China’s crude oil production expected to extend slide

SHANGHAI • China’s crude oil production will likely extend it’s slide into a third year as state-run giants focus on pumping natural gas to meet President Xi Jinping’s drive to use more of the cleaner-burning fuel.

China, which last year overtook the US as the world’s top oil importer, will see the pace of crude output declines from its old, high-cost fields continue and capital expenditures (capex) shift more toward natural gas assets, according to Jefferies Group LLC, Wood Mackenzie Ltd and Energy Aspects Ltd.

The two fuels will continue to diverge, as data from the National Bureau of Statistics for 2017 yesterday showed crude production fell 4% to 191.51 million metric tonnes, the lowest since 2009.

That’s about 3.85 million barrels a day, roughly 153,000 barrels daily below the previous year’s average, according to Bloomberg calculations.

On another note, natural gas production rose 8.5% to a record 147.4 billion cu m.

The slide in crude output by Asia’s biggest producer started in 2016 as the price crash forced state producers led by PetroChina Co Ltd and Sinopec, officially known as China Petroleum and Chemical Corp, to shut money-losing oil wells and cut spending.

A recovery isn’t expected this year, despite higher capex.

“We believe a combination of the recent slowdown in investment in new oil plays, maturing onshore reserves and continuing investment shift toward natural gas will drag on domestic oil output,” Peter Lee, an analyst BMI Research, said before the data was released.

Crude production last year missed a target of about 200 million tonnes set by the National Energy Administration in February.

Gas also missed the goal of 170 billion cu m, though its share of total output rose to almost 41% from 38% in

2016, Bloomberg calculations show. Analysts at BMI forecast crude output to fall a further 4% this year, while Wood Mackenzie sees the pace of declines slowing to 2.5%.

They estimate gas will rise 5% and as much as 8% respectively.

China’s natural gas demand may advance 10% this year as the government continues to replace coal boilers, the research arm of China National Petroleum Corp said in its annual market report this week.

Almost four million households across 28 cities in northern China last year were asked to switch to gas, boosting demand and imports of the fuel.

China’s oil refining last year rose 5% to a record near 568 million tonnes, yesterday’s data showed, after new units started at China National Off- shore Oil Corp’s Huizhou facility and PetroChina’s Yunnan plant.

More capacity is scheduled to be added, including a 400,000 barrel-a-day refinery in Dalian by Hengli Group in October, according to ICIS China.

“Oil processing in 2018 will likely hit another record as some petrochemical giants expand into refining to secure feedstock supplies,” said

Jean Zou, an analyst with ICIS China. “Independent refiners may further raise their runs with higher crude import quotas.”

Yesterday’s data also showed that crude output last month totalled 15.98 million tonnes, down 4.4% from last year. That’s about 3.78 million barrels a day.

In the meantime, December gas output rose 2.9% year-on-year to a record 13.6 billion cu m.

Moreover, refining in December advanced 3.3% from last year to 49.11 million tonnes. That’s equivalent to 11.61 million barrels a day. — Bloomberg