China’s biggest energy producers are tapping more tight oil and gas wells, aiming to increase domestic oil and natural gas production at the world’s largest crude oil importer and what will soon be the world’s top natural gas importer.
As part of a government push to boost domestic energy supply, China National Petroleum Corporation (CNPC) and Sinopec are raising investments to increase local oil and gas production and are accelerating drilling at tight oil and gas formations in western China, the companies have recently announced.
Oil demand continues to grow in China, while domestic production has been declining in recent years. This has led to additional—and costly—imports, making China the world’s largest crude oil importer. For natural gas, a similar trend is apparent. A government drive to have millions of residents switch to natural gas from coal has resulted in China surpassing South Korea last year to become the world’s second-largest liquefied natural gas (LNG) importer behind Japan.
China’s natural gas production has been rising in recent months, but the growth rate hasn’t been even close to meeting the booming demand due to the cleaner-fuel/cleaner-air government policies.
Domestic oil production, on the other hand, has been falling due to the depletion of mature conventional oil fields. Desperate to meet this need, Chinese President Xi Jinping has ordered the state-held companies to boost domestic production of oil and gas, and firms are starting to follow the policy.
CNPC’s drilling cycle at one of its biggest oil discoveries in recent years, the Mahu field, has dropped 40 percent from last year, Reuters quoted the company’s newspaper as saying on Monday. The drilling cycle decline implies a faster rate in completion of the wells, according to Reuters. Related: Why Are Middle Eastern LNG Imports Soaring?
PetroChina, controlled by CNPC, is betting big on boosting natural gas production in line with the Chinese policy to increase its gas production and industrial and residential gas use.
Sinopec, for its part, said in its official newspaper that it plans to drill 66 new natural gas wells and install 23 gas drilling stations during the winter to raise natural gas supply from its fields in southwestern China.
Sinopec’s domestic crude oil production inched up by 0.2 percent between January and September, while natural gas output increased by 5.9 percent, the company said in its earnings release last week.
China’s total crude oil production January-September, however, dropped by 1.9 percent compared to the same period a year earlier, according to data from the National Bureau of Statistics of China. In September, crude oil production in China fell 2.4 percent compared to September 2017.
Natural gas production rose by 6.2 percent annually in January-September and by 8.5 percent on the year in September, the statistics bureau said in October. Related: China Ready For Trade Talks
Although natural gas production is rising, China is importing—and is expected to continue to import—growing volumes of gas.
Natural gas imports jumped by 28.3 percent annually in September and by 34 percent in January-September, the National Bureau of Statistics said.
According to the Gas 2018 report by the International Energy Agency (IEA), because domestic production can’t keep up with demand, China will become the world’s largest natural gas importer by 2019. Due to the country’s policy to reduce air pollution, China is expected to account for 37 percent of the global increase in natural gas consumption between 2017 and 2023, more than any other country.
By 2023, China’s natural gas demand is expected to rise by an average 8 percent per year, accounting for over a third of global demand increase, the IEA said in its report. The share of imports in China’s natural gas supply is seen rising from 39 percent to 45 percent by 2023, the agency forecasts.
Chinese companies are trying to increase domestic oil and natural gas production—and are succeeding in gas output—but the pace of China’s oil and gas demand growth means that imports will play even more of a leading role in its future energy demand and in the global oil and gas markets.
By Tsvetana Paraskova for Oilprice.com
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