Issue 587
07•April•2016
Week 13
™™
Shale sign up
BP has signed a shale gas PSC with CNPC, giving the IOC a better position
to capitalise on other opportunities within the wider Chinese energy market.
™™
Supply diversity
China’s efforts to secure additional gas suppliers in Central Asia have had
mixed results so far.
™™
Ratings downgrade
Standard & Poor’s has downgraded CNPC, CNOOC and Sinopec Group a
day after downgrading the country’s outlook rating.
™™
SOS signal
Sinopec Oilfield Service (SOS) has said it will look overseas for new business
after posting a US$1.8 million net loss for 2015.
ChinaOil
CONTENTS
ChinaOil
w w w. N E W S B A S E . c o m
ChinaOil
China Oil & Gas Monitor
COMMENTARY
Shale sector struggles persist
China looks beyond Turkmen gas 4
6
PIPELINES & TRANSPORT
COSCO: niche opportunities, co-operation key in current market
8
PERFORMANCE
Russia outlines 2016 oil exports to China
Standard & Poor’s downgrades Big Three
Gas price cut drives consumption
SOS seeks growth overseas
8
9
9
10
POLICY
NEA raises 2016 gas output target, lowers oil
Vietnam holds Chinese oil tanker, crew
11
11
PROJECTS & COMPANIES
PetroChina completes Qinghai gas wells
Poly GCL seeks spot LNG cargoes
Sinopec plans to double gas production by 2020
Chinese state refiners forced to cut runs
12
12
13
13
NEWS IN BRIEF
14
OUR CUSTOMERS
20
Have a question or comment? Contact the editor – Andrew Kemp (andrew.kemp@newsbase.com)
Copyright © 2016 NewsBase Ltd. All rights reserved. No part of this publication may be reproduced, redistributed, or otherwise copied without the written permission of the authors. This includes
internal distribution. All reasonable endeavours have been used to ensure the accuracy of the information contained in this publication. However, no warranty is given to the accuracy of its contents
Week 13 07•April•2016
w w w. N E W S B A S E . c o m
P3
ChinaOil
C O M M E N TA R Y
ChinaOil
Shale sector struggles persist
BP and CNPC have agreed to develop shale in China, but Callum Cyrus finds that this may be
more the exception than the rule when it comes to foreign investment in China’s shale plays
W H AT:
While BP was announcing
its entry into China’s
shale gas scene Shell
said it had quit its PSC in
Sichuan.
W H Y:
Geological, political and
economic challenges
continue to plague the
sector’s development.
W H AT N E X T:
Investing in China’s shale
gas sector may accrue
BP political capital
which could be used to
chase more attractive
investment options.
BP is set to enter China’s shale scene after signing
a production-sharing contract (PSC) with China
National Petroleum Corp. (CNPC) for exploration and development at the Neijiang-Desu
block in the Sichuan Basin.
The PSC has been signed as part of the pair’s
strategic partnership agreed in October 2015,
and indicates BP’s ability to seek out opportunities in the historically closed Chinese exploration
space. BP’s 2016 Energy Outlook projects shale
gas to provide 25% of global gas production by
2035, with China expected to become the world’s
second largest producer of the fuel.
China is believed to hold the largest reserves
globally with an estimated 25 trillion cubic
metres of shale gas, but explorers must overcome
numerous technical and economic hurdles to
development.
BP’s arrival comes as other international oil
companies (IOCs) exit Chinese shale opportunities citing the difficult geology and prohibitive
costs of investment.
On April 1, Bloomberg reported that Royal
Dutch Shell had decided to leave its PSC with
PetroChina for the Fushun-Yongchuan block in
the Sichuan Basin, despite having once pledged
US$1 billion in annual investment to kickstart
Chinese unconventional development.
“We have decided that there is no follow-up
investment that can be justified,” Shell spokesperson Jessica Miao said.
Similarly, US super-major ConocoPhillips
had signed up to a joint study agreement at Neijiang-Dazu in 2013, but pulled out prior to the
conclusion of a production agreement.
Geological hurdles
Progress in shale has been slow for China’s
national oil companies (NOCs), with only two
shale assets currently producing gas for PetroChina and Sinopec at Changing-Weiyuan and
Fuling respectively.
Changning-Weiyuan was producing 3.62
million cubic metres per day from 47 demonstration wells as of August 2015, according to
reports, while Fuling was producing 15 mcm per
day from 44 wells as of December 2015.
In September 2015, CNPC said it had added
207.87 square km of shale gas bearing areas in its
Sichuan Basin demonstration zone, with technically recoverable reserves estimated at 40.88 bcm.
As part of Sinopec’s plans to double its overall
natural gas production to 40 billion cubic metres
P4
by 2020, shale gas output will rise to 10 bcm per
year. (See: Sinopec plans to double gas production by 2020, page 13)
But gains in the Chinese shale space have
been slow and hard won. Sinopec and CNPC’s
output is understood to have fallen short of a
national target of 6.5 bcm for 2015, reaching just
5.1 bcm.
Innovation in Chinese shale has been held
up by geological challenges which made directly
transferring US technologies problematic.
The country has a greater prevalence of
shale-bearing continental and marine-continental facies, with tectonic movements producing
deformed and eroded shale which complicates
explorers’ ability to identify sweet spots.
Speaking to NewsBase, Trusted Sources
analyst Stephen O’Sullivan said: “It’s hard for
[China] to do [shale] because of the nature of
the geology. Shale in China is often found in
mountainous areas that are short of water – in
a country which is short of water anyway; that’s
not the same as the situation in the US where the
geology is easier to drill in.”
