China National Petroleum Corporation (CNPC) will invest the equivalent of more than US$22 billion by 2020 on boosting its oil and gas production in the western region of Xinjiang to mitigate the impact of declining production from oil and gas fields in China’s northeast.
CNPC said on Wednesday that it would invest more than US$22.1 billion (150 billion yuan) in the Xinjiang Autonomous Region in the west to boost production in the region to more than 50 million tons of oil equivalent between 2018 and 2020.
According to Reuters calculations, the investment that CNPC announced today would be equivalent to the total upstream investment made by CNPC’s listed unit and China’s largest oil and gas producer, PetroChina, in 2017.
The investment in the Xinjiang Autonomous Region would serve several purposes, according to analysts. First, boosting production in the region would help offset declining production from the ageing fields in the Daqing oil province in the northeast. The investment would also serve to increase China’s domestic natural gas production as Beijing looks to switch from coal to the more environmentally friendly fuel. In addition, China would be looking to boost the economy, infrastructure, and natural gas access in the unruly autonomous region in its far west bordering Central Asia that has seen ethnic unrest in recent years. Related: Is This The Next Coal Megaproject?
“I think that the primary factor is to support the central government policy to invest more and support economic development in the west,” Liutong Zhang, director at Hong Kong-based WaterRock Energy Economics, told Reuters.
Boosting oil production in the western part of the country is not expected to affect China’s crude oil imports because the higher production would offset declining output at mature fields elsewhere in the country.
China’s crude oil production dropped by 2.3 percent on the year in June, and was also down compared to the production in May. Between January and June, crude oil production declined by 2 percent annually.
By Tsvetana Paraskova for Oilprice.com
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China’s oil production is projected to decline this year by 2.3% from 3.82 mbd in 2017 to a projected 3.73 mbd this year. China’s dependence on oil imports is projected to hit 71% of its oil needs this year rising to 76% by 2020. China's steeply-rising crude oil demand is also matched by equally rising natural gas and LNG demand. This should enable the oil price to resume its surge upwards in coming days.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London