PetroChina May See Higher Profit on Gas Prices, Pipeline, Bernstein Says

PetroChina Co., Asia’s biggest company by market value, may report higher earnings after China raises gas prices and completes the world’s longest pipeline for the fuel from Central Asia, Sanford Bernstein & Co. said.

China, which increased gas prices by 25 percent in June, may initiate further reforms before “material” supplies of imported gas, Neil Beveridge, an analyst for Bernstein Research, said in a report yesterday.

“We expect that further gas price reform in the first half of 2011 will be a key catalyst for PetroChina in eliminating import losses and growing earnings from its domestic gas business,” Beveridge said. Well-head gas prices may rise as much as 15 percent next year in some areas to spur exploration, he wrote.

Turkmenistan has started supplying China with 500 million cubic feet a day of gas on a section of a $35 billion pipeline that runs to Central China, with the link to Shanghai to be completed by the end of next year, Bernstein said. The pipeline will supply 3 billion cubic feet a day, or about 20 percent of the country’s gas demand, in 2014, according to the report.

With an annual transport capacity of 30 billion cubic meters, the 10,486-kilometer (6,517-mile) link, a third longer than the Great Wall of China, is double the size of the country’s first West-to-East pipeline.

“As the Central Asian pipeline ramps up, PetroChina’s gas production will grow by 15 percent to 20 percent compounded annually over the next three years to become a more material driver of earnings growth,” Beveridge said. The link may contribute 18 billion yuan ($2.7 billion) by 2012 in earnings, he said.

PetroChina fell 0.7 percent to HK$8.58 in Hong Kong trading at 10:03 a.m. local time. The shares have dropped 7.1 percent in the past 12 months, compared with the 1.3 percent gain in the benchmark Hang Seng Index. Beveridge rates the stock “outperform” with a target price of HK$10.50.

Turkmen Gas

Prices of Turkmen gas delivered to East China at about $11 per million British thermal units, nearly three times the price of the fuel in the U.S., will be cheaper than LNG imports and alternatives such as diesel and liquefied petroleum gas, Bernstein said.

“As such we expect customers to prefer Turkmen gas over LNG imports and premium fuels,” he said.

PetroChina’s net income may increase 28 percent to 132.3 billion yuan this year and to 145.5 billion yuan in 2011, median estimates of 19 analysts surveyed by Bloomberg show. Profit climbed 29 percent in the first six months to 65.3 billion yuan.

To contact the reporter on this story: Dinakar Sethuraman in Singapore at dinakar@bloomberg.net

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