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China’s Leading CNG Fueling Station Operator

China Natural Gas, Inc. China’s Leading CNG Fueling Station Operator. Agenda. Company Summary Market Potential Barrier to Entry Business Model Target Customers Sales, Marketing, and Business Development Competitive Analysis Financials Management Team. Company Summary.

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China’s Leading CNG Fueling Station Operator

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  1. China Natural Gas, Inc. China’s Leading CNG Fueling Station Operator wilson.qu@naturalgaschina.com

  2. Agenda • Company Summary • Market Potential • Barrier to Entry • Business Model • Target Customers • Sales, Marketing, and Business Development • Competitive Analysis • Financials • Management Team wilson.qu@naturalgaschina.com

  3. Company Summary wilson.qu@naturalgaschina.com

  4. China Natural Gas, Inc. • China’s first natural gas retailer listed in US (OTCBB: CHNG) • Currently operates 35 compressed natural gas(CNG) fueling stations, the largest in China • Owns one of China’s only four liquified natural gas (LNG) plants • Being awarded exclusive operation rights to supply natural gas for industrial, commercial and residencial uses in several Chinese cities or city districts • Has been profitable since inception wilson.qu@naturalgaschina.com

  5. Highlights • Financials • By December 31st, 2008, revenue for 2006, 2007, and 2008 were $18.83m, $35.39m, and $67.72m, representing 87.94% and 91.35% growth rate respectively • Operating margin for the company’s core fueling station business were 42.09% and 41.57% for 2007 and 2008 • Net profit for 2006, 2007, and 2008 were $5.45m, $9.12m, and $15.19m, representing 28.94%, 25.77%, and 22.43% net profit margin respectively • Operations • Currently operating 35 CNG fueling stations in Shanxi and Henan Provinces, the largest in China • Plans to acquire 25 fueling stations and two to three compressor stations in Xi’an for acquisition to increase the Company’s market share from current 35% to 90% in the city, which has annual CNG fuel consumption exceeding $85m • Plans to double current operations in Henan Province by adding 10 fueling stations and three compressor stations to increase market share from current 15% to 50% in the province which has CNG fuel consumption over $100m • LNG project to be operational Q4 2009, a high-margin project compared to current businesses • Marketing & Business Development • Successfully locked up 20% of Xi’an 40,000 taxi drivers as pre-deposit card members, which ensured the Company’s dominant market share, brand awareness and customer loyalty • Awarded exclusive gas pipeline construction and gas supply business to Xi’an’s new district Chan Ba which has a planned residents about 2 million and a area of 75 square kilometers • The city of Xian Yang in Shanxi Province which has 5 million population and 10,000 square kilometers, has agreed to award the city’s exclusive operation rights in operating CNG fueling stations and supplying pipeline gas wilson.qu@naturalgaschina.com

  6. 4-Year Financials (US$ Million except EPS) wilson.qu@naturalgaschina.com

  7. US Comparable: Clean Energy Fuels Corp.(Nasdaq: CLNE)For Fiscal Year 2008 wilson.qu@naturalgaschina.com

  8. Market Potential wilson.qu@naturalgaschina.com

  9. Chinese Government Promotes Vehicular Use of Natural Gas • In 2007, China’s State Development and Reform Commission has officially listed CNG/Gasoline hybrid fuel vehicle as the country’s “encouraged development” category. Major participants down the value chain including manufacturers, distributors, and consumers shall enjoy a series of preferential treatments in taxes, rebates, subsidies, etc. • As a consequence, lots of local governments including Chongqing, Hangzhou, Nanjing, Lanzhou, and Dongguan have issued policies to provide substantial subsidies to taxies and buses in remodeling into CNG-compatible vehicles. • Today, CNG penetration in taxies and buses has been quickly increasing in more and more Chinese urban areas, e.g. More than 70% taxies and 90% buses in Beijing are burning CNG. wilson.qu@naturalgaschina.com

  10. Natural Gas Growth Potential in China Total Reserve Annual Consumption US NG/Total Energy Usage China NG/Total Energy Usage * Data sources: BPStatistical Review of World Energy 2005, US Energy Information Association 10 wilson.qu@naturalgaschina.com

  11. Economics of CNG ? $10.3 • CHEAPER: Daily Taxi fuel cost (based on 250 miles per day) • CLEANER: Compare to gasoline, CNG-fueled vehicles emit • 87% less nitrogen oxide • 70% less carbon monoxide • 25% less carbon dioxide * $20.8 50% savings Gasoline CNG *Data source: Honda Motor Company 11 wilson.qu@naturalgaschina.com

  12. CNG Penetration in Taxies and Buses in China’s 1st-tier and 2nd-tier Cities CNG Taxi Penetration CNG Bus Penetration 418,621 184,480 346,151 145,476 90.00% 90.00% 74.40% Penetration Rate 71.10% Penetration Rate Number of CNG Taxies Number CNG of Buses Current In 3 Years Current In 3 Years Data: CHNG Estimates wilson.qu@naturalgaschina.com

