In 2021, the Chinese mainland’s apparent consumption of natural gas reached 372.6 billion cubic metres, an increase of approximately 12.7% over the same period last year; and the economy grew by 8.1%. With steady economic recovery and the state’s goal of achieving carbon emission peak by 2030 and carbon neutrality by 2060, natural gas, as one of the cleanest fossil energy sources, will undoubtedly play an important role in the Chinese mainland’s energy structure transition. The demand for natural gas will undoubtedly go up.
Under this circumstances, the gas sales volume of Towngas Smart Energy increased robustly by 21% to about 14,579 million cubic metres during the year. Specifically, the increase in industrial, commercial and wholesale markets was the most significant. Industrial gas sales volume was 7,667 million cubic metres, representing an increase of 28% over 6,008 million cubic metres in 2020 and accounting for 53% of the total gas sales volume of the Group; wholesale gas sales volume was 2,032 million cubic metres, representing an increase of 29% over 1,573 million cubic metres of last year and accounting for 14% of the total gas sales volume of the Group; commercial gas sales volume was 1,719 million cubic metres, representing an increase of 13% over 1,515 million cubic metres of last year and accounting for 12% of the total gas sales volume of the Group; residential gas sales volume increased from 2,643 million cubic metres of last year to 2,796 million cubic metres, up 6%, accounting for 19% of the total gas sales volume. Distributed energy business recorded the equivalent of 365 million cubic metres of natural gas sales in 2021, compared with the equivalent of 264 million cubic metres of natural gas sales of last year and accounting for approximately 2% of the total gas sales volume of the Group. The total number of customers of the Group reached 15.09 million, representing an increase of 950,000 over that of last year.
In 2021, the COVID-19 pandemic affected the global demand for LNG. In the first half of the year, in the context of oversupply and oil price decline, international LNG prices remained stable. However, in the second half of the year, given the surge in demand and shortage of natural gas supply, international LNG prices reached a record high. Meanwhile, with significantly rising upstream natural gas prices in the Chinese mainland and intensifying pressure on ensuring supply in the Chinese mainland during winter, the Group faced downside pressure on the gross margin of gas sales in the second half of the year. In addition, strongly promoting coal-to-gas conversion to industrial customers through a gas spread with a lower gross margin to boost gas sales also diluted the overall gross margin of the Group’s gas business.
In the upstream, the Group continued to expand channels to purchase lower-cost international LNG, including signing a long-term LNG import agreements together with its parent company HKCG, building a shale gas liquefaction project in Weiyuan County, Sichuan Province, and HKCG’s investment in LNG terminal storage tanks in Tangshan, Hebei Province, thus consolidating the Group’s independent gas sources and preparing for future natural gas transactions. By the end of the year, the LNG terminal storage tank project in Tangshan, Hebei Province had started preliminary construction. After being put into use, it is expected to enhance the Group’s peak shaving capacity in North China and Northeast China.
In July 2021, the Group completed the capital injection to Shanghai Gas, and held 25% of its equity interest. Shanghai Gas has a huge customer base of 6.4 million in Shanghai and the right to manage and operate two LNG receiving terminals. As the location of the carbon trading centre, Shanghai is expected to become a pilot zone for the opening of the carbon market and the trial implementation in various industries in the future. As the natural gas pricing mechanism of Shanghai Gas will be refined in 2022, the Group reached an agreement with Shanghai Gas and Shenergy Group, the controlling shareholder of Shanghai Gas, to extend the transition period to the end of 2021. The Group will share the results of Shanghai Gas in proportion to its shareholding from 1 January 2022. Based on the Enhanced Strategic Cooperation Agreement entered into with Shanghai Gas, the Group has fully cooperated with Shanghai Gas in the fields of natural gas procurement, extended business and renewable energy to achieve common strategic goals.
Apart from Shanghai Gas, with the reinvestment projects of its project companies taken into account, the Group had four new city-gas projects in the year, namely Changchun Gas Gongzhuling Fengrui Energy Development Co., Ltd. in Jilin province, Hangzhou Yuhang Hong Kong and China Gas Co., Ltd. in Zhejiang province, and Chizhou Qianjiang Gas Co., Ltd. and Anqing Changcheng Hong Kong and China Gas Co., Ltd. in Anhui province. These four projects are expected to bring the Group an annual gas consumption equivalent of 245 million cubic metres five years later.
In addition, with the connection of natural gas pipelines between Russia and the Chinese mainland, the gas bottleneck in Northeast China has been greatly eased. Gas sources have broadened and become more sufficient than in the past, and the energy supply is now more stable. To date, six enterprises in Northeast China (Gongzhuling, Tieling, Benxi, Anshan, Dalian Economic and Technical Development Zone and Shenyang Coastal Economic Zone) have purchased gas from Russia. Sufficient natural gas resources will speed up the upgrading and transformation of the old industrial area in Northeast China. The construction of gas pipelines will stimulate the development of metallurgy, building materials and other industries, and further promote natural gas sales.
