Singapore/Beijing — China’s top energy producers will grow their natural gas output this year by twice as much as in the previous oil rout even as they slash spending due to collapsing oil prices, company officials and analysts said.
The world’s top energy consumer is forecast to expand its natural gas production by 5% or more in 2020 despite plans for deep spending cuts which will likely curb local oil production, they said.
That would be half the growth in 2019 but double the 2.2% growth seen in 2016 following a lengthy oil slump.
China’s state-owned energy companies are joining others worldwide in slashing expenditure after this year’s 56% drop in oil prices as a global pandemic ravaged economic activity.
As the country’s oil and gas trio plan double digit spending cuts, they are prioritising gas development at home particularly as the market is relatively insulated from sharp oil moves due to government subsidies.
“Under the capital expenditure cuts, companies are revising their gas strategy from an earlier aggressive push to a more practical approach, as gas production remains profitable,” said Zhu Kunfeng, Beijing-based associate director at IHS Markit.
PetroChina, Sinopec Corp and CNOOC Ltd said in April they would reduce spending by roughly 20% to 30%, similar to the cuts they made in the last oil rout in 2015/2016.
Against this backdrop, China’s main energy firms are focusing on developing gas and stablising oil at home, while decreasing overseas spending on costly projects such as oil sands and shale gas in North America.
The rise in gas output would also help offset some of the hefty losses these firms have incurred from paying higher prices for gas imports than current market value, prices set out in long-term contracts years ago.
China has boosted gas investment in recent years under a massive anti-pollution drive to replace coal with the lower-carbon gas.
It has also sought to unlock the kind of unconventional resources that have transformed the United States into the world’s top gas producer and a leading exporter in the recent decade.
GAS OUTPUT
The bulk of the growth will come from tight gas and shale gas, resources that require unconventional technology like hydraulic fracking to prop open rock shales to allow gas to escape.
PetroChina and Sinopec, which together pump more than 90% of domestic gas, are set to accelerate drilling at top basins including Ordos in north China, Tarim basin in the northwest and Sichuan in the southwest.
PetroChina and Sinopec were not immediately available to comment.
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- Reuters