  13. CNG Consumption by Taxies and Buses in China’s 1st-tier and 2nd-tier Cities: $4.15 billion CNG Taxi Market CNG Bus Market $2,605 $2,525 $2,154 $1,995 CAGR=6.5% CAGR=8.2% US Dollars (Millions) US Dollars (Millions) Current In 3 Years In 3 Years Current Data: CHNG Estimates wilson.qu@naturalgaschina.com

  14. CNG Consumption by Taxies and Buses in Shaanxi and Henan Provinces Shaanxi Province Henan Province $381 $282 $263 90.00% 90.00% CAGR=8.2% 86.20% Penetration% Penetration% US Dollar (Millions) $179 US Dollars (Millions) 43.90% Current In 3 Years Current In 3 Years Data: CHNG Estimates wilson.qu@naturalgaschina.com

  15. Barrier to Entry wilson.qu@naturalgaschina.com

  16. License Application Process for a Fueling Station • Stringent pre-qualification process • 13 local government departments’ approval • More than 164 submissions • Could take up to two years for approval wilson.qu@naturalgaschina.com

  17. LNG Project • Highly regulated upper stream segment of China natural gas industry value chain • There are only 4 LNG plants approved in China • CHNG’s LNG project was approved by State Development & Reform Commission under State Council as well as China Petro, the country’s monopoly of natural gas resources • LNG supply is in great shortage in China which is why it imports LNG from Australia • According to our estimate, gross margin shall be around 66%, operating margin shall be around 48%, and net profit margin shall be around 36%. Corresponding margins for the Company’s fueling station business are 52%, 42%, and 36% wilson.qu@naturalgaschina.com

  18. Business Model wilson.qu@naturalgaschina.com

  19. Natural Gas Reserve (PetroChina) CNG Fueling Station CNG Compressor Station China Natural Gas Industry Value Chain Regional Distributor CHNG Strategic Business CHNG Core Business Low High Level of Regulation wilson.qu@naturalgaschina.com

  20. Value Preposition CHNG is positioned to be China’s leading natural gas retailer and distributor through efficient operations of fueling station network, exclusive pipeline gas supply, continuous upward migration along the industry value chain, and strong brand leadership wilson.qu@naturalgaschina.com

  21. Business Scope Fueling Station and Pipeline Gas New Businesses LNG Project wilson.qu@naturalgaschina.com

  22. Target Customers wilson.qu@naturalgaschina.com

  23. Bus Companies • Bus companies are the main target customer of CHNG’s fueling station business • Unlike taxi companies where d rivers make decisions to fuel their vehicles, bus companies make decisions by entering into fuel purchase agreements with us • In the Company’s current market of Shaanxi and Henan Provinces, there are 22,000 buses belonging to 120 bus in Shaanxi. • There are 18 big bus companies in Xi’an that account for 80% market share in the city • Decision makers are the bus companies’ general mangers and finance managers • This customer segment currently account for 45% of CHNG fuel sales wilson.qu@naturalgaschina.com

  24. Taxi Drivers • Taxi drivers are another main target customers of us • Taxi drivers generally make their own decisions about where to get fuel • Taxies in China usually drive 24 hours a day with two drivers divided into day and night shift • Thare are over 70,000 taxies with 140,000 drivers in Shaanxi and Henan Provinces where CHNG currently operates • This customer segment currently account for 45% of CHNG sales wilson.qu@naturalgaschina.com

  25. Emerging Customers • Hotels, supermarkets, restaurants, electronics stores: they purchase CHNG fuel vouchers as rebates to their customers • CHNG-compatible auto makers: as rebates for their customers • Government, enterprise and family users for their vehicles • This customer segment accounts for 5% of sales but has been quickly increasing wilson.qu@naturalgaschina.com

  26. Our Market Share Shaanxi Province Henan Province 90% 50% Market Share % Market Share % CAGR=49.4% CAGR=37.0% 35% 15% Current In 3 Years In 3 Years Current Data: CHNG estimates wilson.qu@naturalgaschina.com

  27. Sales, Marketing & Business Development wilson.qu@naturalgaschina.com

  28. Sales Head Gas Fueling General Manager Auto-body Shop General Manager Pipeline Gas General Manager Fueling Station Fueling Station Fueling Station Fueling Station Fast Food Lantian County Xi’an Int’l Port Baoqiao District Sales Organization Chart wilson.qu@naturalgaschina.com

  29. Sales Strategy • Direct sales force of 20 people at corporate level targeting bus companies and institutional customers • 200 fueling station operators and station managers also have sales quota each month, targeting individual customers at point of sales • A significant portion of the sales personnel above are performance-based • City-based sales team with same incentive mechanism for all branch operations • 70% of the revenue comes from 200 plus operators’s influence at point of sales wilson.qu@naturalgaschina.com

