China: Favorable Trend with Natural Gas

Oct.14.08 | About: China Natural (CANL)

Monday, China Natural Gas (OTC:CHNG) made some encouraging announcements.  The company's potential growth is on track with the regulatory support.  The company has just signed an exclusive agreement with the local government, Town of Tangyu in Lantian County, Xian City, Shaanxi Province.  CHNG will be providing compressed natural gas (CNG) and piped natural gas to the entire town.  The service is expected to start at the beginning of the fourth quarter.  The company estimates there are 50,000 customers (residential and commercial) with a potential annual demand of 8.5 million cubic meters of natural gas.

In China, there is a continuing favorable trend in using natural gas in both retail CNG stations and auto-conversion business to improve environment.  For example, in September 2008, the Dongguan City Government announced the "Notice of Governmental Support for the Development of Natural Gas Vehicles."  The announcement is to support the development of CNG filing stations and CNG-powered vehicles.  The city government will actually provide subsidy for every taxi converted to natural gas/gasoline hybrid vehicle. 

In a separate initiative, in October 2008, the Ministry of Public Health of China has made it easy to register the vehicle conversion.  Now, vehicle owners can register the converted vehicle after the alternation rather than requesting approval before conversion.  This greatly simplifies the administration process and encourages for more development in vehicle conversion business.

This is extremely encouraging in the natural gas industry since Dongguan is one of the top economic growth cities in China.  The initiative taken by the city government indicates the government recognized natural gas is an alternative clean energy and should be supported for environmental concern.

Despite the economy slowdown in China, the company's CEO has confidence that it can meet the expectation of 2008.