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China Oil and Gas Report Q1 2012
Business Monitor International, Dec 2011, Pages: 106
Business Monitor International's China Oil and Gas Report provides industry professionals and strategists, corporate analysts, oil and gas associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on China's oil and gas industry.
BMI View: China is increasing dependent on imported oil and gas due to unbridled growth in energy demand. However, there is plenty of upside potential from its domestic resources and a more open relationship with foreign partners could reduce greatly the exposure to the import market. In the meantime, the production outlook is pretty stable and demand risk could surprise to the downside if market reform continues and economic expansion comes under pressure.
The main trends and developments BMI highlight for China’s Oil and Gas sector are:
- Much of the country’s upside production potential is provided by the Tarim field, for which state company China National Petroleum Corporation (CNPC) has set the ambitious target of increasing oil and gas production from around 400,000 barrels of oil equivalent per day (boe/d) in 2010 to 1mn boe/d in 2020, about 60% of which is likely to be oil. Although cautious about this target, BMI expect Chinese production to rise over the next few years, peaking at 4.16mn b/d in 2014 before declining to 3.87mn b/d in 2021.
- The South China Sea contains estimated reserves of 22bn boe and state-backed explorer China National Offshore Oil Corporation (CNOOC) plans to make the area a core production base in the coming years. According to a statement by CNOOC’s chief development engineer in 2009, around CNY200bn (US$29.3bn) will need to be invested in exploring the area over the decade to 2018.
- Regulator National Development and Reform Commission (NDRC) has submitted plans to overhaul the country's current fuel pricing scheme to the State Council. The reforms, according to a Reuters report, would help raise retail fuel prices by making them more reflective of international crude prices. The move would limit refiners' losses and might even allow them to make small profits. In China, refining losses have been particularly high, with the NDRC announcing that the country's refining industry registered a record-breaking CNY4.8bn (US$752mn) loss in July 2011. The NDRC blamed the losses on spiking crude prices and rising distribution costs. Indeed, as tightly regulated oil product prices subsidise the country's growth, demand continues to increase. BMI forecasts that by 2016 Chinese oil demand should reach 11.73mn b/d. Consumption is put at 13.75mn b/d by 2021.
- Crude imports alone are expected to cost China some US$201.3bn in 2011, which could climb to an estimated US$259.7bn in 2016. Some refined product imports can also be expected during the period, reflecting a shortfall in adequate domestic capacity. Net gas imports are expected to rise to 68.5bn cubic metres (bcm) in 2016, costing some US$31.8bn, using BMI base case assumptions. This suggests a total oil and gas import bill of US$291.5bn by 2016.
At the time of writing BMI assume an OPEC basket oil price for 2011 of US$101.90 per barrel (bbl), falling to US$99.40/bbl in 2012. Global GDP in 2011 is forecast at 3.2%, down from 4.3% in 2010 reflecting slowing growth in China, a faltering recovery in the US and a worsening eurozone debt crisis. For 2012, growth is estimated at 3.6%.
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