  30. Marketing • Event Marketing • Donation for the earthquake • CHNG School of Hope • Good Citizenship Award • Taxi drivers and traffic police award • Direct Marketing • Distribution of membership benefits and applications at train stations, restaurants, and night clubs where taxi drivers are frequenting • Live model wearing CHNG clothes at annual annual taxi driver conferences or awards ceremonies • Distribution of fueling guidance card for all CHNG stations and contact numbers • Display of awards for various consumption of fuels • Marketing Communications • Local and national media coverage • Sponsorship of local radio station featured program with CHNG name, eg. CHNG Moves Taxi Drivers • Corporate executive live interview with local radio stations • Distribution of CHNG petty gifts based on fuel consumption • Regular taxi driver seminar for feedbacks and improvements • Membership Card • Pre-payment required with progressive discounts on purchases • Member-only path to enjoy fast service and avoid waiting • Free roadside assistance with 30 kilometers; free gas tank check • At-cost price for CHNG fast food purchase at fueling stations • Lucky draw at year-end for big hits • 50% of the 20,000 taxi drivers are current members wilson.qu@naturalgaschina.com

  31. Business Development • Dedicated team of 10 people based in Xi’an and Beijing • Maintains good working relationships with more than 20 central, provincial, and municipal governments • Strong partnership with China Petro, the largest state-owned monopoly of petrolim and natural gas. CHNG secured indefinite natural gas supply 500,000 cubic meters per day for both Shaanxi LNG project and Henan Province from the partner • Entered into exclusive natural gas deals with municipal governments of Xi’an, Zhengzhou, Xianyang, Lingbao, and Shanxi provincial government • Hubei Provincial government has exclusively awarded Yangtz River liners CNG remodelling and fueling project to CHNG wilson.qu@naturalgaschina.com

  32. Competitive Analysis wilson.qu@naturalgaschina.com

  33. Major Competitors • CHNG is the number one player in CNG fueling business in both Shaanxi and Henan Provinces, each having 23 and 12 fueling stations • Our major competitors in Xi’an include the city’s state-owned gas company and a few other private operators each possessing less than 5 stations • Xi’an state-owned gas company has agreed to sell 48% of its 15 fueling stations to CHNG • Our major competitors in Henan Province include Zhengzhou Gas and Zhongyou each having 7 fueling stations • CHNG main competitive advantages against its competitors： • Management System Advantage • The Company’s private enterprise system can attract, motivate, and retain more talents • Perfect safety record • Government relations • Strong Government Relations • Enough Gas Supply • Scale of Operations • Strong Value Chain Integration wilson.qu@naturalgaschina.com

  34. Strengths Geographical loation Strategic alliances Management Value Chain Integration Exclusive projects Weaknesses Resource constraints IT infrastructure Recruiting of more international talents CHNG SWOT • Opportunities • Expansion of fueling stations • Pipeline gas service • Expansion of auto remodelling business • Yangtz River fueling business • Threats • Government policy risks • Emergence of new alternative energies • New entrants from home and abroad wilson.qu@naturalgaschina.com

  35. Financials wilson.qu@naturalgaschina.com

  36. Historical Financials Revenue and Net Income Stable Performance Net Income Revenue wilson.qu@naturalgaschina.com

  37. Our CNG Filling Station Business Filling Station Revenue as Percentage of Total Revenue Filling Station Margins 60% 90% 78.8% 49.2% 75.8% 48.4% 80% 50% 46.5% 66.1% 42.1% 41.5% 41.6% 70% 36.61% 36.68% 36.50% 40% 60% Gross Margin 50% 30% Operating Margin 40% 20% 30% Net Margin 20% 10% 0.0% 10% 0% 0.0% 0% 2005 2006 2007 2008 2005 2006 2007 2008 2007 Shaanxi vs Henan Market 2008Shaanxi vs Henan Market 60% 60% 52.5% 52.2% 50% 50% 46.2% 45.6% 41.8% 41.8% 40.7% 38.2% 40% 40% 34.9% 30.1% 30% 27.0% 30% 19.0% 20% 20% 10% 10% 0% 0% Shaanxi Henan Shaanxi Henan Gross Margin Operating Margin Net Margin Gross Margin Operating Margin Net Margin wilson.qu@naturalgaschina.com

  38. Management wilson.qu@naturalgaschina.com

  39. Organization Structure Shareholders Meeting Board of Directors Board of Supervisors Chairman Audit Committee Strategic Committee Compensation Committee Corporate Secretary CEO coo Purchase Business Development Engineering Production & Operation Planning Public Adm. & HR Accounting Oil AutoBody Shop Sanyuan Compressor Changsheng Compressor Hongqing Manufactury Fueling Station Pipeline Legal Counsel IT Pipeline Natural Gas LNG Public Adm. HR Manufacturer Equipment Power Pipeline Network Logistic Support CNG Fleet Hongqing Compressor Hongqing Gate Station Xihang Gate Station Lantian Gate Station wilson.qu@naturalgaschina.com

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