Letter from China: PetroChina’s green pivot underwhelms
The Chinese NOC has made deeper commitments to clean energy. But no-one should get too carried away
PetroChina, one of China’s ‘big three’ state-controlled oil and gas firms, has signalled it will ramp up clean energy investment. But its fledgling interest in renewables should not be taken as a sign that China’s top oil and gas producer is ditching fossil fuels any time soon.
PetroChina—which made up 52pc of Chinese crude oil output and 60pc of gas production in the first six months of 2020—said at its half-year earnings in late August that it planned to spend up to $740mn/yr on solar and wind power, geothermal and pilot hydrogen projects over the next five years. Expenditure could rise to as much as $1.5bn by the middle of the decade.
Such statements of intent have become increasingly common among oil companies, particularly those in Europe, but PetroChina unexpectedly said it would also target “near-zero” emissions by 2050—the NOC’s first mention of a greenhouse gas emission target. And it was, of course, followed by Chinese president Xi Jinping telling the UN in September that China as a whole would pursue carbon-neutrality by 2060.
“In the company's energy transition, natural gas will have an irreplaceable position” Chai, PetroChina
But while PetroChina is tiptoeing in the footsteps of its industry peers, it has significant catching up to do. While European IOCs such as Total, Shell and Norway’s Equinor have been investing in clean energy for years to try to ensure their relevance in a lower-carbon future, China’s state oil and gas groups have until now mostly stuck to their core businesses.
And, despite rhetoric from its largest oil firms and the administration in Beijing, China looks set to continue embracing hydrocarbons for the foreseeable future. Gas, which while cleaner burning remains a fossil fuel, looks set to be the main ‘transition’ fuel for Chinese NOCs, although admittedly it is also a key strategic plank in many western majors’ lower carbon strategies.
The gas appetite is driven by both expedience—given limited upside to China’s largely mature oil production—and mindset. Beijing is still an administration that gives prime real estate to so-called ‘clean’ coal within its cleaner future thinking.
“Natural gas is a very high efficient, low-carbon and clean energy form. In the future, in the company's energy transition, natural gas will have an irreplaceable position”, emphasises PetroChina CFO Chai Shouping.
PetroChina produced 11pc more gas domestically in the first half of 2020 than it did in the same period in 2019—robust growth in line with a pledge earlier this year to prioritise production of the lower-carbon fuel, the price of which is more insulated than oil in China. The NOC’s parent, CNPC, has previously said it plans to increase the share of gas in its domestic energy output to 55pc by 2030, up from 48pc in 2019 and 46pc in 2018.
Beijing aims for gas to meet 15pc of China’s total primary energy consumption by 2030, which some analysts equate to yearly demand of 600bn m³—nearly double the 306bn m³ consumed last year. And these targets mean PetroChina will continue to spend heavily on its existing core upstream and downstream businesses.
Another key question is how quickly PetroChina might be able to make a pivot to renewables. It admits that this is unclear. In the 14th five-year plan (2021-25), it aims to take current capex of RMB1-2bn ($150-300mn) to anywhere from RMB3bn to RMB10bn, “but the specific figure will depend on the progress we achieve in this segment”.
$740mn/yr – PetroChina’s planned spending on renewables
And, again, PetroChina will “try to achieve more synergy from this new energy, along with natural gas power generation”, stressing the intrinsic part gas plays in its thinking. But it also expects that it “will try to work more with [its] partners, for instance, in establishing joint ventures to develop new energy”, which is lifted exactly from the majors’ playbook.
It is too easy to be cynical about the commitment of PetroChina, or indeed China as a whole, to genuine action on the energy transition; like their peers, Chinese companies are navigating without a map. But, equally, it may be naïve to get too excited in the short term.