow from procurement expenses

2. Cost Side
   :
   • The procurement cost of city gas enterprises peaked in 2022 (approximately 3 yuan per cubic meter)[3]
   • It gradually fell to 2.81-2.89 yuan per cubic meter from 2023 to 2024, but the lag of the price adjustment mechanism led to slow recovery of the price spread

3. Gross Margin Data
   :
   • 2021: Gross margin decreased significantly by 0.11 yuan per cubic meter year-on-year, narrowing to 0.48 yuan per cubic meter
   • 2021 residential gas price spread fell from 0.65 yuan per cubic meter in the previous year to 0.26 yuan per cubic meter
   • 2022-2023: Residential gas gross margin experienced
     inversion
     [3]
   • End of 2024: Gas sales margin per cubic meter rebounded to 0.52 yuan, but remains below a reasonable level

Time Node	Upstream Procurement	Terminal Sales	Cash Flow Status
Procurement Point	Immediate payment	-	Cash outflow
Sales Point	-	Delayed collection	Delayed cash inflow
Price Adjustment Cycle	-	Several months to half a year	Increased capital occupation cost

1. Inventory Backlog
   : LNG receiving station inventories and domestic LNG plant inventories remain at a high level
   • As of June 2025, domestic imported receiving station inventory is 332.45 million tons, basically flat year-on-year
   • Domestic LNG plant inventory is 61.81 million tons, up 65.89% year-on-year[2]

2. Increased Accounts Receivable
   :
   • Rising arrears rate of residential user gas fees
   • Industrial users delaying payments due to cost pressure
   • Delayed disbursement of government subsidies (adjustment of heating subsidy policies in some regions)

3. Increased Prepayments
   : To ensure gas supply, city gas enterprises are forced to sign long-term agreements and prepay for goods

• Pipeline Network Construction Investment
  : Continuous investment in gas distribution network construction is required to expand market coverage
• Gas Storage Facility Construction
  : Policy-mandated gas storage capacity indicators bring additional investment pressure
• Information System Upgrade
  : The price adjustment mechanism requires more refined metering and settlement systems

Financial Indicator	Deterioration Performance
Current Ratio	Declining short-term solvency
Quick Ratio	Limited inventory liquidity
Interest Coverage Ratio	Weakened ability of operating profit to cover interest expenses
Asset-Liability Ratio	Forced increase in liabilities to maintain operations

• Increased risk of credit rating downgrade
• Tightened bank credit lines
• Rising bond issuance interest rates

Indicator	2024 Data
Operating Revenue of Mainland Business	HK$42.63 billion (accounting for 76.8% of total revenue)
After-Tax Operating Profit of Mainland Business	HK$3.1 billion (accounting for 41.3% of total profit)
Mainland Gas Sales Volume	36.36 billion cubic meters, up 5% year-on-year
Gas Sales Margin per Cubic Meter	0.52 yuan
Completion Rate of Residential Price Adjustment	Approximately 75%

1. Gross Margin Recovery Process
   :
   • 2021 gross margin: 0.48 yuan per cubic meter (only 0.26 yuan per cubic meter for residential gas)
   • 2024 recovery to 0.52 yuan per cubic meter
   • Expected to reach 0.54/0.55/0.56 yuan per cubic meter in 2025-2027 respectively[3]

2. Benefits of Centralized Gas Sourcing
   :
   • Centralized gas volume in 2023: 3.48 billion cubic meters, saving approximately 320 million yuan in costs
   • 2027 target: Centralized gas volume accounts for over 10%, saving approximately 700 million yuan in costs

3. Impact of Price Adjustment Progress
   :
   • Completion rate of residential price adjustment increased from 0 to 75%
   • Price adjustment basically achieved for non-residential users
   • Price spread recovery brings improvement in operating cash flow

Indicator	Data	Year-on-Year Change
Total Gas Sales Volume	1.14 billion cubic meters	-14%
Q2 Gas Sales Volume Year-on-Year	+13%	Month-on-month improvement
Total Number of Users	2.47 million	+1%
Comprehensive Financing Interest Rate	4.67%	Decreased by 0.62 percentage points
Interest Expense	Decreased by HK$26.87 million year-on-year	-

• Local governments in Liuyang, Changle, Zibo, Zhaoyuan and Fengxian have successively released policies on adjusting natural gas retail prices
• Improves the inversion of civil gas prices
• Helps restore gross margin level and optimize upstream-downstream price linkage mechanism

According to research data from Soochow Securities[2]:

Indicator	2022	2023	2024	2025E
Proportion of Cities with Residential Price Adjustment	Low	Approximately 55%	Approximately 63%	Approximately 64%
Price Hike Range	-	Approximately 0.18 yuan per cubic meter	Approximately 0.21 yuan per cubic meter	Approximately 0.21 yuan per cubic meter
Price Spread of Leading City Gas Companies	Inversion	Approximately 0.45 yuan per cubic meter	0.53-0.54 yuan per cubic meter	0.54 yuan per cubic meter

:

• Annual gas sales volume: 1 billion cubic meters
• Procurement cost: 2.8 yuan per cubic meter
• Sales price before price adjustment: 2.6 yuan per cubic meter
• Sales price after price adjustment: 2.85 yuan per cubic meter

:

Item	Before Price Adjustment	After Price Adjustment	Difference
Sales Revenue	2.6 billion yuan	2.85 billion yuan	+250 million yuan
Procurement Cost	2.8 billion yuan	2.8 billion yuan	0
Gross Margin Loss	-200 million yuan	+50 million yuan	+250 million yuan
Operating Cash Flow	-200 million yuan	+50 million yuan	+250 million yuan

• Annual gas sales volume of 1 billion cubic meters → Annual cash flow gap of approximately 100 million yuan
• Needs to be covered by other businesses or financing

