Downstream to the rescue for China
China's NOCs have had a few difficult years. But restructuring and a modest oil-price recovery are helping
The influence of the Beijing government on China's oil and gas sector continues unabated. According to data from the National Bureau of Statistics, in the first six months of 2017 output from oil refineries hit about 11.1m barrels per day, up 4% on 2016 and the highest level on record. This is mainly because independent refiners—the so-called teapots—were allowed to import more crude. Similarly, natural gas production rose by 8% to 74.1bn cubic metres for the same period as Beijing put pressure on industry to cut back on coal consumption.
Also, the country's national oil companies (NOCs) are entering a new phase as the government pushes them to work more with private companies as a way of plugging the energy gap in an era of low oil prices. All this is happening as the NOCs emerge from a bout of heavy restructuring in the wake of low crude prices.
China's second-biggest producer of crude, Sinopec is recovering from a hard 2016 by posting a net profit of $2.54bn for the first quarter of 2017, up marginally on the same period last year. In a market awash with refined products, Sinopec was only able to maintain a high utilisation rate by exporting oil products.
Sinopec is investing more heavily in the upstream with good results. In mid-July, the group announced the discovery of another 220bn cm in its shale concession in Fuling, boosting proven gas reserves to 0.6 trillion cm. Sinopec, which is under pressure to boost gas production to counter its exposure to oil refining, has set a target of lifting gas output to 40bn cm a year by 2020 as part of Beijing's determination to reduce dependence on imported fuel.
China National Petroleum Corporation
Sinopec's main rival in the race for tight gas, CNPC-owned PetroChina, is steadily increasing its take from the Changqing-Weiyuan concession in the Sichuan Basin, another crucial source of supply. PetroChina produced around 2.3bn cm in 2016, 0.8bn cm above its target.
After a year of reconstruction that saw marginally profitable wells and blocks shut down among other cost-saving measures, in 2016 the parent group, CNPC, posted a profit of $7.5bn, described by president Zhang Jianhua as "a good start to the 13th Five-year Plan period". CNPC, which is sitting on 22 "significant discoveries" made in 2016, added 1bn tonnes of oil equivalent—0.65bn tonnes of oil and 541.9bn cm of gas: growth for the 10th consecutive year. Overall, the group processed 147m tonnes of crude and produced 99.3m tonnes of refined products plus 5.59m tonnes of ethylene. A big player in liquefied natural gas, CNPC runs 13 plants with a total annual capacity of 4.77bn cm.
A big beneficiary of Belt and Road developments, CNPC boasts 49 cooperative projects in 19 countries along its many routes. Outside China, Belt and Road is now the main source of the group's oil and gas output and revenue.
Another NOC that slashed costs in 2016 under the slogan of "Small Headquarters, Big Business", Sinochem squeezed a total profit of $1.28bn in 2016, up 34%, on operating revenue of $5.85bn, up just 3.9%. The turnaround enabled the group to retain an A- rating with S&P, Moody's and Fitch. Sinochem is streamlining itself for a leaner but higher-margin era. Under the plan, refining capacity will grow from 12m tonnes a year to 15m t/y while a new ethylene plant with a capacity of 1m t/y is a key element in Sinochem's ambition to build a world class petrochemical base. Its flagship refinery at Quanzhou will produce 12m t/y of petrochemical products including Euro V-standard gasoline and diesel, among 20 products in total.
China National Offshore Oil Corporation
One of the hardest-hit NOCs, Cnooc suffered a 97% slump in profits in 2016 for its worst result in five years, but is recovering on the back of improving international oil prices. In the first quarter of 2017, revenue from oil and gas sales jumped by nearly 56%. Cnooc achieved an average realised oil price of $51.64/b, up 58.7%, while the equivalent gas price rose 5.4% to $6 per 1,000 cubic feet (28.32 cm). But total net production of 119.1m boe over the period was down by 4.2%, mainly because of maturing fields.
Cnooc says it will boost capex in 2017 after several years of hoarding cash. One of the big projects for 2017 will be a new LNG-import terminal in Zhangshou City, in the southeastern province of Fujian.
This article is part of an in-depth series on NOCs. Next article: A new role for NOCs