This has made it difficult for technologies to be
developed without significant costs, and the Chinese shale industry has lacked the land-usage rights
prevalent in the US, and the innovation of start-ups
responsible for the shale boom stateside.
China’s hope of sparking a shale gas revolution of its own has always been pinned on
its NOCs, which invested billions in North
American shale gas assets trying to make the
technological breakthrough. But China’s major
companies have been hamstrung in their ability
to make major progress, both by low oil prices,
and by the anti-corruption probe which has
snared NOCs in recent years.
“The investment in shale has pretty low
because of the low prices, but also because the
companies have been very much embroiled
the anti-corruption probes and investigations,”
Energy Aspects’ Michal Meidan told NewsBase,
“They’ve been virtually paralysed on a number of
levels, so they haven’t made that much progress
on the geology.”
Shale in China
is often found
in mountainous
areas that are
short of water
– in a country
which is short of
water anyway
Stephen O’Sullivan
Analyst
Trusted Sources
Low priority
Another question is whether shale gas remains
as big a priority to Beijing as it once was, or
if the government is willing to pursue other
angles now development has proven more difficult than first imagined.
w w w. N E W S B A S E . c o m
Week 13 07•April•2016
ChinaOil
C O M M E N TA R Y
In 2012, Beijing introduced a four-year 0.40
yuan (US$0.06) per cubic metre subsidy programme to encourage production. This has
been reduced to 0.3 yuan (US$0.05) per cubic
metre for 2016-18, and to 0.2 per cubic metre
(US$0.03) for 2019-20.
By contrast, China increased the subsidy for
coal-bed methane (CBM) in March from 0.2
yuan (US$0.03) per cubic metre to 0.3 yuan per
cubic metre for the period ending 2020 to help
cushion CBM profits against domestic price cuts
and weakening demand growth.
Although subsidies are less concerning to
NOCs, which have solid balance sheets backed
by the Chinese state, Meidan argued that Beijing would need to signal shale’s importance to
national objectives if it wants to encourage further development.
“There’s very few incentives for them to invest in
shale, unless of course the government signals that
shale is its priority, and then the NOCs will try and
align with those political goals,” she said, “For now,
there is not much to suggest that shale is a priority
for the government, but we’ll have to wait and see
for [China’s 13th economic and social development
five year plan covering 2016-20].”
If shale is pushed down Beijing’s list of priorities in the latest five-year plan, then China’s
NOCs are likely to lose interest in the face of
sharpening capital expenditure restraints and
overflowing global gas supplies.
Other hurdles include China’s lack of a
comprehensive pipeline network to carry
shale production to consumers, necessitating
even greater spends by NOCs to realise widescale profits.
While both Changning-Weiyuan and Fuling
are to be woven into local pipeline links as part
of Beijing’s push toward a gas-powered economy,
China still lacks the extensive pre-existing infrastructure that unlocked the US shale boom in
recent decades.
Week 13 07•April•2016
ChinaOil
Meidan said these complications were likely
to discourage IOCs from partnering on Chinese
shale for a long time yet, even if China’s companies eventually rediscover their confidence in the
technology.
“The main opening for IOCs is on the oilfield
service side of things rather than in exploration
and production. Shell had a miserable experience in Chinese shale, and I think [that despite
the talk they] want to get potentially into conventional upstream or even lucrative downstream
projects,” she said.
What next?
China’s economic circumstances have changed
considerably since the US shale boom caught
Beijing’s imagination.
Although the government is chasing a climate change target which will be underpinned
by increasing gas to 10% of the energy mix by
2020, the slowing Chinese economy has meant
that domestic demand has been shown to be
fragile.
China’s NOCs also face tightening prices
domestically, with Beijing moving to slice
around 25% from wholesale gas rates in November 2015 in an attempt to improve the competitiveness of gas versus other fuels.
All of this makes shale an unlikely near-term
bet for both the government and NOCs while
geological barriers remain, and while other
unconventional sources are available.
Developing shale assets on a small-scale
experimental basis could well bring NOCs technical expertise, but there is no evidence to suggest China has made the gains necessary to lead
to a production revolution.
NewsBase believes BP is probably strengthening its ties with CNPC in pursuit of more
enticing opportunities outwith shale, with the
exit of Shell and ConocoPhillips likely more
indicative of the sector’s general trajectory.v
w w w. N E W S B A S E . c o m
P5
ChinaOil
C O M M E N TA R Y
ChinaOil
China looks beyond Turkmen gas
China’s efforts to secure additional gas suppliers in Central Asia have
had mixed results so far, writes Jennifer DeLay
W H AT:
Uzbekistan and Tajikistan
have scant hope of
launching gas exports to
China, while Kazakhstan
has a better chance.
W H Y:
CNPC’s ability to extract
gas in Kazakhstan is not
hampered by shareholder
disputes or difficulties in
sustaining production.
W H AT N E X T:
Conditions may improve
in Uzbekistan if
commodity prices rise,
but Tajikistan has little
chance of seeing Line D
come on stream.
SINCE the opening of Line A of the Trans-Asia
Gas Pipeline (TAGP) in late 2009, Turkmenistan
has become one of biggest suppliers of natural
gas to China National Petroleum Corp. (CNPC).
Delivery volumes have not risen quite as quickly
as officials in Beijing and Ashgabat had originally
anticipated, but TAGP does handle substantial
amounts of gas. As of August 2015, it had supplied a total of 125 billion cubic metres of gas to
the Chinese market.
