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End User Delivery of Natural Gas
China Natural Gas is the sole authorized provider
of natural gas to residential customers in certain parts of the
Xian area, including Lantian County and the Baqiao District. China
Natural Gas has proprietary access to over 75,000 Xian households
through its network of pipeline. Via a connecting point with a
high pressure pipeline network from the government operated Shaanxi
Natural Gas Company, natural gas with much lower pressure is delivered
to China Natural Gas's residential, commercial and industrial
customers. CHNG owns approximately 120 km of high pressure pipeline,
making it the only private company in Shaanxi province to own
this type of high pressure pipeline.
Wholesale to Filling Stations 
The
company sells compressed natural gas to filling stations on a
wholesale basis. These stations, in turn, sell natural gas to
taxis and buses in Xian, which operate on compressed natural gas
(CNG) technology. Government statistics indicate that there are
currently 5,000 buses and 20,000 taxis using natural gas in Xian.
Each bus uses an average of 120 cubic meters of CNG per day and
taxis use an average of 30 cubic meters of CNG per day.
In July 2005, China Natural Gas purchased a "Compressor
Station" which is operated in proximity to the company's
pipeline and allows the company to compress and transport natural
gas via truck to those retail gas stations not directly linked
to the pipeline.
Retail Filling Stations
Based on company estimates, by the end of June
2006, the total demand for CNG vehicular fuel in the Xian area
was 1.07 million cubic meters per day. Because of the central government's "Clean Energy Policy" and economic pressure from the
high cost of gasoline, the company expects demand for natural
gas as a transport fuel to continue to increase. Based on a company
survey, as of November 1, 2006, there were 53 filling stations
in Xian pumping approximately 800,000 cubic meters of CNG fuel
per day, a figure well below estimated total demand.
 Construction
is underway for three new company-operated gas stations in the
Xian metropolitan area, which will be completed by the end of
December 2005. Currently, the company purchases natural gas for
1.26 RMB/cubic meter and will sell each cubic meter for 2.65 RMB
net of VAT. The construction time for each filling station is
45-60 days and the cost is approximately US$800,000. The construction
of additional facilities is dependent upon the company acquiring
sufficient additional capital when needed.
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