UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-QSB

(Mark One)

|X|   QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
      OF 1934

            For the quarterly period ended September 30, 2006

|_|   TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

            For the transition period from ____________ to __________


                                    000-31539
                            (Commission file number)


                             CHINA NATURAL GAS, INC.
        (Exact name of small business issuer as specified in its charter)


             Delaware                                     98-0231607
(State or other jurisdiction of                        (IRS Employer of
 incorporation or organization)                       Identification No.)


                      Tang Xing Shu Ma Building, Suite 418
                                 Tang Xing Road
                               Xian High Tech Area
                          Xian, Shaanxi Province, China
                    (Address of principal executive offices)


                                 86-29-88323325
                           (Issuer's telephone number)


                                       N/A
   (Former name, former address and former fiscal year, if changed since last
                                     report)

Check  whether the issuer (1) filed all reports  required to be filed by Section
13 or 15(d) of the  Exchange  Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports),  and (2) has been
subject to such filing requirements for the past 90 days.
                                                                  Yes |X| No |_|

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:

As of November 13, 2006 - 24,210,183 shares of common stock

Indicate by check mark whether the  registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).                                  Yes |_| No |X|

Transitional Small Business Disclosure Format (check one):        Yes |_| No |X|

<PAGE>



                             CHINA NATURAL GAS, INC.
                                      Index

                                                                           Page
                                                                          Number
                                                                          ------
PART I.  FINANCIAL INFORMATION

Item 1.  Financial Statements

         Consolidated Balance Sheet as of September 30, 2006 (unaudited)     2

         Consolidated Statements of Income and Other Comprehensive
          Income for the three and nine month periods ended September
          30, 2006 and 2005 (unaudited)                                      3

         Consolidated Statements of Cash Flows for the nine month
           periods ended September 30, 2006 and 2005 (unaudited)             4

         Notes to Consolidated Financial Statements (unaudited)              5

Item 2.  Management's Discussion and Analysis or Plan of Operations

Item 3.  Controls and Procedures

PART II. OTHER INFORMATION

Item 1.  Legal Proceedings

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds

Item 3.  Defaults Upon Senior Securities

Item 4.  Submission of Matters to a Vote of Security Holders

Item 5.  Other Information

Item 6.  Exhibits



<PAGE>


PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

                     CHINA NATURAL GAS, INC. AND SUBSIDIARY
                           CONSOLIDATED BALANCE SHEET
                            AS OF SEPTEMBER 30, 2006
                                  (Unaudited)

                                     ASSETS
                                     ------
CURRENT ASSETS:
  Cash & cash equivalents                                  $ 5,031,991
  Accounts receivable, net of allowance for
    doubtful accounts of $0                                    316,829
  Other receivable                                           1,831,998
  Inventory                                                    298,135
  Advances to suppliers                                      3,121,797
  Prepaid expense                                              165,628
                                                           -----------
    Total current assets                                    10,766,378

PROPERTY AND EQUIPMENT, net                                 12,162,205
CONTRACTS IN PROGRESS                                          418,530
CONSTRUCTION IN PROGRESS                                     2,267,926
                                                           -----------
    TOTAL ASSETS                                           $25,615,039
                                                           ===========

                      LIABILITIES AND STOCKHOLDERS' EQUITY
                      ------------------------------------
CURRENT LIABILITIES:
  Accounts payable & accrued expense                       $   383,617
  Other payables                                             1,310,839
  Unearned revenue                                             518,687
                                                           -----------
    Total current liabilities                                2,213,143
STOCKHOLDERS' EQUITY:
  Preferred stock, $0.0001 per share; authorized
    5,000,000 shares; none issued
    Common stock, $0.0001 per share; authorized
    30,000,000 shares;  issued and
    outstanding 24,210,183                                       2,421
  Additional paid-in capital                                18,223,911
  Cumulative translation adjustment                            520,604
  Statutory reserve                                            707,776
  Retained earnings                                          3,947,184
                                                           -----------
    Total stockholders' equity                              23,401,896
                                                           -----------
  TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY               $25,615,039
                                                           ===========


         The accompanying notes are an integral part of these
                  consolidated financial statements.

                                  2
<PAGE>


                     CHINA NATURAL GAS, INC. AND SUBSIDIARY
        CONSOLIDATED STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME
     FOR THE THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 2006 AND 2005
                                  (Unaudited)

<TABLE>
<CAPTION>

                                         For the Three Month Period Ended       For the Nine Month Period Ended
                                                    September 30,                         September 30,
                                                 2006         2005                    2006          2005
                                             -----------   -----------             -----------   -----------
<S>                                          <C>            <C>                    <C>           <C>
Revenue
  Natural gas revenue                        $ 5,210,834    $  406,365             $ 8,580,236   $ 1,065,017
  Construction / installation revenue          1,303,457       986,243               3,445,452     1,649,025
                                             -----------   -----------             -----------   -----------
     Total revenue                             6,514,291     1,392,608              12,025,688     2,714,042

Cost of revenue
  Natural gas cost                             2,752,594       315,116               4,862,202       830,527
  Construction / installation cost               526,292       345,382               1,368,825       584,772
                                             -----------   -----------             -----------   -----------
                                               3,278,886       660,498               6,231,027     1,415,299

Gross profit                                   3,235,405       732,110               5,794,661     1,298,743

Operating expenses
  Selling expenses                               366,616       129,353                 923,960       299,352
  General and administrative expenses            270,031        77,097                 693,141       132,991
                                             -----------   -----------             -----------   -----------
     Total operating expenses                    636,647       206,450               1,617,101       432,343
                                             -----------   -----------             -----------   -----------

Income from operations                         2,598,758       525,660               4,177,560       866,400

Non-operating income (expense):
  Interest income                                  2,485           307                   7,262           894
  Other income (expense)                          (4,231)          700                 (10,182)         (468)
                                             -----------   -----------             -----------   -----------
     Total non-operating income (expense)         (1,746)        1,007                  (2,920)          426
                                             -----------   -----------             -----------   -----------

Income before income tax                       2,597,012       526,667               4,174,640       866,826

Income tax                                       393,226       130,024                 633,005       130,024
                                             -----------   -----------             -----------   -----------
Net income                                   $ 2,203,786   $   396,643             $ 3,541,635   $   736,802

Other comprehensive income
  Foreign currency translation gain              258,640            --                 291,857            --
                                             -----------   -----------             -----------   -----------

Comprehensive Income                         $ 2,462,426   $   396,643             $ 3,833,492   $   736,802
                                             ===========   ===========             ===========   ===========

Weighted average shares outstanding
  Basic                                       23,931,197    16,000,000              23,759,285    15,975,368
                                             ===========   ===========             ===========   ===========
  Diluted                                     23,931,197    16,000,000              23,759,285    15,975,368
                                             ===========   ===========             ===========   ===========
Earnings per share
  Basic                                      $      0.09   $      0.02             $      0.15          0.05
                                             ===========   ===========             ===========   ===========
  Diluted                                    $      0.09   $      0.02             $      0.15   $      0.05
                                             ===========   ===========             ===========   ===========

</TABLE>

         The accompanying notes are an integral part of these
                  consolidated financial statements.

                                  3
<PAGE>


                     CHINA NATURAL GAS, INC. AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
          FOR THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 2006 AND 2005
                                  (Unaudited)

<TABLE>
<CAPTION>

                                                            Nine Months Ended September 30,
                                                               -------------------------
                                                                  2006          2005
                                                               -----------   -----------
<S>                                                            <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income                                                   $  3,541,635  $   736,802
  Adjustments to reconcile net income to net cash
    used in operating activities:
    Depreciation and amortization                                  497,072       204,426
    Exchange gains                                                (457,976)           --
    (Increase) / decrease in assets:
      Accounts receivable                                         (306,677)     (297,892)
      Other receivable                                          (1,258,975)      (33,390)
      Inventory                                                   (248,642)       21,271
      Receivable from related party                                     --      (168,666)
      Advances to suppliers                                     (3,068,491)     (291,955)
      Prepaid expense                                             (147,525)      (16,474)
      Contract in progress                                        (413,237)      379,584
    Increase / (decrease) in current liabilities:
      Accounts payable                                             183,632    (1,128,496)
      Other payables                                               549,701     1,388,554
      Unearned revenue                                             206,537      (724,508)
                                                               -----------   -----------
  Net cash provided by (used in) operating activities             (922,946)       69,256
                                                               -----------   -----------

CASH FLOWS FROM INVESTING ACTIVITIES
    Payment  on purchase of property and equipment              (4,170,589)   (2,671,533)
    Additions to construction in progress                         (498,676)           --
                                                               -----------   -----------
  Net cash used in investing activities                         (4,669,265)   (2,671,533)
                                                               -----------   -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
    Proceeds from sale of common stock                          10,400,000     3,503,897
    Proceeds from exercise of warrants                           1,050,001            --
    Payment of offering costs                                   (1,557,147)           --
                                                               -----------   -----------
  Net cash provided by in financing activities                   9,892,854     3,503,897
                                                               -----------   -----------

Effect of exchange rate changes on cash and cash equivalents        55,724        36,625

NET INCREASE IN CASH & CASH EQUIVALENTS                          4,356,367       938,245

CASH & CASH EQUIVALENTS, BEGINNING BALANCE                         675,624        62,998
                                                               -----------   -----------

CASH & CASH EQUIVALENTS, ENDING BALANCE                        $ 5,031,991   $ 1,001,243
                                                               ===========   ===========

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
  Interest paid                                                $        --   $        --
                                                               ===========   ===========
  Income taxes paid                                            $        --   $        --
                                                               ===========   ===========
</TABLE>

         The accompanying notes are an integral part of these
                  consolidated financial statements.