This puts Turkmenistan far ahead of Myanmar, the only other country in the world that
exports gas to China via overland pipeline. It
also cements the Central Asian state’s position as
a major foreign source of gas for China.
CNPC never intended, though, to use TAGP as
a delivery route for Turkmen gas alone. It also saw
the network as a means of importing production
from Kazakhstan and Uzbekistan, and it appears
to have drawn up plans for building Line D of the
pipeline in the hope of securing some gas from
Tajikistan as well as increasing purchases from
Turkmenistan. So far, though, China has experienced more failures than successes in its quest to
access other sources of gas in Central Asia.
Tajikistan
CNPC’s plans for Line D, first unveiled in
2013, envision the construction of a gas
P6
pipeline originating in Turkmenistan and crossing Uzbekistan, Tajikistan and Kyrgyzstan on the
way to China. The company has said it expects
this pipe, which will have a design capacity of 30
bcm per year, to begin operating before the end
of the decade.
Line D is slated to carry mostly Turkmen gas.
But it is also set to follow a route that would allow
it to handle gas from Tajikistan, where CNPC
has joined with Total and Tethys Petroleum to
implement the Bokhtar production-sharing
contract (PSC). The Bokhtar licence area has
been estimated to hold more than 3 trillion
cubic metres of gas, enough to cover Chinese
consumption at current levels for over 20 years.
Despite the partners’ initial rush of enthusiasm for the project, the prospects of shipping gas
from Tajikistan to China seem to have dwindled
to almost nil. For at least the last six months,
Total and CNPC have been sharply at odds with
Tethys, the original investor in Bokhtar. Last
autumn, the French and Chinese companies
sought to push Tethys out of the project, citing
the latter’s failure to cover its financial obligations in a timely manner. Then in January, Tajik
authorities joined the fray, complaining that very
little progress had been made at Bokhtar to date
and demanding the transfer of a 25% stake in the
project to the government.
w w w. N E W S B A S E . c o m
Week 13 07•April•2016
ChinaOil
C O M M E N TA R Y
This wrangling among shareholders and
Dushanbe suggests that the Bokhtar scheme
could fizzle out. If so, Tajikistan, which is almost
wholly dependent on imported hydrocarbon
fuels, will have no opportunity to load gas into
the TAGP system.
Uzbekistan
Unlike Tajikistan, CNPC’s hopes for Uzbekistan never hinged on the construction of a new
pipeline branch. Instead, the Chinese company
hoped to see Uzbek gas flowing through the main
part of the network. After all, TAGP’s Lines A
and B pass through Uzbekistan on the way from
eastern Turkmenistan to the Kazakh-Chinese
border, and a section of Line C from Kazakhstan
crosses Uzbek territory.
In 2012, Beijing and Tashkent laid out their
plans for gas shipments and signed a framework
contract outlining plans for the delivery of up to 10
bcm per year. Accordingly, small-scale shipments
of Uzbek gas began before the end of that year.
So far, though, the volume of gas piped from
Uzbekistan to China has remained very low.
There have been several trial shipments, but little beyond that. Most of the time, deliveries have
been on hold for one reason or another.
There is little reason to hope for a reversal of
this trend before the end of the decade, Uzbekistan’s ability to sustain its hydrocarbon output
and competently manage the operations of the
sector has noticeably been eroded in recent
years, Additionally, Tashkent has recently agreed
to supply extra gas to Russia, which has halted
imports from Turkmenistan.
Kazakhstan
The outlook is brighter in Kazakhstan. CNPC
and its local partner have finished work on
Week 13 07•April•2016
ChinaOil
TAGP’s Line C, which runs from western
Kazakhstan to Shymkent. The link was officially launched in November 2015 and may
eventually see throughput reach 25 bcm per
year.
Although Line C has not been operating for
long, it is more likely to prove a success than Line
D. Unlike Uzbekistan, Kazakhstan has actually
managed to bring gas production rates up in
recent years, and it now needs a means to move
surplus volumes to market.
Additionally, CNPC’s ability to produce gas
in Kazakhstan is not in doubt, as it is in Tajikistan. The company is already carrying out
upstream development operations at a number
of fields in western Kazakhstan, while in Tajikistan it is at odds with the government and one
of its partners and has yet to fulfil its exploration
commitments.
Prospects
Going forward, Uzbekistan has a better chance
of contributing gas for the TAGP network than
Tajikistan within the next five years.
As noted above, the country already has
access to the pipeline system absent the construction of Line D. Moreover, it is a gas producer,
even if its output levels have been disappointing
in recent years, while Tajikistan’s ability to extract
sizeable volumes of gas has yet to move beyond
the theoretical level. Conditions may improve
after the end of the decade, especially if commodity prices rise.
Tajikistan, however, will need more than
higher oil and gas prices. It will need a resolution
to the disputes between the parties involved in
the Bokhtar PSC – and also access to the modern
technologies needed to explore the deep-lying
strata that may hold the block’s oil and gas.v
w w w. N E W S B A S E . c o m
P7
ChinaOil
PIPELINES & TRANSPORT
ChinaOil
COSCO: niche opportunities, cooperation key in current market
SPECIALIST shipping customers in the oil and
gas sector can expect a co-operative approach to
business in order to help both parties ride out
the current depressed market, China COSCO
Holdings has told its shareholders.
