With several large gas projects due to come onstream in China over the next 5-10 years, PetroChina, CNOOC and Sinopec could focus much more strongly on developing local gas resources, Wood Mackenzie said.
The impact on gas developments over the next 5- 10 years is potentially dramatic, with knock-on effects for the global gas business given the substantial gas reserves in the Sichuan Basin and at the Nanpu field, said Wood Mackenzie senior corporate analyst Norman Valentine.
“PetroChina’s multi-billion barrel Nanpu oil and gas field and Sinopec’s giant Puguang gas discovery significantly strengthen the companies’ portfolios which are dominated by established and maturing producing fields,” he said.
PetroChina, CNOOC and Sinopec have dramatically increased their expenditure on domestic exploration and production activities over the past five years to the extent that each company is investing at a greater rate than most major international oil companies, according to Wood Mackenzie.
“At almost US$9.4 per barrel of oil equivalent, PetroChina’s domestic upstream field development investment rate in 2006 was substantially higher than the average rate of the international majors at US$7.5/boe,” Valentine said.
“Sinopec’s and CNOOC’s domestic investment rates of around US$12/boe were also greater than the average rate of the international large caps, at US$11/boe. In terms of activity, the differences are probably greater, as China has to some extent been sheltered from the full impact of the recent inflationary environment affecting upstream capital costs due to the lower costs of domestically sourced labour and materials.”
Increased domestic expenditure has led to new finds and developments, as well as increased liquid output from onshore legacy fields. For example, PetroChina has increased production from enhanced oil recovery projects in the Daqing field, while Sinopec has halted production declines from its Shengli area.
Wood Mackenzie believes these discoveries are likely to maintain China’s long-term liquids production levels rather than cause a substantial increase in overall domestic oil supply. But the impact on gas developments will probably be more dramatic.
“While the Chinese NOCs will continue with their efforts to internationalise and diversify as they pursue their aims of becoming fully fledged international oil companies, recent results show the benefits of their continuing and increasing domestic investment,” Valentine said.
“Some of the recent discoveries have been world-class and, taking into account the lower level of domestic costs and China’s favourable fiscal regime, returns from domestic upstream investment are likely to compare favourably with what can be achieved through the exploitation of international opportunities.”