                                  4
<PAGE>

                CHINA NATURAL GAS, INC. AND SUBSIDIARY
              NOTES T0 CONSOLIDATED FINANCIAL STATEMENTS
                              (UNAUDITED)


Note 1 - Organization and Basis of Presentation

The  unaudited  consolidated  financial  statements  have been prepared by China
Natural Gas, Inc. (the "Company"),  pursuant to the rules and regulations of the
Securities and Exchange  Commission.  The information  furnished herein reflects
all adjustments  (consisting of normal recurring accruals and adjustments) which
are, in the opinion of  management,  necessary to fairly  present the  operating
results for the respective periods. Certain information and footnote disclosures
normally  present  in  annual  consolidated  financial  statements  prepared  in
accordance with accounting principles generally accepted in the United States of
America  have  been  omitted  pursuant  to such  rules  and  regulations.  These
consolidated financial statements should be read in conjunction with the audited
consolidated  financial statements and footnotes for the year ended December 31,
2005 included in the Company's Annual Report on Form 10-KSB.  The results of the
nine months  ended  September  30, 2006 are not  necessarily  indicative  of the
results to be expected for the full year ending December 31, 2006.


Organization and Line of Business

Xi'an Xilan Natural Gas Co, Ltd.  ("XXNGC") was  incorporated on January 8, 2000
in Xi'an city in the  Shaanxi  province,  China.  The core  business of XXNGC is
distribution of natural gas to commercial, industrial and residential customers,
construction of pipeline networks,  and installation of natural gas fittings and
parts  for  end-users  and  operation  of  retail   filling   stations  for  the
distribution of compressed  natural gas as a vehicular fuel to retail end users.
XXNGC has an exclusive  permit to provide gas utility service in Lantian County,
Lintong and Baqiao District of Xi'an city, China.

On December 6, 2005,  XXNGC entered into and closed a share  purchase  agreement
with Coventure International,  Inc. ("Coventure"),  a public shell in the United
States  of  America  incorporated  in the  state of  Delaware.  Pursuant  to the
purchase agreement, Coventure acquired all of the issued and outstanding capital
stock of XXNGC in exchange for  16,000,000  (post-split)  shares of  Coventure's
common stock.

Concurrently  with the  closing of the  purchase  agreement  and as a  condition
thereof, Coventure entered into an agreement with John Hromyk, its President and
Chief  Financial  Officer,  pursuant  to which Mr.  Hromyk  returned  23,884,712
(post-split)   shares  of  Coventure's  common  stock  for  cancellation.   Upon
completion  of  the  foregoing  transactions,  Coventure  had  an  aggregate  of
20,204,088 (post-split) shares of common stock issued and outstanding.

As a result of the merger,  XXNGC's  stockholders own  approximately  80% of the
combined  company and the directors  and executive  officers of XXNGC became the
directors and executive officers of Coventure.  Accordingly, the transaction has
been accounted for as a reverse acquisition of Coventure by XXNGC resulting in a
recapitalization of XXNGC rather than as a business combination. XXNGC is deemed
to be the purchaser and surviving company for accounting purposes.  Accordingly,
its assets and liabilities are included in the balance sheet at their historical
book values and the results of operations  of XXNGC have been  presented for the
comparative  prior  period.  The  historical  cost  of the  net  liabilities  of
Coventure that were acquired was $3,378.  Pro forma information is not presented
as the  financial  statements  of  Coventure  are  insignificant.  In  addition,
Coventure changed it name to China Natural Gas, Inc.  (hereafter  referred to as
the  "Company") and the  stockholders  approved a stock dividend of three shares
for each share held, which has been accounted for as a four to one forward stock
split. All shares and per share data have been restated retrospectively.

                                  5
<PAGE>

The Company  incorporated a new  subsidiary,  Shaanxi Natural Gas Equipment Co.,
Ltd. in February 2006.  Shaanxi Natural Gas Equipment Co., Ltd. did not have any
operations during the period ended September 30, 2006.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of China
Natural Gas, Inc. and its wholly owned  subsidiaries,  XXNGC and Shaanxi Natural
Gas Equipment Co., Ltd. All  inter-company  accounts and transactions  have been
eliminated in consolidation.

Basis of Presentation

The  accompanying  consolidated  financial  statements  have  been  prepared  in
conformity with accounting principles generally accepted in the United States of
America. The Company's functional currency is the Chinese Renminbi;  however the
accompanying   consolidated   financial  statements  have  been  translated  and
presented in United States Dollars (USD).

Foreign Currency Translation

As of September 30, 2006 and 2005, the accounts of the Company were  maintained,
and their consolidated  financial  statements were expressed in the Chinese Yuan
Renminbi  (RMB).  Such  consolidated  financial  statements were translated into
United States Dollars (USD) in accordance  with Statement of Financial  Accounts
Standards  ("SFAS") No. 52, "Foreign Currency  Translation," with the RMB as the
functional currency. According to the Statement, all assets and liabilities were
translated at the exchange rate on the balance sheet date,  stockholder's equity
are  translated at the  historical  rates and statement of operations  items are
translated at the weighted  average  exchange  rate for the year.  The resulting
translation  adjustments  are  reported  under  other  comprehensive  income  in
accordance with SFAS No. 130, "Reporting Comprehensive Income."


Note 2 - Summary of Significant Accounting Policies

Use of Estimates

The preparation of financial  statements in conformity  with generally  accepted
accounting principles requires management to make estimates and assumptions that
affect  the  reported  amounts  of assets  and  liabilities  and  disclosure  of
contingent  assets and  liabilities at the date of the financial  statements and
the  reported  amounts of revenues  and expenses  during the  reporting  period.
Actual results could differ from those estimates.

Cash and Cash Equivalents

Cash  and cash  equivalents  include  cash on hand  and  cash in time  deposits,
certificates  of deposit and all highly  liquid debt  instruments  with original
maturities of three months or less.

Accounts and Other Receivable

Accounts and other receivable are recorded at net realizable value consisting of
the carrying amount less an allowance for uncollectible accounts, as needed. The
Company allowance for uncollectible accounts is not significant.

                                       6
<PAGE>

The  Company  maintains   reserves  for  potential  credit  losses  on  accounts
receivable.  Management  reviews  the  composition  of accounts  receivable  and
analyzes  historical  bad  debts,  customer   concentrations,   customer  credit
worthiness,  current economic trends and changes in customer payment patterns to
evaluate the adequacy of these  reserves.  Reserves are recorded  primarily on a
specific  identification  basis.  The Company's  management  determined that all
receivables  are  good  and  there  is no need of  reserve  for bad  debts as on
September 30, 2006.

Other  receivable  includes  a loan  of  $1,043,625  made to a  third  party  in
September  2006,  for a two month  period.  The loan is  unsecured  and carry an
interest  rate of 4.5% per  month.  However,  if the loan is not  repaid  in the
stipulated time frame, the interest rate increases to 20% per month.

Advances

The Company  advances to certain  vendors  (for  purchase  of its  material  and
equipment) and a consultant . The advances are interest free and unsecured.

Inventory

Inventory is stated at the lower of cost, as determined on a first-in, first-out
basis, or market.  Management  compares the cost of inventories  with the market
value,  and allowance is made for writing down the  inventories  to their market
value,  if lower.  Inventory  consists of material used in the  construction  of
pipelines.

Property and Equipment

Property and  equipment are stated at cost.  Expenditures  for  maintenance  and
repairs are charged to earnings as incurred; additions, renewals and betterments
are capitalized.  When property and equipment are retired or otherwise  disposed
of,  the  related  cost  and  accumulated  depreciation  are  removed  from  the
respective   accounts,   and  any  gain  or  loss  is  included  in  operations.
Depreciation  of property  and  equipment  is provided  using the  straight-line
method for substantially all assets with estimated lives as follows:

           Office equipment                                   5 years
           Operating equipment                              5-20 years
           Vehicles                                           5 years
           Buildings                                         30 years

At  September  30,  2006,  the  following  are the details of the  property  and
equipment:

           Office equipment                            $            51,875
           Operating equipment                                  10,896,496
           Vehicles                                                443,280
           Buildings                                             2,380,653
                                                      -------------------------
                                                                13,772,305
           Less accumulated depreciation                        (1,610,100)
                                                      -------------------------
                                                       $        12,162,205
                                                      =========================

Depreciation  expense for the nine months ended  September 30, 2006 and 2005 was
$495,967 and $204,426, respectively.