The troubled firm – which is restructuring as
it seeks to transform from an integrated shipping
conglomerate to a pure player in the container
shipping value chain – recorded a 46.3% yearon-year drop in gross profit in 2015, from 4.02
billion yuan (US$621.2 million) to 2.16 billion
yuan (US$333.7 million)).
In terms of net profit attributable to shareholders, this amounts to a 21.8% decline: from
363 million yuan (US$56.04 million) in 2014 to
283 million yuan (US$43.7 million) in 2015.
Blaming overcapacity in the sector and rising
costs compounded by low oil prices for the poor
results, Offshore Energy Today quoted China
COSCO’s chairman, Wang Yu Hang, as saying
on March 31 that most of the offshore marine
and related industries were similarly struggling
with a challenging immediate future.
“As oil companies struggle to stay afloat, we
expect to see further budget cuts, project deferments and order cancellations across the offshore marine industry,” Wang said.
China COSCO confirmed it would be open
to discussion in relation to rescheduling orders
providing there was no threat to its commercial
interests, Offshore Energy Today said.
Taking a view that niche demand for offshore
construction vessels, floating production units
and underwater construction units was likely
to continue, China COSCO intends to focus its
efforts on making the most of such opportunities
to diversify its portfolio, the news service added.
China COSCO was created in February
after Beijing orchestrated a merger between
China Ocean Shipping (Group) Co. (COSCO)
and China Shipping (Group) to consolidate
the floundering sector. While industry observers have criticised the move owing to its lack
of transparency, it is unlikely its full effect will
be realised until the hydrocarbon market has
emerged from the doldrums.v
PERFORMANCE
Russia outlines 2016 oil exports to China
RUSSIA will export around 27 million tonnes
(540,000 barrels per day) of crude oil to China
this year, a senior Transneft official said on
March 31. For 2016, “the overall volume of
oil supplied to China amounts [to] 27 million tonnes,” Transneft’s vice president, Sergey
Andropov, told reporters on the sidelines of the
Russia-China Oil & Gas Conference.
Of this, 16.5 million tonnes (330,000 bpd) will
be shipped via the Skovorodino-Mohe branch of
the Eastern Siberia-Pacific Ocean (ESPO) pipeline, he said. Seven million tonnes (140,000 bpd)
will be transported through Kazakhstan and 3.5
million tonnes (70,000 bpd) will travel to China
via Kozmino Port in eastern Russia as part of an
intergovernmental agreement.
China has doubled its purchases of crude from
Russia over the past five years, becoming the country’s biggest oil customer in 2015, according to the
International Energy Agency (IEA).
It bought 4.81 million tonnes (1.14 million
bpd) of Russian crude in December 2015 – up
30% year on year – according to China’s General
Administration of Customs (GAC).
Transneft is currently investing in the Skovorodino-Mohe link with a view to expanding
P8
its capacity to 30 million tonnes (600,000 bpd),
from 20 million tonnes (400,000 bpd) at present. “We plan to invest some 4.8 billion rubles
[US$70.7 million] and finish all the work in
2017,” Andropov said. Around 5 million tonnes
(100,000 bpd) of crude currently travels through
the link each year. This will be raised to 15 million tonnes (300,000 bpd) in 2018-37.
At the same time, however, China’s increasingly
influential independent oil refiners appear to be
falling out of love with Russia’s ESPO blend, and
this could threaten Moscow’s export ambitions.
Their appetite for the grade – largely driven
by its low-sulphur content, short haul and
smaller cargo size than similar Middle Eastern
grades – has supported ESPO prices in recent
months, with premiums for the grade hitting a
nearly two-year high in February.
But many now appear to have over-bought,
while those that do not have bulging inventories to
burn through are switching just as quickly to other
grades that represent the latest bargain.
“Chinese ports are congested, the domestic margin is no longer favourable and product
stocks are high,” an unnamed trader in Singapore told Platts last week.v
w w w. N E W S B A S E . c o m
Week 13 07•April•2016
ChinaOil
PERFORMANCE
ChinaOil
Standard & Poor’s downgrades Big Three
RATINGS agency Standard & Poor’s has downgraded a number of China’s state oil companies
a day after downgrading the outlook rating for
the country itself.
China National Petroleum Corp. (CNPC),
China National Offshore Oil Corp. (CNOOC)
and Sinopec Group, along with various subdivisions, were downgraded to negative from stable
on April 1 along with others making up a group
of 20 “government-related corporate and infrastructure entities” (GREs). Others included telecoms, real estate and power companies.
The downgrade follows a similar move by
Moody’s at the beginning of March.
Standard & Poor’s report also mentioned 31
other state-owned enterprises (SOEs) whose
ratings remained unchanged, including China
Oilfield Services Ltd (COSL), China Resources
Gas and Kunlun Energy.
The report said: “We are revising the outlook on these entities because we believe their
credit profiles are affected by their importance
and strong links with the Chinese central government. At the same time, we have revised the
Greater China regional-scale ratings on these
entities accordingly.”
This refers to the agency’s own downgrading of China and Hong Kong – which it refers
to as Greater China – to negative from stable.
The rating, released on March 31, states that the
decision was taken “because economic rebalancing is likely to proceed more slowly than we
had expected”. The agency emphasised the close
connection between government and GREs, saying: “These revisions reflect our view that China’s
potentially weakening credit strength in the next
24 months might negatively affect the extent of
its timely and sufficient extraordinary support to
the Chinese GREs if needed.”
This is despite Standard & Poor’s saying:
“Following China’s legislative meetings in
March 2016, we believe the country’s reform
agenda is on track.” The agency has continued
to keep its sovereign credit ratings for China
unchanged.