In terms of the industrial segment, the coal-togas conversion of boilers had contributed 2.7 billion cubic metres of gas sales by the end of the year. In North China, the provincial governments of Shandong, Hebei and Henan successively introduced the coal-to-gas policy of eliminating boilers below 35 steam tonnes. The Group completed coal-to-gas conversion for 1,444 steam tonnes of boilers in the region. For ceramicmaking customers with high energy consumption in Northeast China, the Group offered them tailored energy solutions, including the renovation of their kilns and other production equipment, so as to improve energy efficiency and reduce carbon emissions. It is estimated that when the renovation works are completed in 2022, it will bring an increase of 20 million cubic metres in the Group’s gas sales. In Anhui and Jiangxi provinces, the Group made new progress in promoting coalto-gas conversion of kilns and signed contracts with customers for kiln renovation. After the renovation, their annual gas consumption is expected to reach approximately 19 million cubic metres.
In terms of the commercial segment, the Group used innovative energy solutions to provide customers with a convenient energy use experience and helped drive the Group’s overall gas sales.
The Chinese mainland saw frequent occurrence of gas accidents in 2021. On 4 November, the Office of Work Safety Commission of the State Council issued a circular requiring all regions, relevant departments and units to earnestly implement the requirements of the central government, learn lessons from gas accidents, and comprehensively strengthen gas safety in urban areas, in an effort to curb the frequent occurrence of gas accidents.
The Group regards safety production as the top priority. Our parent company HKCG, introduced regular indoor inspection into the Chinese mainland as early as in the 1990s, and became the first gas group to use safety stoves with ignition detection devices in 2005. These two measures were later incorporated into the regulations of the Ministry of Housing and Urban-Rural Development for regulating the gas industry, raising the safety standards for the domestic gas industry. The Board of Director of the Group spearheaded the establishment of the Safety and Environmental Protection Committee composed of relevant senior management, and made comprehensive arrangements for the safety risk management of the Group by holding at least 8 meetings and a number of on-site inspections. The actions taken by the Group’s management not only set up a good example, but also promoted the implementation of various safety measures of the Group.
Moving forward, the Group will vigorously invest in developing integrated energy projects such as industrial, residential and commercial distributed heating projects in the city gas market, with a view to providing strong support for the Group’s gas sales growth during the 14th Five-Year Plan period. Meanwhile, the Group’s companies in all regions are actively expanding the distributed heating business and employing the “gas + integrated energy” development model to tap the potential of existing customers in operating areas.
In July 2021, the Group completed the capital injection into Shanghai Gas to hold a 25% stake in it. As one of the largest comprehensive city gas operators in the Chinese mainland, Shanghai Gas occupies a market share of over 90% in Shanghai’s gas market, has more than 6.4 million premium natural gas customers, and sells over 9 billion cubic metres of gas annually. The cooperation between Towngas Smart Energy and Shanghai Gas has increased the number of customers of the Group and our parent company HKCG nationwide to nearly 40 million. Shanghai is the city with the highest GDP in the Chinese mainland, and its citizens have considerable spending power. In 2021, Shanghai’s per capita disposable income exceeded RMB78,000, ranking first among firsttier cities in the Chinese mainland. Its citizens have a demand for smart home products and a comfortable, healthy lives. By deepening cooperation with Shanghai Gas, the Group gains access to the huge and premium customer base of Shanghai Gas which can boost the initial development momentum of the Group’s extended business in the local market. The Group will further tap the consumption potential and demand of customers to open a new chapter for the expansion of extended business.
In 2021, under the favourable “Healthy China” policy, the Group launched the health brand “Moment+”. The Towngas Lifestyle e-commerce platform was upgraded into a comprehensive service platform, “Moment+”, promoting a healthy lifestyle through an online and offline integrated operating model. As at the end of 2021, the number of registered members of the platform reached 6 million, and a total of 30 Taste “Bauhinia” companies affiliated to the Group had entered the e-commerce platform, with total annual sales of RMB4 million.
On the basis of the original gas service and product sales function, the online platform “Moment+” provides articles and short videos on the theme of healthy living, including nutritional recipes, weight management tips, skin care techniques, with a view to giving one-stop health management information. In terms of offline operations, the Group opened six Moment+ Community Lifestyle Experience Centres during the year, and another 20 stores were set up in the traditional customer centres. In addition to gas payment and maintenance appointment services, these stores also provide healthy home service, nutrition consultation, healthy product tasting and cooking classes. Each experience centre is deeply rooted in the community and will provide tailored services that reflect local characteristics.