BAKU, Azerbaijan, March 23
By Leman Zeynalova – Trend:
China’s state-owned oil and gas giants look set for a challenging next few quarters, faced with a double whammy of demand-side concerns created by the Covid-19 outbreak and the collapse in global crude oil prices in the wake of the recent OPEC+ fallout, Trend reports citing Fitch Solutions Country Risk and Industry Research (a unit of Fitch Group).
“Figures cited by state-owned China News Service (CNS) show that CNPC’s average daily oil and gas production registered y-o-y increases of 2.2 percent and 12.6 percent, respectively, over the January-February period, due to growth from some of its largest – but also oldest – fields such as Changqing and Daqing, while CNPC subsidiaries operating the Xinjiang and Shengli oilfields reported stable output activities. The same source also notes that Sinopec’s crude output remained flat against the previous year over the first two months of the year, while that for gas rose by 5.7 percent from 2019 levels. Similar statistics for CNOOC were not available, although the company's appetite for offshore projects is highlighted by the successful start of the Bozhong 34-9 field and successful discovery of Kenli 6-1, both in southern Bohai Bay in February and March 2020, respectively,” the company said in its report.
Fitch Solutions believes that the state-owned enterprises (SOEs) are set to face challenges in meeting respective output growth and capex targets for 2020, given current conditions, despite pressure to continue to heed President Xi Jinping’s orders to boost output and enhance energy self-sufficiency.
“Following a record year of oil and gas spending in 2019, PetroChina, Sinopec and CNOOC were expected to raise combined capex by another 8.6 percent y-o-y in 2020, to underpin domestic upstream and output growth activities. For instance, CNOOC had budgeted to spend between $12.3 billion and $13.8 billion in capex over 2020, up about 18 percent from the $10.3 billion-$11.7 billion it spent a year ago, as offshore and deepwater, next to unconventionals, were identified to lead the next wave of oil and gas output growth in China, attracting a host of incentives and policy support,” reads the report.
CNOOC had also targeted total oil and gas output of 520-530mn bbl of oil equivalent (boe) in 2020, equivalent to a 3-5 percent y-o-y increase, said the company.
“PetroChina and Sinopec were expected to spend a combined $53.2bn in capex in 2020, up 6.7 percent from the previous year, focusing on adding new wells at mature fields to boost recovery rates and growing output of shale gas and other forms of unconventional gas, in line with ambitious output targets. The significant shifts in the market that have occurred since the announcement of these targets, however, raise concerns about their attainability. Indeed, industry sources indicate that breakeven costs for most of PetroChina and Sinopec’s range between $50-$60/bbl, while that for CNOOC is lower at about $35/bbl. This means that many of the SOE’s existing output, particularly those on the higher cost curve, would increasingly prove uneconomic should oil prices remain at current sustained lows. Given our forecast for Brent to remain below $50/bbl for the next few years, some magnitude of output cuts appears inevitable.”
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