The report does not raise points such as the
issues facing the global oil industry nor the oil
majors’ recent dramatic profit falls or reductions
to planned capital expenditure.
Chinese state media have criticised the downgrading, with China Daily quoting Vice Minister
of Finance Shi Yaobin as saying: “Rating agencies
have overestimated the difficulties the economy
faces and underestimated the ability of the Chinese government to press ahead with reforms
and tackle risks.”v
Gas price cut drives consumption
CHINA’S natural gas use increased by double-digit figures for three consecutive months
following the government-ordered price cut in
November 2015, official figures show.
Consumption grew 44% year on year in
December 2015, followed by an 18% rise in January and 19% in February, Xinhua quoted the
National Energy Administration (NEA) as saying. The rises follow the slashing of wholesale gas
prices up to 28%, and were also helped by a cold
weather period.
Prior to the cut for commercial users, gas
consumption in 2015 had been sluggish. For the
whole year it grew by only 2.9% – its slowest pace
for 10 years.
The weak growth was blamed on both high
prices prior to the cut and the general slowing of
China’s economy as the country moves from a
smokestack industrial economy to a more consumer-driven one. The NEA forecast last week
that the country’s gas consumption would grow
this year to account for 6.3% of total energy use,
state media reported.
Industrial users are being encouraged to
switch from coal to gas as their main fuel, a
policy driven by Beijing’s twin objectives of
Week 13 07•April•2016
reducing greenhouse gas (GHG) emissions and
urban air pollution. This policy includes forcing
the closure of coal-fired power plants, or their
conversion to gas, in the more heavily populated
eastern provinces.
Despite China’s economic slowdown it was
the one bright spot in Asia for LNG exporters
in 2015, the latest annual report of the International Group of Liquefied Natural Gas Importers
(GIIGNL) said.
China’s LNG imports increased by 5.5% year
on year, while Asia’s share overall declined by
1.7%. The top two global markets, Japan and
South Korea, saw import falls of 4.7% and 11.2%
respectively, GIIGNL said.
The volume of LNG imported into China last
year came to 20 million tonnes. And at the end
of 2015, eight of the 15 onshore LNG receiving
terminals under construction were in China,
GIIGNL said.v
w w w. N E W S B A S E . c o m
P9
ChinaOil
PERFORMANCE
ChinaOil
SOS seeks growth overseas
SINOPEC Oilfield Service (SOS), a subsidiary of
state-owned Sinopec Group, has restated its aim
to seek new business overseas after slipping into
the red in 2015.
The company, which provides drilling and
construction services chiefly to its sibling firm
Sinopec, booked a net loss of 11.54 million yuan
(US$1.79 million) in 2015, reversing a profit of
1.26 billion yuan (US$195 million) in 2014.
As with many Chinese service providers, SOS
has seen dwindling returns from its domestic
business as a result of cutbacks by Beijing’s Big
Three oil giants.
The company suffered a 23.6% decline in
revenues year on year to 60.35 billion yuan
(US$9.33 billion) as weak demand dragged
down industry rates.
Its workload – including well-related activities, data collection and facility construction
– fell by 25-40%, likely influenced by the 27.4%
reduction in spending by Sinopec in 2015.
“The overseas market has the best market
potential for us, and its development is one
of our key strategies going forward,” SOS’
chairman, Jiao Fangzheng, told reporters on
March 31.
The service firm wants to see its international operations account for 35% of total
revenues by 2020, up from 23% last year. Specifically, it is targeting new business in the
Middle East, Africa, South America, Central
Asia and Russia, Jiao said.
SOS could take part in an oilfield services
joint venture which Sinopec is setting up with
Riyadh’s Saudi Aramco in Saudi Arabia.
P10
In December 2015, the Chinese government
penned a memorandum of understanding
(MoU) for the supply of Chinese oilfield equipment to Iraq.
The paper also provided for China’s participation in Iraqi oil projects.
A trend
SOS is not the only Chinese service firm banking
on overseas expansion for its survival.
Sinopec Engineering announced last week it
anticipated over 40% of its new business this year
coming from abroad, compared with around
37% in 2015 and less than 20% in 2014. Revenues
from its Chinese activities fell by 14.4% to 36.4
billion yuan (US$5.63 billion) last year, while its
overseas division saw growth of 32.9% to 9.1 billion yuan (US$1.41 billion).
Private players such as Anton Oilfield Services and Petro-King Oilfield are also relying
increasingly on international revenues.
Anton, which booked a loss in the first half
of 2015, managed to bolster overseas revenues
by 26.5% during the period, while its domestic sales slumped by 54.8%. Petro-King raised
international sales 61% year on year during
the same period, while its domestic revenues
dropped by 24%.
SOS is also likely to see domestic gas projects
play a larger role in its revenue mix.
Sinopec last week announced ambitious
plans to double its annual gas production to 40
billion cubic metres by 2020 in line with Beijing’s
drive to encourage use of the relatively clean fuel.
Moving forward, SOS expects its workload to
shrink by 19-35% this year with the exception
of facility construction contracts, which are set
to rise by 2.7%. It aims to cut 1.3 billion yuan
(US$201 million) in costs this year compared
with the 1.18 billion yuan (US$182.4 million) it
managed to save in 2015.v
w w w. N E W S B A S E . c o m
Week 13 07•April•2016
ChinaOil
POLICY
ChinaOil
NEA raises 2016 gas output target, lowers oil
THE Chinese government has decided to raise
this year’s natural gas production target while
lowering the target for crude.
