SINGAPORE/BEIJING (Reuters) – China’s state energy giants are set to raise spending on domestic drilling this year to the highest levels since 2016, focusing on adding natural gas reserves in a concerted drive to boost local supplies.
Responding to President Xi Jinping’s call last August to boost domestic energy security, China’s trio of oil majors – PetroChina, Sinopec Corp and CNOOC Ltd – are adding thousands of wells at oil basins in the remote deserts of the northwest region of Xinjiang, shale rocks in southwest Sichuan province and deepwater fields of the South China Sea.
Firms are showing greater risk appetite, expanding investments faster in exploration than production, emboldened by Beijing’s political push and oil near $60 a barrel, said state oil executives and analysts at consultancy Wood Mackenzie.
“We shall carry through resolutely the State Council’s call on stepping up domestic exploration and development and launch an offensive war,” PetroChina Chairman Wang Yilin was cited as saying in an inhouse newspaper in December.
Offshore specialist CNOOC Ltd said last week it was confident of achieving its spending target this year, the highest since 2014. It pledged to spend twice as much this year in domestic exploratory drilling as in 2016.
“With oil prices at $50, $60 and $70…we’re making decent profits,” Yuan Guangyu, CNOOC’s Chief Executive Officer, said last week.
CNPC, Asia’s largest oil and gas producer and parent of PetroChina, is boosting risk exploration investment five-fold to 5 billion yuan ($741 million) this year from 1 billion yuan last year.
But with oil reservoirs maturing and new discoveries tending to be smaller and more costly, even more drilling is unlikely to reverse China’s declining oil outlook, analysts say.
China, set to remain the world’s top oil buyer for years to come, is forecast to slip to the 10th largest global oil producer in 2020, down from No.5 for most of last decade, said Wood Mackenzie.
“China will likely continue on the same path as it has in recent years – an overwhelming focus on new gas production, leading to continued decline in its oil output,” said Angus Rodger, research director of Asia-Pacific upstream at Wood Mackenzie.