                                       7
<PAGE>

Long-Lived Assets

Effective January 1, 2002, the Company adopted Statement of Financial Accounting
Standards  No. 144,  "Accounting  for the  Impairment  or Disposal of Long-Lived
Assets" ("SFAS 144"), which addresses financial accounting and reporting for the
impairment  or  disposal  of  long-lived  assets and  supersedes  SFAS No.  121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of," and the accounting and reporting  provisions of APB Opinion No.
30,  "Reporting  the  Results of  Operations  for a  Disposal  of a Segment of a
Business." The Company  periodically  evaluates the carrying value of long-lived
assets  to be held and used in  accordance  with  SFAS  144.  SFAS 144  requires
impairment  losses to be recorded on long-lived  assets used in operations  when
indicators of impairment are present and the  undiscounted  cash flows estimated
to be generated by those assets are less than the assets' carrying  amounts.  In
that  event,  a loss is  recognized  based on the  amount by which the  carrying
amount  exceeds  the  fair  market  value  of the  long-lived  assets.  Loss  on
long-lived  assets to be disposed of is determined in a similar  manner,  except
that fair market values are reduced for the cost of disposal.

Construction In Progress

Construction in progress  consist of the cost of  constructing  fixed assets for
the  Company's  use.  The major  cost of  construction  in  progress  relates to
material, labor and overhead.

Contracts  in  progress  consist  of the  cost  of  constructing  pipelines  for
customers.  The  major  cost of  construction  relates  to  material,  labor and
overhead.  Revenue from  construction  and installation of pipelines is recorded
when the contract is completed and accepted by the customers.  The  construction
contracts are usually  completed  within one to two months time. As of September
30, 2006, the Company had $418,530 of contracts in progress.

Fair Value of Financial Instruments

Statement of financial accounting standard No. 107, Disclosures about fair value
of financial  instruments,  requires that the Company  disclose  estimated  fair
values of financial instruments. The carrying amounts reported in the statements
of financial position for current assets and current  liabilities  qualifying as
financial instruments are a reasonable estimate of fair value.

Revenue Recognition

The  Company's  revenue  recognition  policies  are  in  compliance  with  Staff
accounting  bulletin (SAB) 104. Revenue is recognized when services are rendered
to  customers  when  a  formal  arrangement   exists,  the  price  is  fixed  or
determinable, the delivery is completed, no other significant obligations of the
Company exist and collectibility is reasonably assured. Payments received before
all of the relevant criteria for revenue  recognition are satisfied are recorded
as unearned  revenue.  Revenue from gas sales is  recognized  when gas is pumped
through  pipelines to the end users.  Revenue from construction and installation
of  pipelines is recorded  when the  contract is  completed  and accepted by the
customers.  The construction contracts are usually completed within one to three
months time.

Unearned Revenue

Unearned  revenue  represents  prepayments  by customers  for gas  purchases and
advance  payments on construction and  installation of pipeline  contracts.  The
Company  records  such  prepayment  as unearned  revenue  when the  payments are
received.

                                       8
<PAGE>

Advertising Costs

The Company expenses the cost of advertising as incurred or, as appropriate, the
first time the advertising  takes place.  Advertising  costs for the nine months
ended September 30, 2006 and 2005 were insignificant.


Stock-Based Compensation

The Company  accounts for its  stock-based  compensation in accordance with SFAS
No. 123R,  "Share-Based  Payment,  an Amendment of FASB  Statement No. 123." The
Company  recognizes in the statement of operations the grant- date fair value of
stock  options  and other  equity-based  compensation  issued to  employees  and
non-employees.

Income Taxes

The Company utilizes SFAS No. 109, "Accounting for Income Taxes," which requires
the  recognition of deferred tax assets and  liabilities for the expected future
tax  consequences of events that have been included in the financial  statements
or tax returns. Under this method,  deferred income taxes are recognized for the
tax consequences in future years of differences  between the tax bases of assets
and liabilities and their financial  reporting  amounts at each period end based
on enacted tax laws and statutory  tax rates  applicable to the periods in which
the differences are expected to affect taxable income.  Valuation allowances are
established,  when  necessary,  to reduce  deferred  tax  assets  to the  amount
expected to be realized. At September 30, 2006, there was no significant book to
tax  differences.  There is no  difference  between  book  depreciation  and tax
depreciation as the Company uses the same method for both book and tax.

Local PRC Income Tax

Pursuant to the tax laws of China, general enterprises are subject to income tax
at an effective  rate of 33%.  The Company is in the natural gas industry  whose
development  is  encouraged  by the  government.  According  to the  income  tax
regulation,  any company  engaged in the natural gas industry enjoys a favorable
tax rate. Accordingly,  the Company's income is subject to a reduced tax rate of
15%.

Basic and Diluted Earning Per Share

Earning per share is calculated  in  accordance  with the Statement of Financial
Accounting  Standards No. 128 ("SFAS No. 128"),  "Earnings per share".  SFAS No.
128 superseded  Accounting  Principles Board Opinion No.15 (APB 15). Net earning
per share for all periods presented has been restated to reflect the adoption of
SFAS No. 128.  Basic net earning  per share is based upon the  weighted  average
number of common shares  outstanding.  Diluted net earning per share is based on
the  assumption  that all  dilutive  convertible  shares and stock  options were
converted or  exercised.  At September  30,  2006,  the Company had  outstanding
1,140,286 warrants.  The average stock price for the three and nine months ended
September 30, 2006 was less than the exercise price of the warrants;  therefore,
the warrants are not factored into the diluted earning per share  calculation as
they are anti-dilutive.

                                       9
<PAGE>

Statement of Cash Flows

In  accordance  with  Statement  of  Financial   Accounting  Standards  No.  95,
"Statement  of  Cash  Flows,"  cash  flows  from  the  Company's  operations  is
calculated  based upon the local  currencies.  As a result,  amounts  related to
assets  and  liabilities  reported  on the  statement  of cash  flows  will  not
necessarily  agree with  changes in the  corresponding  balances  on the balance
sheet.

Segment Reporting

Statement of Financial  Accounting  Standards No. 131 ("SFAS 131"),  "Disclosure
About  Segments of an Enterprise  and Related  Information"  requires use of the
"management approach" model for segment reporting. The management approach model
is based on the way a company's management organizes segments within the company
for making operating  decisions and assessing  performance.  Reportable segments
are based on products  and  services,  geography,  legal  structure,  management
structure, or any other manner in which management disaggregates a company. SFAS
131 has no effect on the  Company's  consolidated  financial  statements  as the
Company  consists  of one  reportable  business  segment.  All  revenue  is from
customers in the People's  Republic of China.  All of the  Company's  assets are
located in the People's Republic of China.

Recent Pronouncements

In December 2004, the FASB issued FASB Statement No. 123R, "Share-Based Payment,
an Amendment of FASB Statement No. 123" ("FAS No. 123R").  FAS No. 123R requires
companies to recognize in the statement of operations the grant- date fair value
of stock options and other equity-based  compensation  issued to employees.  FAS
No. 123R is effective  beginning in the Company's second quarter of fiscal 2006.
The Company  adopted  FAS No.  123R on January 1, 2006 and the  adoption of this
statement did not have a material impact on its financial  position,  results of
operations or cash flows.

In May 2005,  the FASB issued FASB  Statement No. 154,  "Accounting  Changes and
Error  Corrections - a replacement  of APB Opinion No. 20 and FASB Statement No.
3". This statement replaces APB Opinion No. 20, "Accounting  Changes",  and FASB
Statement No. 3, "Reporting Accounting Changes in Interim Financial Statements",
and changes the requirements for the accounting for and reporting of a change in
accounting  principle.  This  statement  applies  to all  voluntary  changes  in
accounting  principle.  It also  applies to changes  required  by an  accounting
pronouncement  in the unusual instance that the  pronouncement  does not include
specific  transition  provisions.  This  statement is effective  for  accounting
changes and correction of errors made in fiscal years  beginning  after December
15, 2005. Management believes the adoption of this pronouncement will not have a
material effect on our financial statements.

