China’s energy giants are increasingly pivoting to natural gas to raise production, as demand for oil slows and global trade tensions heighten the risks of relying too heavily on imports.
The nation’s gas output is poised to surpass that of crude oil for the first time this year, with each of the three state-owned majors — PetroChina Co., Cnooc Ltd. and Sinopec — setting higher production targets for the cleaner-burning fuel. To deliver that growth, the firms are expanding into technically challenging areas including unconventional shale fields and deep-water reserves.
The shift to gas has been underway for years, initially spurred on by the government’s desire to clear the coal-fired smog that used to choke its megacities. But the transition has become more urgent as the electric-vehicle boom slams the brakes on oil consumption, leaving gas as the only upstream growth market for drillers.
“Buyers will take all the gas we produce — there’s tremendous growth potential,” Cnooc President Yan Hongtao said last week at the company’s annual earnings briefing.
The production push in the world’s largest gas importer threatens to add to a coming wave of global supply, led by new liquefied natural gas export plants that are due to come online in places like Qatar and the US over the next few years. More gas is also being piped overland from Central Asia and Russia, China’s strategic partner since the invasion of Ukraine.
With economic growth constrained by the slowdown in the real estate sector, Chinese energy firms are being forced to resell unneeded cargoes of the fuel to other buyers in Europe and Asia. Domestic gas prices in China are already showing signs of weakness. China produces enough gas to meet about 60% of its own consumption.
Difficult Drilling
Still, gas proved a major driver of record profits last year at PetroChina, the nation’s largest supplier of the fuel. Gas now accounts for 54% of the firm’s total output, Chairman Dai Houliang said at a briefing on Monday. Despite planned spending cuts this year, the firm intends to accelerate shale development, LNG terminal construction and pipeline expansion to support the boom.
“We will accelerate gas production in the next five years,” Vice President He Jiangchuan told the briefing. Output from shale could grow 31% in the next five years, while production from coal-rock formations could double this year, he said.
The focus on new, more technically challenging formations comes amid declining output from aging onshore wells that have been the industry’s mainstay for decades. Top refiner Sinopec, which already operates the nation’s largest shale gas field, recently announced a major shale oil discovery in Shandong province.
Meanwhile, offshore driller Cnooc is poised to lead production gains among the big three this year and next. It’s developed the Bohai Sea into the nation’s largest oil and gas field, and is moving into the trickier deeper waters of the South China Sea.
Souring Oil
The gas boom is needed to replace the industry’s traditional oil business, which is struggling as China rapidly adopts EVs. Refining profits last year were battered after overall oil consumption dropped 1.2% compared to a 7.3% rise in gas demand.
That shift has been particularly painful for Sinopec, the nation’s largest fuel maker, and the only one of the three majors to see net income shrink in 2024. That’s one reason the company pledged to keep domestic output stable this year despite cutting capital spending.
“We will not back down on upstream expansion,” Sinopec Vice Chairman Zhao Dong said at a briefing last week.
On the Wire
China’s steel exports could drop 9-14% this year, the first fall since 2020, as more trading partners step up anti-dumping controls, according to Bloomberg Intelligence.
China’s rising manufacturing purchasing managers’ index, to a March reading of 50.5, signals Beijing’s stimulus is delivering, with an incipient recovery in energy demand setting the tone, BI said.
Ships are the backbone of global trade, and Donald Trump is unhappy that most of them are made in China.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!