In new energy development guidelines
issued by the National Energy Administration (NEA) late last week, the government has
raised the domestic gas output goal to 144 billion
cubic metres from an earlier target of 140 bcm
announced at the national annual energy conference in late 2015. The use of gas will account
for 6.3% of the total energy mix.
The NEA’s guidelines did not mention gas
demand changes, but Beijing-based industry
officials have said that consumption will likely
climb from 191 bcm in 2015 to 205 bcm this
year.
Residential demand will rise by 9.1% to 82.7
bcm, power generators will use 8.7% more at
31.9 bcm, industrial demand will climb by 6.1%
to 61.1 bcm and petrochemical demand will
expand by 3.7% to 29.3 bcm.
The target for crude production, however,
has been lowered to 200 million tonnes (4
million barrels per day), from 220 million tonnes
(4.4 million bpd) announced at the energy
conference.
The latest guideline also slightly lowered the
country’s overall energy consumption target
from 4.36 billion tonnes of coal equivalent down
to 4.34 billion tonnes. The target for domestic
energy production remained unchanged at 3.6
billion tonnes.
The government is keen to replace coal
with natural gas in order to reduce urban air
pollution.
The country’s industrial sector still consumes
large quantities of coal, with China’s 600,000
industrial boilers burning mostly coal. With
industry shifting from coal to gas, demand for
the cleaner-burning fuel could rise to 450 bcm
by 2030, industry officials have said.
Nearly 100 million households in central
and southern China are without a piped gas
connection and, as a result, the residential sector still consumes around 50 million tonnes
per year of coal.v
Vietnam holds Chinese oil tanker, crew
A Chinese ship and its three-man crew are being
held by Vietnamese authorities following an
alleged intrusion into disputed South China Sea
waters last week, Vietnamese state media have
confirmed.
On April 4, Vietnam News Agency (VNA)
said the Qiong Yangpu, which was disguised as a
fishing boat and was carrying more than 100,000
litres of oil, was stopped and seized near Vietnam’s northern maritime border on March 31.
Having been spotted “12 nautical miles [22 km]
from the marine delineation line in the Tonkin Gulf
to the northwest of Vietnam’s Bach Long Vi Island”,
the vessel was impounded at the Hai Phong Port by
the Coast Guard, VNA said, adding that the crew
had been handed over to the police.
State-run Tuoi Tre newspaper said the Qiong
Yangpu was selling oil to Chinese fishing boats in
the area but its captain had “failed to present relevant documents to prove the origin of the oil” and
its two crew members had “no operating licence”.
Meanwhile, Channel News Asia said Hai
Phong police, military and coast guard officials
had declined to comment on April 4. Similarly,
at the time of going to press, there had been no
comment from Beijing.
Vietnam and China are involved in a longstanding territorial dispute over the waters of the South
China Sea and sovereignty to its islands, which
include the Paracel and Spratly chains among
smaller atolls, reefs, rocky outcrops and sandbanks.
Week 13 07•April•2016
As well as being rich in fish, the area in question is thought to hold substantial oil and gas
reserves, resulting in frequent disputes over fishing rights and hydrocarbon exploration.
This latest dispute will add to Hanoi’s growing
list of complaints about Chinese fishing boats in
the disputed waters.v
w w w. N E W S B A S E . c o m
P11
ChinaOil
P R O J E C T S & C O M PA N I E S
ChinaOil
PetroChina completes Qinghai gas wells
PETROCHINA has completed 10 gas wells at
the Qinghai field in the Qaidam Basin as part of
the state major’s ongoing upgrade programme,
according to local media reports.
Xinhua news agency reported on March 31
that PetroChina had undertaken work to limit
exploration costs while improving the quality
and quantity of hydrocarbons produced.
PetroChina is believed to have added 30 million tonnes (219.9 million barrels) of oil equivalent in reserves.
Development at Qinghai started in 1955, and
by 2009 the area had estimated crude reserves
of 370 million tonnes (2.7 billion barrels) plus
290 billion cubic metres of gas after a string of
discoveries in recent decades.
Qinghai Province is considered PetroChina’s fourth largest gas-producing region
behind the Sichuan and Tarim Basins and
Chongqing.
According to China.org, the Qinghai field
accounted for 25% and 11% of the wider province’s oil and gas reserves respectively.
Xinhua reported that PetroChina’s Niu-1
well had struck a 190-metre gas column in the
Jurassic reservoir. PetroChina is believed to be
proceeding with a well-testing programme.
Qinghai supplies oil and gas to Tibet on the
former’s southwestern border, having delivered
24 million cubic metres of gas to Tibetan capital
Lhasa since October 2011, according to recent
reports.
In 2010, PetroChina announced it would
pump 23 billion yuan (US$3.54 billion) into supporting production at Qinghai under a contract
signed with the provincial government.
Qinghai hosts both an oil refinery with 1.5
million tonne per year (30,000 barrel per day)
capacity as of 2011, and a 20 million cubic metre
per year gas facility which supplies 30,000 residents in Yushu County.
The local infrastructure reportedly supplied
1,000 compressed natural gas (CNG) and LNG
vehicles operating in the province as of 2010.
After a 7.1 magnitude earthquake killed at
least 2,698 people in Yushu six years ago, PetroChina parent China National Petroleum Corp.
(CNPC) played a crucial role in maintaining
energy supplies via a 6,000 cubic metre oil tank
and LNG terminal constructed in the region.v
Poly GCL seeks spot LNG cargoes
CHINA’S POLY-GCL is understood to be
looking to secure spot LNG cargoes for import
through terminals operated by Sinopec or China
National Offshore Oil Corp. (CNOOC).