In June 2005,  the FASB  ratified the EITF  consensus  to amend EITF No.  96-16,
"Investor's  Accounting  for an Investee When the Investor Has a Majority of the
Voting  Interest but the  Minority  Shareholders  Have Certain  Approval or Veto
Rights".  The EITF  agreed  to  amend  the  Protective  Rights  section  of this
consensus,  as well as Example  of Exhibit  96-16A,  to be  consistent  with the
consensus reached in Issue No. 04-5,  "Determining Whether a General Partner, or
the General  Partners as a Group,  Controls a Limited  Partnership  or Similarly
Entity When the Limited  Partners Have Certain  Rights." The  provisions of this
amendment  should be applied  prospectively to new investments and to investment
agreements  that are  modified  after June 29,  2005.  Management  believes  the
adoption of this  pronouncement will not have a material effect on our financial
statements.

                                       10
<PAGE>

In June 2005,  the EITF reached  consensus on Issue No.  05-6,  determining  the
Amortization Period for Leasehold Improvements ("EITF 05-6.") EITF 05-6 provides
guidance on  determining  the  amortization  period for  leasehold  improvements
acquired in a business  combination or acquired  subsequent to lease  inception.
The guidance in EITF 05-6 will be applied  prospectively  and is  effective  for
periods  beginning  after June 29,  2005.  EITF 05-6 is not  expected  to have a
material effect on its financial position or results of operations.

In February  2006,  FASB issued SFAS No.  155,  "Accounting  for Certain  Hybrid
Financial  Instruments".  SFAS  No.  155  amends  SFAS No 133,  "Accounting  for
Derivative  Instruments and Hedging  Activities",  and SFAF No. 140, "Accounting
for  Transfers  and  Servicing  of  Financial  Assets  and   Extinguishments  of
Liabilities".  SFAS No. 155,  permits  fair value  remeasurement  for any hybrid
financial  instrument that contains an embedded  derivative that otherwise would
require  bifurcation,  clarifies which  interest-only  strips and principal-only
strips are not  subject  to the  requirements  of SFAS No.  133,  establishes  a
requirement  to evaluate  interest in securitized  financial  assets to identify
interests  that  are  freestanding  derivatives  or that  are  hybrid  financial
instruments that contain an embedded derivative requiring bifurcation, clarifies
that concentrations of credit risk in the form of subordination are not embedded
derivatives,  and  amends  SFAS No.  140 to  eliminate  the  prohibition  on the
qualifying special-purpose entity from holding a derivative financial instrument
that pertains to a beneficial  interest other than another derivative  financial
instrument.  This statement is effective for all financial  instruments acquired
or issued  after the  beginning of the  Company's  first fiscal year that begins
after  September  15,  2006.  The Company has not  evaluated  the impact of this
pronouncement its financial statements.

In March 2006 FASB  issued  SFAS 156  'Accounting  for  Servicing  of  Financial
Assets' this Statement  amends FASB Statement No. 140,  Accounting for Transfers
and  Servicing of Financial  Assets and  Extinguishments  of  Liabilities,  with
respect  to the  accounting  for  separately  recognized  servicing  assets  and
servicing liabilities. This Statement:

1. Requires an entity to recognize a servicing asset or servicing liability each
time it undertakes an obligation to service a financial asset by entering into a
servicing contract.

2. Requires all separately recognized servicing assets and servicing liabilities
to be initially measured at fair value, if practicable.

3. Permits an entity to choose  'Amortization  method' or Fair value measurement
method' for each class of separately  recognized  servicing assets and servicing
liabilities.

4.  At  its   initial   adoption,   permits  a  one-time   reclassification   of
available-for-sale  securities to trading securities by entities with recognized
servicing  rights,   without  calling  into  question  the  treatment  of  other
available-for-sale   securities   under   Statement   115,   provided  that  the
available-for-sale  securities  are  identified in some manner as offsetting the
entity's  exposure  to changes in fair value of  servicing  assets or  servicing
liabilities that a servicer elects to subsequently measure at fair value.

5. Requires separate  presentation of servicing assets and servicing liabilities
subsequently  measured at fair value in the statement of financial  position and
additional  disclosures  for all  separately  recognized  servicing  assets  and
servicing liabilities. An entity should adopt this Statement as of the beginning
of its first  fiscal year that  begins  after  September  15,  2006.  Management
believes that this statement will not have a significant impact on the financial
statement.

                                       11
<PAGE>

In  September  2006,  FASB  issued  SFAS 157  `Fair  Value  Measurements'.  This
Statement  defines fair value,  establishes a framework for measuring fair value
in generally accepted  accounting  principles  (GAAP),  and expands  disclosures
about fair value  measurements.  This Statement  applies under other  accounting
pronouncements that require or permit fair value measurements,  the Board having
previously  concluded in those accounting  pronouncements that fair value is the
relevant measurement attribute. Accordingly, this Statement does not require any
new fair value measurements. However, for some entities, the application of this
Statement  will  change  current  practice.  This  Statement  is  effective  for
financial  statements issued for fiscal years beginning after November 15, 2007,
and interim  periods  within those fiscal  years.  The  management  is currently
evaluating the effect of this pronouncement on financial statements.

In  September  2006,  FASB issued SFAS 158  `Employers'  Accounting  for Defined
Benefit Pension and Other Postretirement  Plans--an amendment of FASB Statements
No. 87, 88, 106,  and 132(R)' This  Statement  improves  financial  reporting by
requiring an employer to recognize  the  overfunded or  underfunded  status of a
defined  benefit  postretirement  plan (other than a  multiemployer  plan) as an
asset or  liability  in its  statement  of  financial  position and to recognize
changes in that  funded  status in the year in which the changes  occur  through
comprehensive  income of a business entity or changes in unrestricted net assets
of  a  not-for-profit  organization.  This  Statement  also  improves  financial
reporting by requiring an employer to measure the funded  status of a plan as of
the  date  of  its  year-end  statement  of  financial  position,  with  limited
exceptions.  An employer with publicly  traded equity  securities is required to
initially  recognize the funded status of a defined benefit  postretirement plan
and to provide the required  disclosures as of the end of the fiscal year ending
after December 15, 2006. An employer without  publicly traded equity  securities
is required to recognize the funded status of a defined  benefit  postretirement
plan and to provide the  required  disclosures  as of the end of the fiscal year
ending after June 15, 2007.  However, an employer without publicly traded equity
securities  is required to disclose the  following  information  in the notes to
financial  statements  for a fiscal year ending after  December  15,  2006,  but
before June 16, 2007,  unless it has applied the recognition  provisions of this
Statement in preparing  those financial  statements.  The requirement to measure
plan  assets and benefit  obligations  as of the date of the  employer's  fiscal
year-end  statement of financial  position is effective  for fiscal years ending
after December 15, 2008.  The  management is currently  evaluating the effect of
this pronouncement on financial statements.


Note 3 - Other Payables

Other payable consists of the following as of September 30, 2006:

           Other accounts payable                      $            99,784
           Welfare payable                                          12,075
           Tax payable                                           1,178,388
           Other                                                    20,592
                                                      -------------------------
                                                       $         1,310,839
                                                      =========================


                                       12
<PAGE>


Note 4 - Stockholders' Equity

Common stock

On January 6, 2006 and January 9, 2006,  the  Company  entered  into  securities
purchase  agreements  with four  accredited  investors and completed the sale of
$5,380,000  of units.  The units  contained an aggregate of 1,921,572  shares of
common  stock and 523,055  common  stock  purchase  warrants.  Each common stock
purchase warrant is exercisable for a period of three years at an exercise price
of $3.60 per share.  Pursuant to the terms of the  warrant,  each  investor  has
contractually  agreed to restrict  its ability to  exercise  the  warrants to an
amount  which  would not exceed the  difference  between the number of shares of
common stock  beneficially  owned by the holder or issuable upon exercise of the
warrant held by such holder and 9.9% of the  outstanding  shares of common stock
of the Company.

In connection with the offering,  the Company paid a placement fee of 10% of the
proceeds in cash, together with non-accountable  expenses in the amount of 3% of
the proceeds,  in cash. In addition,  the placement agent was issued warrants to
purchase  298,888 shares of common stock on the same terms and conditions as the
investors.  The warrants  issued to the  placement  agent are being treated as a
cost of raising  capital.  The  warrants  were  valued  using the Black  Scholes
pricing  model;  however,  recording  the value of the warrants in the financial
statements  has no impact  as the  value of the  warrants  is both  debited  and
credited to additional paid in capital.

On January  10,  2006  through  January  13,  2006,  the  Company  entered  into
securities purchase agreements with four accredited  investors and completed the
sale of $2,195,198 of units.  The units contained an aggregate of 783,999 shares
of common stock and 213,422  common stock purchase  warrants.  Each common stock
purchase warrant is exercisable for a period of three years at an exercise price
of $3.60 per share.  Pursuant to the terms of the  warrant,  each  investor  has
contractually  agreed to restrict  its ability to  exercise  the  warrants to an
amount  which  would not exceed the  difference  between the number of shares of
common stock  beneficially  owned by the holder or issuable upon exercise of the
warrant held by such holder and 9.9% of the  outstanding  shares of common stock
of the Company.

