J.P. Morgan remains cautious on China natural gas utilities, with core operating trends lacking highlights

Overview

This report is a conference note from J.P. Morgan following the Global China Summit on the China natural gas utilities sector, with the main companies tracked including Kunlun Energy and China Resources Gas. It points out that retail gas sales were generally weak in the first four months of 2026, with a warm winter and soft consumption weighing on residential and commercial demand; industrial demand improved month on month in April, supported by some industries, steel demand, and the return of export-related orders. Although unit margins have been broadly stable year to date, winter gas sourcing costs, high LNG prices, and sluggish new connections mean the sector lacks a clear upside catalyst.

Core views

The core view is to stay cautious on the sector: first, sales growth is not strong, and the retail sales pace at both Kunlun Energy and China Resources Gas is weaker than full-year guidance; second, unit margins are temporarily stable, but the impact of higher gas sourcing costs may not yet be fully reflected; third, demand for new connections remains weak, indicating that property-related and residential demand has not seen a meaningful recovery; fourth, non-gas businesses are mixed, with Kunlun Energy's LNG receiving terminals under pressure while LNG plants are strong, and China Resources Gas's integrated services and integrated energy businesses still growing at a high single-digit rate but lagging the full-year double-digit guidance.

Analysis framework

The report uses a conference-research and operating-metrics decomposition approach, comparing sales, unit margins, new connections, LNG-related businesses, integrated services, and integrated energy against company full-year guidance to judge whether current operating progress supports full-year expectations.

Methodology notes

• Conference notesManagement discussions and operating trend tracking

  Validate recent operating trends through company discussions

  The report distills trends in sales, margins, costs, and business segments based on discussions with Kunlun Energy and China Resources Gas during the Global China Summit.

• Operating decompositionThree-factor framework of sales, margins, and connections

  Break gas utility performance into demand volume, unit margins, and new connections

  This framework is used to assess revenue growth quality, earnings leverage, and the ability to expand the future customer base of gas utilities companies.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Kunlun Energy (0135.HK)

  Conference research object, representing exposure to upstream resources and diversified gas businesses

  Strengths

  LNG plant processing volume rose more than 30% y/y, LPG margins were supported by a wider spread, and exploration and production business is progressing in line with full-year guidance, with higher oil prices also helping performance.

  Weaknesses

  Retail gas sales were broadly flat, new connections were sluggish, and LNG receiving terminal throughput declined as high international LNG prices and reduced spot purchases weighed on volumes.

  Comparison

  Compared with China Resources Gas, Kunlun Energy's non-natural-gas sales are more mixed: upstream and LNG plants are stronger, but terminal utilization is more visibly affected by external price moves.

  Risks

  Persistently high LNG prices, rising winter gas sourcing costs, weak property-related demand, and new connections below guidance.

• China Resources Gas (1193.HK)

  Conference research object, representing exposure to city gas and integrated services businesses

  Strengths

  Industrial gas improved in April, with industrial sales growth for the first four months rising to about 2.4% y/y; retail unit margin still increased 1-2 fen y/y.

  Weaknesses

  Retail sales fell 0.5% y/y, commercial gas demand declined about 6%, growth in integrated services and integrated energy lagged the full-year double-digit guidance pace, and new connections fell 20% y/y.

  Comparison

  Compared with Kunlun Energy, China Resources Gas is more dependent on city gas demand and growth in integrated services and integrated energy, and its current performance is more visibly constrained by consumption and the macro environment.

  Risks

  Continued weakness in commercial and residential demand, delayed pass-through of gas sourcing cost pressure, a higher base for integrated services in the second half, and ongoing declines in new connections.

• China natural gas utilities sector

  The industry theme covered by the report

  Strengths

  Industrial demand improved in April, unit margins were broadly stable year to date, and some non-gas businesses still posted growth.

  Weaknesses

  Retail sales growth is sluggish, residential and commercial demand is weak, new connections are soft, and margin upside is limited.

  Comparison

  Compared with sectors that have a clearer demand-recovery or cost-down catalyst, the China natural gas utilities sector currently lacks bright spots in its core trends.

  Risks

  Warm winter effects on gas demand, weak macro consumption, subdued property-related demand, high LNG prices, and uncertainty around gas sourcing costs.

Key data

• Kunlun Energy retail gas salesBroadly flat y/y in the first four months of 2026Full-year FY2026 guidance is about +3%; a warm winter and macro pressure were the main drags.
• China Resources Gas retail sales-0.5% y/y in the first four months of 2026Full-year FY2026 guidance is low- to mid-single-digit growth; commercial gas sales were about -6% y/y in the first four months.
• China Resources Gas industrial salesAbout +2.4% y/y in the first four months of 2026Improved from about +0.6% in Q1, supported by export-related demand and the return of some orders.
• China Resources Gas retail unit marginRmb0.48/m³Up 1-2 fen y/y in the first four months of 2026, but the April improvement narrowed and gas sourcing cost pressure still needs watching.
• Kunlun Energy new connectionsNearly 200,000 in the first four months of 2026Full-year FY2026 guidance is 600,000 to 700,000 connections.
• China Resources Gas new connectionsDown 20% y/yThe full-year guidance implies roughly a 20%-30% y/y decline.
• Kunlun Energy LNG receiving terminal throughputDouble-digit decline in the first four months of 2026Mainly because high international LNG prices led PetroChina to reduce spot purchases.
• Kunlun Energy LNG plant processing volumeMore than 30% y/y growth in the first four months of 2026Driven by LNG truck demand and higher plant utilization.
• China Resources Gas integrated services and integrated energyHigh single-digit y/y growth in the first four months of 2026Still below the pace implied by the full-year double-digit growth guidance; integrated services may face pressure after a higher base in the second half.

Impact & implications

The investment implication is defensive: with insufficient sales recovery, weak connections, and limited margin upside, the China natural gas utilities sector lacks strong near-term catalysts. If high LNG prices persist, they could further pressure Kunlun Energy's LNG receiving terminal utilization and raise retail gas cost pressure; if industrial gas volume improvement can continue, it could partially offset weakness in residential and commercial demand.

Risks

• Rising winter gas sourcing costs may not yet be fully reflected in current unit margins.
• High international LNG prices may continue to depress LNG receiving terminal utilization and increase procurement pressure.
• Residential and commercial gas demand is being weighed down by a warm winter and soft consumption, leaving demand recovery uncertain.
• Weak new connections could undermine the future customer growth base.
• China Resources Gas's integrated services and integrated energy businesses are running below full-year guidance pace, and if the second-half base rises, growth pressure may increase.

What to watch

• Whether retail gas sales can catch up with the full-year guidance pace in the remaining months of 2026.
• Whether the April improvement in industrial gas demand can continue, especially the persistence of export-related demand and order returns.
• The impact of winter gas sourcing costs and LNG price trends on retail unit margins.
• Kunlun Energy's LNG receiving terminal utilization recovery during the peak season.
• Whether China Resources Gas's integrated services and integrated energy businesses can move from high single-digit growth to the full-year double-digit guidance.
• Whether new connection numbers continue to be dragged by property and residential demand.