• Annual gas sales volume of 1 billion cubic meters → Annual cash flow gap of approximately 300 million yuan
• Seriously affects normal operations and investment capacity

• Annual gas sales volume of 1 billion cubic meters → Annual cash flow gap of approximately 500 million yuan
• Faces liquidity crisis, requiring emergency financing or government subsidies

Based on industry data calculation:

Impact Dimension	Impact Degree	Duration
Operating Cash Flow	Under significant pressure from 2022 to 2023	2-3 years
Investment Capacity	Capital expenditure reduced by 20-30%	3-5 years
Dividend Payment	Some enterprises cut dividends	2-4 years
Credit Rating	Some enterprises downgraded	1-3 years

1. Strengthen Accounts Receivable Management
   • Accelerate collection of residential gas fees
   • Negotiate prepayment discounts with industrial users
   • Strive for timely disbursement of government subsidies

2. Optimize Inventory Management
   • Reasonably control LNG inventory level
   • Use futures tools to hedge price risks
   • Improve flexibility of gas sourcing

3. Expand Financing Channels
   • Seek bank working capital loan support
   • Issue short-term financing bonds
   • Introduce strategic investors

1. Procurement Cost Optimization
   • Increase proportion of spot procurement
   • Raise proportion of centralized gas sourcing (target over 10%)
   • Optimize procurement timing and rhythm

2. Operating Cost Compression
   • Optimize staffing
   • Improve digital management level
   • Reduce pipeline network losses

[1]:

• Accelerate adjustment frequency of residential gas prices
• Simplify price adjustment approval procedures
• Establish a more flexible linkage mechanism

:

• 2025 target for national proportion of cities with residential price adjustment: Over 70%
• 2025 average price hike range: 0.21-0.25 yuan per cubic meter
• 2026 price spread recovery target: 0.55-0.60 yuan per cubic meter

1. Increase Proportion of Non-Gas Businesses
   • Value-added services (gas appliance sales, maintenance services)
   • Integrated energy services (distributed photovoltaics, energy storage)
   • Smart home services

2. Customer Structure Optimization
   • Increase proportion of residential users (more stable gross margin)
   • Develop high-quality industrial customers
   • Expand transportation gas market

• Obtain self-owned gas sources (e.g., Xinjiang Natural Gas, Lanyan Holding)
• Participate in or hold controlling stakes in LNG receiving stations
• Sign long-term take-or-pay agreements

:

• “Gas+” integrated energy solutions
• Distributed energy project development
• New energy businesses such as charging piles and hydrogen energy
• Carbon asset management services

• Smart pipeline network operation
• Precise metering and settlement
• Digital customer services
• Big data analysis and decision support

According to research from institutions such as Soochow Securities[2], the current investment logic for the city gas sector is as follows:

Company	Recommendation Logic	2025 Dividend Yield
ENN Energy Holdings	Privatization plan highlights valuation regression space	5.3%
China Resources Gas	Central enterprise background, obvious cost advantages	4.5%
China Gas Holdings	Bottom valuation, high dividend	6.4%
Lantian Gas	Stable performance, substantial dividends	8.9%

1. Continuous Promotion of Price Adjustment
   : There is still approximately 10% room for price spread recovery
2. Cost Optimization
   : Falling international gas prices drive down procurement costs
3. Demand Recovery
   : Growth of transportation gas and industrial gas supports gas volume

Risk Type	Risk Description	Response Recommendations
Economic Growth Risk	Natural gas consumption is positively correlated with economic growth	Focus on structural growth opportunities
Extreme Weather Risk	Warm winter leads to lower-than-expected demand	Improve inventory management capacity
International Situation Risk	Geopolitics affects gas prices	Diversified procurement strategy
Policy Risk	Price adjustment progress falls short of expectations	Actively participate in policy communication
Safety Operation Risk	Natural gas safety accidents	Strengthen safety management

1. Price inversion has a significant impact on cash flow of city gas companies but a turning point has emerged
   :
   • 2022-2023: Severe inversion period, operating cash flow under significant pressure
   • 2024: Turning point emerged, price spread began to recover
   • 2025: Recovery accelerates, price spread is expected to return to 0.54 yuan per cubic meter

2. Price adjustment mechanism is the key to improving cash flow
   :
   • 64% of cities nationwide have completed residential price adjustment
   • There is still approximately 10% room for price spread recovery
   • Continuous promotion is expected from 2025 to 2026

3. City gas companies are actively responding
   :
   • Extend upstream to obtain gas source advantages
   • Transform to integrated energy service providers
   • Increase proportion of non-gas businesses

With:

• Continuous promotion of price adjustment mechanism
• Low-level operation of international gas prices
• Gradual recovery of demand side
• Emergence of results from enterprise transformation

The cash flow situation of city gas companies will continue to improve, and it is expected to enter a performance recovery period from 2025 to 2026, with industry valuation expected to be reshaped.

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[1] Sinopec Magazine - “Natural Gas Will Realize a Systematic Leap to "Basic Pillar Energy"” (http://www.sinopecnews.com.cn/xnews/content/2026-01/14/content_7140391.html)

[2] Soochow Securities - “Gas II Industry Tracking Weekly Report” (July 2025) (https://pdf.dfcfw.com/pdf/H3_AP202507141708693873_1.pdf)

[3] Sina Finance - “In-Depth | Hong Kong and China Gas (0003.HK): Hong Kong Business Builds a Robust Basic Disk” (https://finance.sina.com.cn/roll/2025-08-17/doc-infmihkv0522014.shtml)

[4] Tonghuashun - “Latest Developments of Binhai Investment (HK2886)” (http://basic.10jqka.com.cn/HK2886/)