In connection with the offering,  the Company paid a placement fee of 10% of the
proceeds in cash, together with non-accountable  expenses in the amount of 3% of
the proceeds,  in cash. In addition,  the placement agent was issued warrants to
purchase  121,955 shares of common stock on the same terms and conditions as the
investors.  The warrants  issued to the  placement  agent are being treated as a
cost of raising  capital.  The  warrants  were  valued  using the Black  Scholes
pricing  model;  however,  recording  the value of the warrants in the financial
statements  has no impact  as the  value of the  warrants  is both  debited  and
credited to additional paid in capital.

On January 17, 2006, the Company  entered into  securities  purchase  agreements
with an accredited  investor and completed the sale of $2,824,802 of units.  The
units  contained an  aggregate  of 1,008,857  shares of common stock and 274,633
common  stock  purchase   warrants.   Each  common  stock  purchase  warrant  is
exercisable for a period of three years at an exercise price of $3.60 per share.
Pursuant to the terms of the warrant,  each investor has contractually agreed to
restrict  its ability to  exercise  the  warrants  to an amount  which would not
exceed the difference  between the number of shares of common stock beneficially
owned by the holder or issuable upon exercise of the warrant held by such holder
and 9.9% of the outstanding shares of common stock of the Company.

                                       13
<PAGE>

In September 2006, the Company received  $1,050,001 from the exercise of 291,667
warrants.

Warrants

Following is a summary of the warrant activity:


                                                        Weighted
                                                         Average       Aggregate
                                          Warrants       Exercise      Intrinsic
                                        outstanding        Price         Value

Outstanding, December 31, 2005                -                 -            -
Granted                                    1,431,953        $3.60
Forfeited                                    -                  -
Exercised                                   (291,667)       $3.60
                                       ---------------
Outstanding, September 30, 2006             1,140,286       $3.60      $     0
                                       ===============


Following is a summary of the status of warrants  outstanding  at September  30,
2006:


         Outstanding Warrants                          Exercisable Warrants

                                      Average
                                     Remaining        Average
        Exercise                    Contractual      Exercise
          Price        Number           Life           Price      Number

          $3.60       1,140,286         2.28           $3.60    1,140,286


Note 5 - Employee Welfare Plan

The Company has  established  its own employee  welfare plan in accordance  with
Chinese law and  regulations.  The Company makes annual  contributions of 14% of
all  employees'  salaries to employee  welfare  plan.  The total expense for the
above plan was $34,919 and $8,360 for the nine months ended  September  30, 2006
and 2005, respectively.


Note 6 - Statutory Common Welfare Fund

As  stipulated  by the  Company Law of the  People's  Republic of China (PRC) as
applicable  to Chinese  companies  with  foreign  ownership,  net  income  after
taxation can only be distributed as dividends after  appropriation has been made
for the following:

                                       14
<PAGE>

i.    Making up cumulative prior years' losses, if any;

ii.   Allocations to the "Statutory  surplus  reserve" of at least 10% of income
      after tax, as determined under PRC accounting rules and regulations, until
      the fund amounts to 50% of the Company's registered capital;

iii.  Allocations  of 5-10%  of  income  after  tax,  as  determined  under  PRC
      accounting  rules and  regulations,  to the  Company's  "Statutory  common
      welfare fund",  which is established for the purpose of providing employee
      facilities and other collective benefits to the Company's employees; and

iv.   Allocations  to the  discretionary  surplus  reserve,  if  approved in the
      shareholders' general meeting.

The Company has appropriated  $538,054 and $110,520 as reserve for the statutory
surplus  reserve and welfare fund for the nine months ended  September  30, 2006
and 2005, respectively.


Note 7 - Earnings Per Share

Earnings per share for nine months  September 30, 2006 and 2005 were  determined
by dividing  net income for the periods by the weighted  average  number of both
basic  and  diluted  shares  of  common  stock  and  common  stock   equivalents
outstanding.  There were no common stock  equivalents  that were dilutive during
the three and nine months ended September 30, 2006 and 2005; accordingly,  basic
and diluted earning per share were the same for all periods presented.


Note 8 - Current Vulnerability Due to Certain Concentrations

For the nine months ended September 30, 2006 and 2005, the Company purchased all
of the natural gas for resale from one vendor,  Shaanxi Natural Gas Co., Ltd., a
government  owned enterprise and two other wholesale  vendors.  $0. was owing to
one of the wholesale  vendors at September 30, 2006.  The Company has had annual
agreements  with  Shaanxi  Natural Gas that  requires  the Company to purchase a
minimum  amount of natural  gas.  For the years ended  December  31,  2005,  the
minimum  purchases was 2.36 million cubic meters.  In the past,  contracts  were
renewed  on an annual  basis.  However,  as the  volume of usage has  increased,
Shaanxi Natural Gas has revised their  policies,  and contract terms are now six
months and subject to review prior to renewal.  The Company's management reports
that it does not expect  any issues or  difficulty  in  continuing  to renew the
supply  contracts  going  forward.  Price  points for natural  gas are  strictly
controlled by the government and have remained stable over the past 3 years.

For the nine months ended  September 30, 2006,  two supplier  accounts for 42.2%
and 17.0% of the total equipment purchased by the Company.

One customer accounted for 36.1% and 87.0% of the Company's revenue for the nine
months ended September 30, 2006 and 2005, respectively.

The  Company's  operations  are carried out in the  People's  Republic of China.
Accordingly,   the  Company's  business,  financial  condition  and  results  of
operations may be influenced by the political,  economic and legal  environments
in the People's Republic of China, by the general state of the People's Republic
of China`s  economy.  The  Company's  business may be  influenced  by changes in
governmental  policies with respect to laws and  regulations,  anti-inflationary
measures,  currency  conversion and remittance  abroad, and rates and methods of
taxation, among other things.

                                       15
<PAGE>

Note 9 - Related Party Transactions

Included in other  payables in the  accompanying  balance sheet at September 30,
2006 is $0 due to stockholder of the Company.


Item 2. Management's Discussion and Analysis or Plan of Operations

Forward-Looking Statements

The  information  in  this  report  contains  forward-looking   statements.  All
statements  other than  statements  of  historical  fact made in this report are
forward  looking.  In  particular,  the  statements  herein  regarding  industry
prospects  and  future   results  of   operations  or  financial   position  are
forward-looking  statements.  These forward-looking statements can be identified
by the  use of  words  such as  "believes,"  "estimates,"  "could,"  "possibly,"
"probably,"  anticipates,"  "projects," "expects," "may," "will," or "should" or
other  variations or similar  words.  No assurances can be given that the future
results  anticipated  by  the  forward-looking   statements  will  be  achieved.
Forward-looking  statements reflect  management's  current  expectations and are
inherently   uncertain.   Our  actual  results  may  differ  significantly  from
management's expectations.

The following  discussion and analysis  should be read in  conjunction  with our
audited financial statements included in our Annual Report on Form 10KSB for the
year ended December 31, 2005. This  discussion  should not be construed to imply
that the results discussed herein will necessarily  continue into the future, or
that any  conclusion  reached  herein will  necessarily  be indicative of actual
operating  results  in the  future.  Such  discussion  represents  only the best
present assessment of our management.

Corporate History

We were  incorporated  in the state of  Delaware  on March 31,  1999,  as Bullet
Environmental  Systems,  Inc.  and on May  25,  2000  we  changed  our  name  to
Liquidpure  Corp.  and on February  14,  2002 we changed  our name to  Coventure
International  Inc. On December 6, 2005,  we closed a Share  Purchase  Agreement
with Xian Xilan Natural Gas Co.,  Ltd., a  corporation  formed under the laws of
the People's  Republic of China on January 8, 2000, and the shareholders of Xian
Xilan Natural Gas Co., Ltd.  Pursuant to the  Agreement,  we acquired all of the
issued and  outstanding  capital  stock of Xian Xilan Natural Gas Co., Ltd. from
the   shareholders  of  Xian  Xilan  Natural  Gas  Co.,  Ltd.  In  exchange  the
shareholders  of Xian Xilan  Natural Gas Co.,  Ltd.  received  16,000,000  (post
split)  shares of common stock of Coventure  International  Inc. On December 19,
2005 we changed our name to China Natural Gas, Inc.

Significant Accounting Policies

Use of estimates

The preparation of financial  statements in conformity  with generally  accepted
accounting principles requires management to make estimates and assumptions that
affect  the  reported  amounts  of assets  and  liabilities  and  disclosure  of
contingent  assets and  liabilities at the date of the financial  statements and
the  reported  amounts of revenues  and expenses  during the  reporting  period.
Actual results could differ from those estimates.

                                       16
<PAGE>

Accounts receivable

Accounts and other receivable are recorded at net realizable value consisting of
the carrying amount less an allowance for uncollectible accounts, as needed. Our
allowance for uncollectible accounts is not significant.

