China Resources to merge two energy subsidiaries

Move should allow it to negotiate better terms for natural gas supplies from China.

State-owned conglomerate China Resources (Holdings) Co Ltd will merge its Hong Kong-listed power producer with its natural gas distribution unit to form a US$22 billion energy group.

The merger between China Resources Gas Group Ltd and China Resources Power Holdings Co Ltd will help manage costs and improve efficiency. China Resources (Holdings) owns some 63% of each company.

Analysts said there is synergy in the merger since an enlarged entity can help to enhance competitiveness and increase cost efficiency.

Both companies buy natural gas from state-owned energy firms, PetroChina and Sinopec Corporation.

China Resources Power is an independent electricity producer that
relies on coal for over 92% of its power generating capacity.

China aims to triple natural gas use to meet about 10% of total energy demand by 2020 and reduce its reliance on coal that still accounts for 80% of its electricity generation. More than two-thirds of China's 600-plus cities also have no access to gas supplies.

China's installed gas-fired capacity will more than quadruple to 220 gigawatts by 2020 from 40 gigawatts in 2011, creating a gas power equipment market worth US$4.31 billion annually from 2011-2020.