The company, which has no LNG trading
experience, has engaged a trading house in Singapore to initiate talks with suppliers, including
those in Russia, said one Singapore-based trading source.
POLY-GCL is a joint venture between stateowned China POLY and privately owned Hong
Kong-based Golden Concord Holdings Ltd
(GCL). The company has no Chinese LNG operations or sales outlets, typically focusing on the
Ethiopian upstream.
Reuters reported in January that POLY-GCL
had finished drilling two appraisal wells in the
Calub and Hilala fields in southeastern Ethiopia’s Ogaden Basin. Official field estimates put
resources at 4.7 trillion cubic feet (133.1 billion
cubic metres) of gas and 13.6 million barrels of
associated liquids.
The company is keen to take advantage of its
newly bought LNG Libra carrier before the unit
is converted into a floating storage unit in late
2017 and installed at the Ethiopian development.
The 126,000 cubic metre LNG Libra, which
POLY-GCL bought from Norway’s Hoegh LNG
in 2015 for US$20 million, arrived in Singapore
P12
in early March and is currently awaiting certification by classification agency ABS at Keppel
Shipyard.
The first cargo could come from an unnamed
supplier in Russia and was initially negotiated to
be delivered to Sinopec’s terminal in Qingdao
City. But sources said third-party access to the
terminal was still in doubt, with one adding: “It
has not been finalised.”
The Chinese government is encouraging
third-party access to the terminals owned and
operated by the state majors. While the country
has 12 state-run terminals, only three, all operated by PetroChina, have so far handled spot
cargoes for Chinese independents.v
w w w. N E W S B A S E . c o m
Week 13 07•April•2016
ChinaOil
P R O J E C T S & C O M PA N I E S
ChinaOil
Sinopec plans to double gas
production by 2020
SINOPEC is aiming to double its natural gas
production to 40 billion cubic metres per year by
2020, Beijing’s target year for the cleaner-burning fuel to account for 10% of China’s energy
mix.
Sinopec’s chairman, Wang Yupu, said his
company would produce 29.5 bcm of conventional gas, plus 10 bcm of shale gas and 500 million cubic metres of coal-bed methane (CBM),
not including an additional 2 bcm output from
a Sichuan Province shale project slated for construction this year.
When including gas imports, Sinopec
expects to reach 53 bcm of gas supplies in four
years’ time, according to the South China Morning Post.
“Our proven gas reserves and development
work are sufficient to meet our target,” Yupu said.
“We have made significant new discoveries in
the Sichuan and Ordos [gas] basins.”
Sinopec expects the bulk of its conventional gas target to be realised from its
fields in northern China as well as assets in
Sichuan and the East China Sea, where the
Chunxiao field is the subject of a dispute
between China and Japan.
With a reported breakeven price of US$60
per barrel, Sinopec is cutting domestic production, and was recently overtaken by CNOOC Ltd
as China’s second biggest national oil company
(NOC) in terms of domestic output.
Sinopec reported a 32% fall in net profits at
32.2 billion yuan (US$4.96 billion) on March 30,
as oil and gas exploration slumped to a 17.4 billion yuan (US$2.68 billion) operating loss, offset
by a 20.96 billion yuan (US$3.23 billion) profit at
Sinopec’s refining unit.
Domestic gas projects feature highly in Sinopec’s 100.4 billion yuan (US$15.48 billion) capital
expenditure programme for 2016, which has been
reduced by 10.6% year on year. Work on a second
phase at the Fuling shale gas field and development
at the CNOOC Ltd-operated Pingbei-Huangyan
gas fields are among the projects to receive a share
of the 47.9 billion yuan (US$7.38 billion) Sinopec is
investing in exploration.
Sinopec is also performing pressure boosting
upgrades at its 12 bcm per year Sichuan-East
China pipeline, while the company will invest
19.5 billion yuan (US$3 billion) in its refining
segment for work that includes upgrades at the
Zhenjiang and Maoming plants.v
Chinese state refiners forced to cut runs
SOME of China’s state oil firms were reportedly
forced to cut refinery throughput earlier this
year, as the balance of power in China’s refining
industry continues to shift.
In the first two months of the year, state refiners reined in operations, while independent
refineries ramped up output, Reuters said citing
industry officials.
State refiners including Sinopec and PetroChina recorded a 2.5% year-on-year drop in
their combined crude processing in January and
February, according to data from an unnamed
company official. Independent refiners raised
their output by 30% year on year in the same
period, the official told Reuters.
Strong demand from independents has
meant that Chinese loadings of West African
crude oil are on track to hit an 18-month high in
April, the report added.
Most of China’s crude oil has traditionally
been imported by state giants PetroChina,
Sinopec and China National Offshore Oil
Corp. (CNOOC), as well as a few government-owned traders.
Week 13 07•April•2016
But Beijing has slowly begun to issue import
licences to private companies, thus loosening
control over its oil imports. The loosening of
previous restrictions on crude imports is part of
major reforms that are set to intensify competition in China’s refining sector.
Smaller refiners – which are called teapots –
can now win quotas for imported crude if they
meet certain environmental conditions, including the closure of older, polluting facilities. The
new rules mean these companies can import
directly, without having to go through a state
trader as an agent.