We  maintain  reserves  for  potential  credit  losses on  accounts  receivable.
Management   reviews  the  composition  of  accounts   receivable  and  analyzes
historical  bad debts,  customer  concentrations,  customer  credit  worthiness,
current economic trends and changes in customer payment patterns to evaluate the
adequacy  of these  reserves.  Reserves  are  recorded  primarily  on a specific
identification basis.

Advances to Suppliers

We advance to certain  vendors for  purchase of our  material.  The  advances to
suppliers are interest free and unsecured.

Inventory

Inventory is stated at the lower of cost, as determined on a first-in, first-out
basis, or market.  Management  compares the cost of inventories  with the market
value,  and allowance is made for writing down the  inventories  to their market
value,  if lower.  Inventory  consists of material used in the  construction  of
pipelines.

Property and equipment

Property and  equipment are stated at cost.  Expenditures  for  maintenance  and
repairs are charged to earnings as incurred; additions, renewals and betterments
are capitalized.  When property and equipment are retired or otherwise  disposed
of,  the  related  cost  and  accumulated  depreciation  are  removed  from  the
respective   accounts,   and  any  gain  or  loss  is  included  in  operations.
Depreciation  of property  and  equipment  is provided  using the  straight-line
method for substantially all assets with estimated lives.

Construction In Progress

Construction in progress  consist of the cost of  constructing  fixed assets for
our use. The major cost of construction in progress  relates to material,  labor
and overhead.  As of September 30, 2006 the Company has $2,267,926  Construction
in progress.

Contracts In Progress

Contracts  in  progress  consist  of the  cost  of  constructing  pipelines  for
customers.  The  major  cost of  construction  relates  to  material,  labor and
overhead.  Revenue from  construction  and installation of pipelines is recorded
when the contract is completed and accepted by the customers.  The  construction
contracts are usually  completed  within one to two months time. As of September
30, 2006, the Company has $418,530 contracts in progress.

                                       17
<PAGE>

Revenue recognition

Our  revenue  recognition  policies  are in  compliance  with  Staff  accounting
bulletin  (SAB)  104.  Revenue is  recognized  when  services  are  rendered  to
customers when a formal arrangement  exists, the price is fixed or determinable,
the  delivery  is  completed,   no  other  significant   obligations  exist  and
collectibility  is  reasonably  assured.  Payments  received  before  all of the
relevant criteria for revenue recognition are satisfied are recorded as unearned
revenue.  Revenue  from gas  sales is  recognized  when  gas is  pumped  through
pipelines  to the end users.  Revenue  from  construction  and  installation  of
pipelines  is  recorded  when the  contract  is  completed  and  accepted by the
customers.  The construction contracts are usually completed within one to three
months time.

Stock-based compensation

We account for our  stock-based  compensation  in accordance with SFAS No. 123R,
"Share-Based  Payment,  an Amendment of FASB Statement No. 123." We recognize in
the  statement  of  operations  the grant- date fair value of stock  options and
other equity-based compensation issued to employees and non-employees.

Income taxes

We utilize  SFAS No. 109,  "Accounting  for Income  Taxes,"  which  requires the
recognition of deferred tax assets and  liabilities  for the expected future tax
consequences  of events that have been included in the  financial  statements or
tax returns. Under this method, deferred income taxes are recognized for the tax
consequences in future years of differences  between the tax bases of assets and
liabilities  and their financial  reporting  amounts at each period end based on
enacted tax laws and statutory tax rates  applicable to the periods in which the
differences  are expected to affect  taxable  income.  Valuation  allowances are
established,  when  necessary,  to reduce  deferred  tax  assets  to the  amount
expected to be realized.

Local PRC Income Tax

Pursuant to the tax laws of China, general enterprises are subject to income tax
at an  effective  rate  of  33%.  We are  in  the  natural  gas  industry  whose
development  is  encouraged  by the  government.  According  to the  income  tax
regulation,  any company  engaged in the natural gas industry enjoys a favorable
tax rate. Accordingly, our income is subject to a reduced tax rate of 15%.

Foreign currency transactions and comprehensive income (loss)

Accounting principles generally require that recognized revenue, expenses, gains
and losses be included  in net  income.  Certain  statements,  however,  require
entities to report specific changes in assets and  liabilities,  such as gain or
loss on foreign  currency  translation,  as a separate  component  of the equity
section of the balance sheet. Such items,  along with net income, are components
of comprehensive  income.  Transactions  occur in Chinese Renminbi.  The unit of
Renminbi is in Yuan.

Recent Accounting Pronouncements

In March 2006 FASB  issued  SFAS 156  `Accounting  for  Servicing  of  Financial
Assets' this Statement  amends FASB Statement No. 140,  Accounting for Transfers
and  Servicing of Financial  Assets and  Extinguishments  of  Liabilities,  with
respect  to the  accounting  for  separately  recognized  servicing  assets  and
servicing liabilities. This Statement:

                                       18
<PAGE>

      1.    Requires  an entity to  recognize  a  servicing  asset or  servicing
            liability  each  time it  undertakes  an  obligation  to  service  a
            financial asset by entering into a servicing contract.
      2.    Requires all separately  recognized  servicing  assets and servicing
            liabilities to be initially measured at fair value, if practicable.
      3.    Permits  an entity to choose  `Amortization  method'  or Fair  value
            measurement   method'  for  each  class  of  separately   recognized
            servicing assets and servicing liabilities:
      4.    At its  initial  adoption,  permits a one-time  reclassification  of
            available-for-sale securities to trading securities by entities with
            recognized  servicing  rights,  without  calling  into  question the
            treatment of other  available-for-sale  securities  under  Statement
            115, provided that the available-for-sale  securities are identified
            in some manner as  offsetting  the  entity's  exposure to changes in
            fair  value of  servicing  assets or  servicing  liabilities  that a
            servicer elects to subsequently measure at fair value.
      5.    Requires  separate  presentation  of servicing  assets and servicing
            liabilities  subsequently measured at fair value in the statement of
            financial  position and  additional  disclosures  for all separately
            recognized servicing assets and servicing liabilities.

This  Statement is effective as of the beginning of the  Company's  first fiscal
year that  begins  after  September  15,  2006.  Management  believes  that this
statement  will not have a  significant  impact  on the  consolidated  financial
statements.

Results of Operations

Three Months Ended  September 30, 2006 compared to Three Months Ended  September
30, 2005

Revenue.  We  generated  revenues  of  $6,514,291  for the  three  months  ended
September 30, 2006, an increase of $5,121,683 or 367.8%,  compared to $1,392,608
for the three months ended  September 30, 2005. The increase in revenues was due
to an 1182%  increase in our natural  gas  revenues,  as we opened 4 new filling
stations during the three months ended September 30, 2006.  In addition, we  had
approximately a 32.2% increase in our construction/installation  revenues during
this  period,  as we continue to increase the number of  households  we serve to
approximately 67,540.

Approximately  80% of our total  revenues,  for the three months ended September
30, 2006, are from the sale of natural gas, 92.9% of our revenues of natural gas
were sold in our natural gas filling  stations.  We sell the compressed  natural
gas at the filling stations to CNG powered vehicles. Utility customers accounted
for 4.19% of our natural gas sales,  and 2.88% of natural gas  revenues was sold
wholesale to third party natural gas filling station operators.

The balance of our total revenues for the three month period ended September 30,
2006,  20%,  was from  construction/installation  revenue.  New  households  pay
approximately 60% of the construction  costs of the pipeline that supplies their
homes with  natural  gas up front and the balance is paid as part of the monthly
natural gas bill.  Three customers  accounted for 47.9%,  33.9% and 14.9% of our
construction/installation  revenue for the three months ended September 30, 2006
and one customer  accounted for 81.35% of our revenue for the three months ended
September 30, 2005.

Gross profit. We have achieved a gross profit of $3,235,405 for the three months
ended  September  30, 2006,  an increase of  $2,503,295  or 341.9%,  compared to
$732,110 for the three months ended September 30, 2005. Gross profit for natural
gas sale for the three month period ended  September 30, 2006 was  $2,458,240 or
76% of the total gross  profit,  construction  and  installation  accounted  for
$777,165 or 24% of the period's gross profit.

                                       19
<PAGE>


Gross  profit for the sale of natural gas was  $2,458,240  for the three  months
ended  September  30,  2006,  an increase of  $2,366,991  or 2594%,  compared to
$91,249 for the three  months  ended  September  30,  2005.  Gross profit on the
construction  and  installation  activity  increased  to $777,165  for the three
months ended  September 30, 2006, an increase of $136,304 or 21.3%,  compared to
$640,861 for the three months ended September 30, 2005.

