According to the Zhitong Finance APP, Soochow Securities released a research report stating that under the expectation of "peak oil demand between 2030 and 2035," oil-producing countries are generally accelerating natural gas development for energy transition. Coupled with the growth in electricity demand, natural gas development in the Middle East has entered a strategic window period. The expansion of the entire chain of natural gas extraction, processing, liquefaction, and transportation will drive significant growth in engineering construction and high-end equipment demand in the Middle East. Chinese equipment companies, leveraging technological breakthroughs and certification advantages, are facing major market opportunities. It is recommended to focus on Jereh Group (002353.SZ), which is experiencing an explosion of orders in the Middle East and has a high visibility of demand, as well as NEWAY (603699.SH), which is expected to achieve stable growth in performance due to its forward-looking capacity layout.

The main points of Soochow Securities are as follows:

China & the Middle East have close political and economic exchanges, and the demand for natural gas development creates new cooperation opportunities

Since 2022, China and the Middle East have signed multiple cooperation agreements in the fields of crude oil, LNG, and others, further strengthening economic and trade ties. The Middle East, as the region with the richest oil and gas reserves globally, has already confirmed that its natural gas reserves account for 35% of the world's total in 2023. At the same time, the global energy structure is accelerating its adjustment, and under the expectation of "peak oil demand between 2030 and 2035," oil-producing countries are generally accelerating natural gas development for energy transition. Coupled with the growth in electricity demand, natural gas development in the Middle East has entered a strategic window period.

Middle Eastern countries are accelerating their natural gas layout, and capital expenditures are rapidly increasing, driving equipment demand

Middle Eastern countries are actively promoting the layout of the natural gas industry to optimize their energy supply structure and consolidate their dominant position in the future global fossil energy market. Specifically: ① Saudi Arabia has a relatively low level of infrastructure construction per capita, with strong demand for industrial system construction and a strong demand for natural gas transition for power generation, planning to increase natural gas production by about 60% by 2030 compared to 2021, while simultaneously constructing natural gas pipelines; ② The UAE plans to achieve natural gas self-sufficiency by 2030 and strengthen its market position as a reliable global energy supplier through the vigorous development of LNG exports, with strong certainty in the Ruwais LNG project; ③ Kuwait also plans natural gas extraction and LNG receiving and regasification projects to meet its domestic electricity and industrial needs; ④ Qatar, relying on its rich natural gas reserves, seizes the opportunity of gas shortages in Europe by locking in global LNG transportation capacity through its "100 ships plan" and signing long-term gas supply agreements with Europe to fill the supply gap caused by geopolitical issues; ⑤ Iran, as the country with the second-largest natural gas reserves globally, has faced development progress restrictions on the South Pars gas field due to sanctions, but if sanctions are eased in the future, it is expected to become a new growth point in the region. The expansion of the entire chain of natural gas extraction, processing, liquefaction, and transportation will drive significant growth in engineering construction and high-end equipment demand in the Middle East.

Breakthroughs in equipment technology & customer certification, Jereh Group & NEWAY have broad penetration space

The Middle Eastern market has high technical standards for oil and gas equipment, long dominated by European and American oil service giants. In recent years, the technological strength of Chinese companies has significantly improved. Jereh Group & NEWAY, through years of research and project accumulation, have achieved technological breakthroughs in natural gas processing equipment and components, with Jereh Group being the first to obtain key certifications such as API Q2, and NEWAY has entered the supply chain of Saudi Aramco and Shell valves Specifically: (1) Jereh Group: In 2024, orders for natural gas equipment in the Middle East have reached approximately 1.5 billion yuan, accounting for about 10% of the market share. With continuous network integration and enhanced technological and localization advantages, Jereh Group's penetration rate in the Middle East market is expected to gradually increase, and the growth prospects for equipment and engineering are broad. (2) NEWAY: The proportion of orders from the Middle East and Africa has rapidly increased from 11% in 2022 to 25% in 2024. The breakthrough strategy with major clients has been effective. Looking ahead, the market space for valves in the Middle East is large. Although NEWAY's revenue is growing rapidly, its market share remains small, indicating significant growth potential.

Risk Warning: Risks of cyclical fluctuations in the oil and gas industry, downstream capital expenditures falling short of expectations, risks of rising raw material prices, and risks of exchange rate fluctuations