China Natural Gas (CHNG.OB), one of central China’s leading providers of compressed natural gas (CNG), effectively doubled its natural gas processing capacity through the acquisition of the largest-capacity compressor station in the city of Xi’an in central China. The compressor station will increase the company’s daily processing capacity from 300,000 cubic meters to over 600,000 cubic meters, allowing the support of an additional 20 CNG filling stations. The compressor station already has the necessary government permits, and commenced operation in early September.

China Natural Gas is the first Chinese natural gas retailing company publicly traded in the U.S. It owns and operates a network of CNG filling stations, as well as a 75-mile long CNG pipeline in Xi’an with a surrounding population of nearly 9 million. It also converts gasoline vehicles to CNG hybrids (vehicles with the ability to run on both CNG and gasoline).

The company is also launching a Liquefied Natural Gas (LNG) facility, located in the northern part of Shaanxi Province, home to China’s second largest natural gas reserve. The company has also entered into a gas supply agreement with PetroChina, China’s biggest oil and gas company, for 150 million cubic meters of natural gas per year. The LNG business has a profit margin as high as 80%, depending on the region being supplied. CHNG is able to use its fleet of specialty trucks to transport, and can therefore overcome the geographic barriers existing in pipeline transportation.

CHNG’s rolling earnings-per-share has increased dramatically over the last 2½ years, as its P/E ratio has dropped to 11 from the mid-50s. Its share price closed Wednesday at 4.16, from a peak of 14 in late 2007.

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