Gross  margin,  as a percentage  of  revenues,  decreased to 49.7% for the three
months ended September 30, 2006, from 52.6% for the three months ended September
30, 2005.  The decrease in gross profit  margin is due to the large  increase in
our   filling   station   revenues   and   natural   gas   revenues   overtaking
construction/installation  revenues  as  the  major  contributor  to  our  total
revenues. The gross profit margin on construction/installation is 59.6% for this
period  while the sale of natural has a gross  profit  margin of 47.2%.  We work
with gross  margins  on the  construction  and  installation  activity  that are
approximately 60%, dependent on the scope of the job, mostly due to the low cost
of labor.  This  segment  of our  business,  although  not a  monthly  recurring
business is highly profitable.

We purchase  all of our natural gas for resale from a government  owned  entity,
the  Shaanxi  Natural  Gas  Co.  Inc.  As all  land in  China  is  owned  by the
government,  the government  controls and owns all the natural  resources coming
from the ground,  thus the government controls the price and flow of the natural
gas. As China shifts from a centrally  planned economy to a market  economy,  we
believe that it is in the government's  best interest to keep prices stable,  as
they have been for the last 3 years,  and maintain a stable flow of supply.  The
government has undertaken  programs to promote the growth of the region in which
we are  located.  The rate  that we pay for  natural  gas is set by the  central
government,  and has been  stable  for the past 3 years.  Therefore,  we  expect
supply and our cost price to continue  to be stable in the future.  There is one
price  that we charge all of our  household,  retail/commercial  and  industrial
customers (utility customers) set by the local provincial  government.  There is
no fixed  formula to derive the  selling  price,  nor are the rates  designed to
capture costs and expenses, or achieve a specified level of profit.

For the three months ended  September 30, 2006,  three  suppliers  accounted for
37.22%,  14.31% and 9.08% of the total  equipment we purchased for  construction
activities.  We  believe  that  as a  result  of our  relationships  within  the
construction industry and the construction  equipment vendor community,  and the
availability  of  other  vendors  to  supply  the  construction   equipment  and
materials,  the loss of any one of the three  vendors  would not have a material
adverse effect on our operations.

Operating  expenses.  We incurred  operating  expenses of $636,647 for the three
months ended September 30, 2006, an increase of $430,197 or 208.4%,  compared to
$206,450 for the three months ended September 30, 2005. These operating expenses
are related to increased  sales and marketing  costs to sign new residential and
commercial  customers (utility  customers) as well as marketing for the four new
filling  stations we began to operate  during the  period.  The four new filling
stations also added  additional  staff to our  operations.  We currently have in
place a marketing  strategy  targeting  professional  drivers to increase  their
awareness  of our filling  stations  and  educating  them about the  differences
between our filling  stations and our competitors run by inefficient  government
entities or other  privately owned  operators that lack  sufficient  supply.  We
continue to  identify  possible  locations  for new  filling  stations,  and are
applying to the proper  governmental  agencies for all  necessary  approvals and
licenses to construct the new filling  stations.  We are also in  discussions to
acquire existing filling stations from our competitors.

                                       20
<PAGE>

Net Income.  Net income was $2,203,786 for the three months ended  September 30,
2006,  an increase of  $1,807,143  or 455.6% from  $396,643 for the three months
ended  September  30,  2005.  The  increase is  attributed  to the growth of all
segments of our business,  from  construction  and  installation  to the sale of
natural gas to our three classes of customers (utility, our own filling stations
and wholesale to third party  filling  stations).  The greatest  impact has been
from the  addition of four new natural  gas  filling  stations  during the three
months ended September 30, 2006.

Nine Months Ended September 30, 2006 compared to Nine Months Ended September 30,
2005

Revenue.  We  generated  revenues  of  $12,025,688  for the  nine  months  ended
September 30, 2006, an increase of $9,311,646 or 343.1%,  compared to $2,714,042
for the nine months ended  September 30, 2005.  The increase in revenues was due
to an approximately  705.6% increase in the sale of natural gas, from $1,065,017
in the nine months ended September 30, 2005 to $8,580,236 during the nine months
ended  September 30, 2006.  The major factor in this increase was the opening of
eleven  natural  gas filling  stations  during this  period.  We also  increased
construction and installation revenue by approximately 108.9% from $1,649,025 in
the nine months ended  September 30, 2005 to  $3,445,452  during the nine months
ended  September 30, 2006.  This  increase is  attributed  to the  approximately
18,000 new residential and commercial customers we signed during the nine months
ended September 30, 2006.

Approximately  71.3% of our total revenues,  for the nine months ended September
30,  2006,  are from the sale of  natural  gas,  and 89.95% of our  revenues  of
natural  gas  were  sold in our  natural  gas  filling  stations.  We  sell  the
compressed natural gas at the filling stations to CNG powered vehicles.  Utility
customers accounted for 5.05% of our natural gas sales, and 4.99% of natural gas
revenues  was  sold  wholesale  to  third  party  natural  gas  filling  station
operators.

The balance of our total revenues for the nine month period ended  September 30,
2006,  approximately 28.7%, was from  construction/installation  revenue. In the
nine  months  ended  September  30, 2005  construction/installation  revenue was
approximately  60.8% of all revenues during the period. Two customers  accounted
for  36.08%,  and 25.5% of our  construction/installation  revenue  for the nine
months September 30, 2006 and one customer accounted for 87.2 of our revenue for
the nine months ended September 30, 2005.

Gross profit.  We have achieved a gross profit of $5,794,661 for the nine months
ended  September  30, 2006,  an increase of  $4,495,918  or 346.2%,  compared to
$1,298,743  for the nine months  ended  September  30,  2005.  Gross  profit for
natural  gas  sale  for the nine  month  period  ended  September  30,  2006 was
$3,718,034 or 64.2% of the total gross  profit,  construction  and  installation
accounted for $2,076,627 or 35.8% of the period's gross profit.

Gross profit for natural gas sale  increased to  $3,718,034  for the nine months
ended  September 30, 2006,  an increase of  $3,483,544  or 1485.6%,  compared to
$234,490  for the nine months  ended  September  30,  2005.  Gross profit on the
construction  and  installation  activity  increased to $2,076,627  for the nine
months ended September 30, 2006, an increase of $1,012,374 or 95.1%, compared to
$1,064,253 for the nine months ended September 30, 2005.

                                       21
<PAGE>


Gross  margin,  as a  percentage  of  revenues,  increased to 48.2% for the nine
months ended  September 30, 2006, from 47.9% for the nine months ended September
30, 2005. The increase in gross profit is due to the increased  construction and
installation activity. The gross profit margin on  construction/installation  is
60.3% for this  period.  We work with  gross  margins  on the  construction  and
installation  activity that historically are approximately 60%, dependent on the
scope of the job,  mostly  due to the low cost of  labor.  This  segment  of our
business,  although not a monthly recurring business is highly  profitable.  The
sale of natural has a gross profit  margin of 43.3% during the nine months ended
September  30,  2006.  In the same nine month period in 2005 the sale of natural
gas had a gross profit  margin of  approximately  22%, the majority  these sales
were  utility  sales.  In the nine month  period  ended  September  30, 2006 the
majority of our natural gas is sold through our natural gas filling stations. In
the same  period in 2005 we had no filling  stations.  At these  stations we are
able to receive a higher price for each cubic meter of natural gas sold.

We purchase  all of our natural gas for resale from a government  owned  entity,
the  Shaanxi  Natural  Gas  Co.  Inc.  As all  land in  China  is  owned  by the
government,  the government  controls and owns all the natural  resources coming
from the ground,  thus the government controls the price and flow of the natural
gas. As China shifts from a centrally  planned economy to a market  economy,  we
believe that it is in the government's  best interest to keep prices stable,  as
they have been for the last 3 years,  and maintain a stable flow of supply.  The
government has undertaken  programs to promote the growth of the region in which
we are  located.  The rate  that we pay for  natural  gas is set by the  central
government,  and has been  stable  for the past 3 years.  Therefore,  we  expect
supply and our cost price to continue  to be stable in the future.  There is one
price  that we charge all of our  household,  retail/commercial  and  industrial
customers set by the local provincial  government.  There is no fixed formula to
derive the  selling  price,  nor are the rates  designed  to  capture  costs and
expenses, or achieve a specified level of profit.

For the nine months ended  September  30, 2006,  three  suppliers  accounted for
approximately  44.2%,  16.99% and 10.41% of the total equipment we purchased for
construction activities. We believe that as a result of our relationships within
the construction industry and the construction  equipment vendor community,  and
the  availability  of other  vendors to supply the  construction  equipment  and
materials,  the loss of any one of the three  vendors  would not have a material
adverse effect on our operations.

Operating  expenses.  We incurred  operating expenses of $1,617,101 for the nine
months ended September 30, 2006, an increase of $1,184,758 or 274%,  compared to
$432,343 for the nine months ended September 30, 2005. These operating  expenses
are related to increased  sales and marketing  costs to sign new residential and
commercial  customers  (utility  customers)  that  were put on line  during  the
period,  as well as  marketing  for the eleven new filling  stations we began to
operate during the period. The eleven new filling stations also added additional
staff  to  our  operations.   We  commenced  a  marketing   strategy   targeting
professional  drivers to increase  their  awareness of our filling  stations and
educating  them about the  differences  between  our  filling  stations  and our
competitors  run by inefficient  government  entities or other  privately  owned
operators  that  lack  sufficient  supply.  We  continue   identifying  possible
locations for new filling stations,  and are applying to the proper governmental
agencies for all  necessary  approvals and licenses to construct the new filling
stations.  We are in discussions to acquire  existing  filling stations from our
competitors.

