China’s upstream industry shifts focus to domestic natural gas

11 July 2018 (Last Updated July 11th, 2018 14:36)

Chinese national oil companies (NOC), CNPC, Sinopec and CNOOC, operate more than 90% of China's producing oil fields.

China’s upstream industry shifts focus to domestic natural gas

Chinese national oil companies (NOC), CNPC, Sinopec and CNOOC, operate more than 90% of China’s producing oil fields. In recent years, natural declines, mature conventional reserves as well as capital spending cuts have directly impacted China’s oil production.

The decline of oil production will be partly offset by the increase of natural gas production, due to the exploration and development of the unconventional resources.

CNPC is the largest Chinese NOC and dominates China’s onshore production. CNPC plans to commercialise its domestic unconventional resources and keep investing into large gas projects in Tarim, Ordos and Sichuan Basins in order to increase its total domestic natural gas production from current level at 9,500 million cubic feet per day (mmcfd) to 11,500mmcfd by 2020, of which shale gas will account for 10%.

In accordance with government directive, Sinopec is also growing its natural gas business especially the unconventional production, which will drive its operation focus over the near term.

CNOOC is the smallest of the Chinese NOCs but dominates China’s offshore sector. Its investment priority is the core domestic portfolio offshore China.

Chinese NOCs domestic natural gas production 2014-2020

Source: GlobalData Oil and Gas, CNPC, Sinopec and CNOOC Annual Reports                      © GlobalData

Chinese government is also committed to the oil and gas sector reform and unveiled its plan in May 2017. As a key part of the country’s 13th Five-Year Plan, the new guideline highlighted opening up more acreage to independent participants to diversify investment and participation in the upstream sector.

A new mechanism will be implemented to involve the licensing of upstream blocks through a rendering system and their relinquishment upon expiry of the exploration period. China relaxed its policy in 2014 to allow private sectors to explore unconventional resources such as shale gas, now under the new scheme, eligible companies will be able to apply for licenses to develop conventional oil and gas reserves, which used to be dominated by the NOCs. The reform is also expected to drive the growth of the natural gas market and enhance the capability of sustained energy supply.

China’s upstream industry is shifting focus to domestic natural gas to meet the energy demand, which is influenced by the government policies. In the meantime, the latest reform breaks the dominance of the Chinese NOCs by inviting competitions in the upstream exploration and development.