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China Natural Gas Announces Fourth Quarter and Full Year 2007 Financial Results

    Financial Highlights for the Fourth Quarter of 2007:
     -- Revenues increased 66.1% to $11.3 million;
     -- Gross profit grew 62.4% to $5.4 million;
     -- Income from operations increased 29.4% to $3.0 million; and
     -- Net income increased 20.4% to $2.3 million or $0.08 per share.

'We've made significant progress expanding our business in 2007, ending the year with 24 CNG filling stations, 84,500 residential, commercial and industrial pipeline customers, and a LNG processing and distribution plant under construction. I'd like to thank all of our employees for their continued dedication,' stated Mr. Qinan Ji, Chairman and CEO of China Natural Gas.

'In this year we have strengthened our position as the leading CNG filling station operator and a natural gas provider in our home market of Xi'an. We also expanded geographically into the provinces around Shaanxi, including the Henan province and expect to diversify our business through the LNG project in the future. With rising fuel prices, growing awareness of 'green energy', and strong government support, we are in a unique and enviable competitive position,' continued Mr. Qinan Ji, Chairman and CEO of China Natural Gas.

Revenue in the fourth quarter of 2007 increased 66.1% to $11.3 million from $6.8 million in the fourth quarter of 2006, and up 24.4% sequentially. The increase in revenue was due primarily to the sales ramp up in the three new stations in the third quarter of 2007 and the addition of more than 500 residential, industrial and commercial pipeline customers, bringing the total number of customers to 84,500. Revenue from sales of natural gas increased 76.0% to $9.0 million from $5.1 million in the fourth quarter of 2006. Installation revenue increased 35.5% to $2.3 million from $1.7 million in the prior year's period.

Gross profit in the fourth quarter of 2007 increased 62.4% to $5.4 million from $3.3 million in the fourth quarter of 2006. Gross margin was 47.7%, roughly flat to last year.

Operating income in the fourth quarter of 2007 increased 29.4% to $3.0 million from $2.3 million in the prior year's period. Operating expenses in fourth quarter of 2007 were $2.4 million compared to $1.0 million in the prior year period, reflecting the significantly larger business operations with 13 new natural gas filling stations, as well as continued expenses related to the identification of future natural gas filling station locations and costs associated with the government licensing and approval process.

Net income in the fourth quarter of 2007 increased 14.0% to $2.3 million, or $0.08 per share, compared to $1.9 million, or $0.08 per share, in the fourth quarter of 2006. Diluted shares outstanding increased 21.0% during the year over year period to 29.3 million shares outstanding in the fourth quarter of 2007.

    Financial Highlights for the Fiscal Year 2007:
     -- Revenue increased 88.0% to $35.4 million, driven by 13 additional CNG
        filling stations in 2007 and continued growth of pipeline customers;
     -- Gross profit up 90.6% to $17.4 million;
     -- Income from operations increased 70.0% to $11.1 million;
     -- Net income increased 67.2% to $9.1 million or $0.35 per share

Revenue for fiscal year 2007 increased 88.0% to $35.4 million from $18.8 million for fiscal year 2006. The increase in revenue was due primarily to the contribution of 13 additional CNG filling stations during 2007 and the year over year increase in residential, industrial and commercial pipeline customers to approximately 84,500 from 75,000 in 2006. Revenue from sales of natural gas increased 106.2% to $28.3 million from $13.7 million in the prior year. Installation revenue increased 39.1% to $7.1 million from $5.1 million in the fiscal year 2006.

Gross profit for fiscal year 2007 increased 90.6% to $17.4 million from $9.1 million in 2006. Gross margin increased 68 basis points to 49.1% from 48.4% in the year 2006, reflecting the mix shift year over year to higher margin natural gas revenue.

Operating expenses in the fiscal year 2007 increased 142.2% to $6.3 million from $2.6 million, reflecting costs associated with 13 new natural gas filling stations during the year, as well as continued expenses related to the identification of future natural gas filling station locations and costs associated with the government licensing and approval process. Operating income increased 70.0% to $11.1 million from $6.5 million. Operating margin decreased by 3.4% to 31.3% compared to 34.6% in the prior year as a result of increased operating expense.

Net income for fiscal year 2007 increased 67.2% to $9.1 million, or $0.35 per share, compared to $5.5 million, or $0.23 per share, in the fiscal year 2006.

Balance Sheet

As of December 31, 2007, the Company had cash and cash equivalents of $13.3 million compared to $20.7 million as of September, 2007 and $7.6 million as of June 30, 2007.

Fiscal Year 2008 Update

For the fiscal year 2008, the Company continues to anticipate revenue and net income growth of at least 70%. Please note that this financial guidance excludes the impact of interest charges and other costs associated with the Company's 5.0% Guaranteed Senior Notes due 2014 and warrants representing the right to purchase 2,900,000 shares of the Company's common stock to Abax Lotus Ltd. for approximately US$40 million.

About China Natural Gas, Inc.

China Natural Gas, Inc., ('CHNG'), is the first China-based natural gas company publicly traded in the US. It currently owns and operates a 120 kilometer long compressed natural gas pipeline in Xi'an, China, a fast growing Chinese city supported by a population of approximately eight million and is the 'gateway' to the broad Western regions of China. CHNG has three profitable business segments: end user delivery of natural gas services to residential, commercial and industrial customers; wholesale natural gas to retail natural gas filling stations; and retail natural gas at company-owned natural gas filling stations. The city of Xi'an has approximately 20,000 Taxis, 3,000 buses and 2,000 special purpose vehicles that are powered by compressed natural gas.

This press release may contain forward-looking statements. These statements are based on the current expectations or beliefs of China Natural Gas, Inc. management and are subject to a number of factors and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements, including the fluctuation of natural gas prices, the availability of natural gas supplies, changes in governmental regulations and/or economic policies.

    CONTACT
    In the U.S.:
    Ashley Ammon MacFarlane or Bill Zima
    Integrated Corporate Relations
    203-682-8200

    In Asia:
    Xuyang Zhang
    Integrated Corporate Relations, Inc.
    +86 10 8523 3087