                                       22
<PAGE>


Net Income.  Net income was $3,541,635  for the nine months ended  September 30,
2006,  an increase of  $2,804,833  or 380.7% from  $736,802  for the nine months
ended  September  30,  2005.  The  increase is  attributed  to the growth of all
segments of our business,  from  construction  and  installation  to the sale of
natural gas to our three classes of customers (utility, our own filling stations
and wholesale to third party filling stations). The greatest impact has been due
to the  addition  of eleven new natural  gas  filling  stations  during the nine
months ended September 30, 2006.

Liquidity and Capital Resources

As of September 30, 2006 we had $5,031,991 of cash and cash  equivalents on hand
compared to $1,001,243 cash and cash equivalents as of September 30, 2005.

In January 2006, we entered into  securities  purchase  agreements  with several
accredited  investors  and  completed  the sale of $10.4  million of units.  The
proceeds of the financing are intended for the investment necessary to construct
or acquire natural gas filling  stations,  purchase of raw materials and working
capital.  During the quarter ended  September  30, 2006, an investor  elected to
exercise 291,667 warrants and we received $1,050,001.

As of November 10, 2006, we have a total of 17 natural gas filling stations. Our
plans for the  remainder of 2006 are to construct or acquire from third  parties
at  least  four  natural  gas  filling  stations.  Each  filling  station  costs
approximately  $600,000 to  construct.  There is a premium for filling  stations
that we acquire dependent on historical  sales,  location and the ability for us
to produce  revenue from that filling  station  immediately  upon completing the
acquisition.  We believe that the proceeds of the financing along with operating
cash flow will cover all expenses  associated  with the build out or acquisition
of these filling stations.

During the quarter ended  September 30, 2006 we started the planning  process of
building  a  Liquefied  Natural  Gas (LNG)  facility.  We have met with  several
builders of such facilities and are evaluating our options.  We feel that as the
acceptance of natural gas as an alternative  fuel grows we will need to be ready
with  the  infrastructure  to meet the  demand.

We had net cash flows used in  operations  of $922,946 for the nine months ended
September 30, 2006 as compared to net cash provided by operations of $69,256 for
the nine months ended September 30, 2005. The increase in net cash flows used in
operations  for  the  nine  months  ended  September  30,  2006 as  compared  to
corresponding   period  in  2005  was  mainly  due  to  the  increase  of  other
receivables, $1,258,975, and the increase of advances to suppliers, $3,068,491.

                                       23
<PAGE>

Cash outflows used in investing  activities increased to $4,669,265 for the nine
months ended  September 30, 2006 as compared to  $2,671,533  for the nine months
ended September 30, 2005 as a result of payments made for property and equipment
for  investments  necessary to construct and build the filling  stations and for
construction  materials  used to build the pipelines to  individual  households.
Typically,  this  construction  is completed  within  thirty to sixty days.  Any
prepayments that we make to our construction equipment/material vendors are made
to ensure timely delivery and ensure  preferred  treatment of any last minute or
rush delivery of materials that we may need. Based on our relationships with our
vendors the  prepayments  are unsecured and interest free,  however,  since most
construction  projects  are  completed  in slightly  more than 30 days this fact
becomes  inconsequential  as  materials  are  delivered  to the job site well in
advance of the completion of each project.

We had cash flows from  financing  activities of $9,892,854  for the nine months
ended  September 30, 2006,  as compared to $3,503,897  for the nine months ended
September  30,  2005.  The  increase is due to the sale of  3,714,428  shares of
common stock and 1,432,953 warrants to purchase common stock, for gross proceeds
of $10.4  million.  We also  received  $1.05  million  during the quarter  ended
September  30,  2006,  the result of an investor  electing  to exercise  291,667
warrants.  Based on past  performance and current  expectations,  we believe our
cash and cash  equivalents,  cash generated from  operations,  as well as future
possible  cash  investments,  will satisfy our working  capital  needs,  capital
expenditures and other liquidity requirements associated with our operations and
near term growth strategies.

The majority of our revenues and expenses were denominated primarily in Renminbi
("RMB"), the currency of the People's Republic of China.

There is no assurance  that exchange  rates between the RMB and the U.S.  Dollar
will remain stable. We do not engage in currency hedging.  Inflation has not had
a material impact on our business.


                                       24
<PAGE>


Item 3. Controls and Procedures

The Chief Executive  Officer and Chief Financial Officer conducted an evaluation
of the  effectiveness  of the design and operation of the  Company's  disclosure
controls  and  procedures  (as defined in Rule  13a-15(e)  under the  Securities
Exchange Act of 1934, as amended (the Exchange Act)) as of the end of the period
covered by this report.  Based on that evaluation,  the Chief Executive  Officer
and Chief Financial Officer concluded that the Company's disclosure controls and
procedures  were  effective as of the end of the period  covered by this report.
There were no significant  changes in internal control over financial  reporting
(as defined in Rule 13a-15f  under the Exchange  Act) that  occurred  during the
fourth quarter of 2004 that have materially  affected,  or are reasonably likely
to materially affect, the Company's internal control over financial reporting.

                                       25
<PAGE>

Part II. OTHER INFORMATION

Item 1. Legal Proceedings

None.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Submission of Matters to a Vote of Security Holders

Not applicable.

Item 5. Other Information

Not applicable.


                                       26
<PAGE>


Item 6. Exhibits

(a) Exhibits

Exhibit Number   Description of Exhibit
--------------   ----------------------

3.1              Articles of Incorporation (incorporated by reference to same
                 exhibit filed with the Company's Form 10SB Registration
                 Statement filed September 15, 2000, SEC file no. 000-31539).

3.2              Certificate of Ownership of Coventure international Inc. and
                 China Natural Gas, Inc., dated December 12, 2005 (incorporated
                 by reference to same exhibit filed with the Company's Form
                 10KSB filed March 22, 2006)

3.3              Registrant's By-Laws (incorporated by reference to same exhibit
                 filed with the Company's Form 10SB Registration Statement filed
                 September 15, 2000, SEC file no. 000-31539).

10.1             Share Purchase Agreement made as of December 6, 2005 among
                 Coventure International Inc., Xian Xilan Natural Gas Co., Ltd.
                 and each of Xilan's shareholders. (incorporated by reference to
                 the exhibits to Registrants Form 8-K filed on December 9,
                 2005).

10.2             Return to Treasury Agreement between Coventure International
                 Inc. and John Hromyk, dated December 6, 2005. (incorporated by
                 reference to the exhibits to Registrants Form 8-K filed on
                 December 9, 2005).

10.3             Purchase Agreement made as of December 19, 2005 between China
                 Natural Gas, Inc. and John Hromyk (incorporated by reference to
                 the exhibits to Registrants Form 8-K filed on December 23,
                 2005).

10.4             Form of Securities Purchase Agreement (incorporated by
                 reference to the exhibits to Registrants Form 8-K filed on
                 January 12, 2006).

10.5             Form of Common Stock Purchase Agreement (incorporated by
                 reference to the exhibits to Registrants Form 8-K filed on
                 January 12, 2006).

10.6             Form of Registration Rights Agreement (incorporated by
                 reference to the exhibits to Registrants Form 8-K filed on
                 January 12, 2006).

31.1             Certification of Principal Executive Officer pursuant to Rule
                 13a-14 and Rule 15d-14(a), promulgated under the Securities and
                 Exchange Act of 1934, as amended

31.2             Certification of Principal Financial Officer pursuant to Rule
                 13a-14 and Rule 15d 14(a), promulgated under the Securities and
                 Exchange Act of 1934, as amended

32.1             Certification pursuant to 18 U.S.C. Section 1350, as adopted
                 pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
                 (Chief Executive Officer)

32.2             Certification pursuant to 18 U.S.C. Section 1350, as adopted
                 pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
                 (Chief Financial Officer)


                                       27
<PAGE>

                                   SIGNATURES

In accordance with the  requirements of the Exchange Act, the registrant  caused
this  report to be  signed on its  behalf  by the  undersigned,  thereunto  duly
authorized.


                                        China Natural Gas, Inc.


November 14, 2006                        By:
                                            -------------------------------
                                            Qinan Ji
                                            Chief Executive Officer (Principal
                                            Executive Officer)


November 14, 2006                        By:
                                            -------------------------------
                                            Xiaogang Zhu
                                            Chief Financial Officer
                                            (Principal Financial and Accounting
                                            Officer)