China has been strengthening its refining
capacity over the last 20 years in an attempt to
fill the gap left by rapid demand growth. Several
refinery expansions are anticipated after 2015,
including Sinopec’s Luoyang expansion in 2016,
CNPC’s Karamay expansion in 2017 and Sinochem’s Ningbo expansion in 2020.v
w w w. N E W S B A S E . c o m
P13
ChinaOil
UPSTREAM
Sino Gas and Energy has
different take on China’s
gas market
China’s shock reduction in liquefied natural
gas imports in 2015 is clearly a setback for
LNG exporters but for Australia’s only gas
producer within the Middle Kingdom it’s a
different story.
As LNG imports get priced out of the
domestic market in China, even at current low
prices, Sino Gas and Energy is sitting on gas
reserves that fall much further down the cost
curve.
Sino Gas managing director Glenn Corrie
takes encouragement that China’s latest fiveyear plan gives for gas, identifying as it does
natural gas as a key component in the future
energy mix. The goal to increase gas’s share
of China’s energy mix to more than 10 per
cent implies significant demand growth in the
coming years.
And with gas prices within China only
indirectly linked to crude oil prices, the ASXlisted company is in the happy position of
being relatively insulated from the commodity
price weakness that is causing headaches for
many of its peers.
The key competitive advantage for Sino is
the low cost base of its ventures in the Ordos
Basin in China’s remote central north, with
production costs of around $US2 per million
British thermal units and sales prices of $US7.
That gives roughly $US5/MMBTU margins
that Corrie says are probably among highest
available worldwide.
With its fixed gas prices, China’s challenge
is to find the right balance in pricing, so that
indigenous supplies are encouraged, as well
as domestic demand. Failing to find that
equilibrium point hurts one or the other.
THE AUSTRALIAN, April 7, 2016
NEWS IN BRIEF
China may adjust gas
prices amid market-based
shift, ICIS says
China may harmonize wholesale natural gas
prices for residential and industrial users as
early as this year in an effort to make pricing
of the fuel more market based.
The National Development and Reform
Commission is discussing a plan to set a
single wholesale gas price for all users in 2016
and let suppliers and customers negotiate
rates around the benchmark, ICIS China, a
Shanghai-based commodity researcher, said in
an e-mailed report citing people familiar with
the plans. Industrial and commercial users in
most regions pay a premium of as much as
1.73 yuan a cubic meter for gas compared to
residential consumers, it said.
China is reforming its state-controlled
energy industry to make prices more
reflective of supply and demand. The world’s
largest energy consumer is targeting raising
the share of natural gas in its energy mix to
10 percent by the end of the decade from
about 6 percent last year in an attempt to
shift consumption from coal and reduce
pollution.
“The move will benefit upstream players
such as PetroChina and Sinopec as they
won’t have to provide a wholesale discount to
residential users under the new policy,” said
Shi Yan, a Shanghai-based analyst at UOBKay Hian Ltd., indicating that residential users
may pay more.
NDRC didn’t immediately respond to a
faxed request for comment.
China cut natural gas prices for
commercial and industrial users in November
by 26 percent for Beijing and 24 percent
for both Shanghai and Guangdong as the
nation’s gas demand expanded by the least
in in a decade in 2015 amid a price slump in
alternative fuels such as coal.
ChinaOil
The cost for distributors to supply
residential users is higher than industrial
consumers. China Gas Holdings Ltd.
Chairman Liu Ming Hui said in a December
interview that 80 percent of the company’s
manpower was catering to residential users
who generated around 20 percent of revenue.
BLOOMBERG, April 7, 2016
MIDSTREAM
China’s perfect diesel storm
poised to hit Asian fuel
market
Should Asia be bracing itself for a flood of
gasoil from China in the second quarter?
It would certainly appear that the conditions
for a sharp rise in exports of gasoil, the
refinery term for middle distillate fuels diesel
and kerosene, are in place.
These include stocks of Chinese oil
products at a four-year high, rising refinery
runs but soft domestic consumption, and
gains in crude imports. So far this year China
has already been ramping up exports of
middle distillates, with diesel shipments rising
736 percent to 1.52 million tonnes in the first
two months of the year compared to the same
period last year, while jet kerosene gained 28.8
percent to 1.92 million tonnes.
Converting the Chinese customs data to
barrels per day (bpd) shows diesel exports at
190,000 bpd and jet kerosene at 250,000 bpd
in the January-February period.
By comparison China exported about
147,000 bpd of diesel and 264,000 bpd of
jet kerosene in 2015, meaning that while jet
kerosene shipments are roughly steady so far
in 2016, there has been a big jump in diesel
shipments. It’s likely that diesel exports will
continue to rise in coming months, given the
internal dynamics of China’s refining and fuel
markets. Commercial fuel inventories reached
a four-year high in February, rising 17.3
percent from the previous month, according
to a March 28 report from the official Xinhua
News Agency. Diesel inventories were 11.4
million tonnes in February, or about 85.5
million barrels, up 37.3 percent from 8.3
million tonnes in January, according to
Reuters calculations based on the official data.
REUTERS, March 31, 2016
China bans export of jet fuel
to North Korea
China’s commerce ministry announced
Tuesday that it would restrict imports
P14
w w w. N E W S B A S E . c o m
Week 13 07•April•2016
ChinaOil
NEWS IN BRIEF
from North Korea, after being urged by the
international community to strengthen its
stance against Pyongyang following its fourth
nuclear test, and missile and rocket launches,
Yonhap reported. Beijing also announced
that it will ban the export of jet fuel to the
Kim Jong Un regime, going by the sanctions
slapped on the country by the United Nations
Security Council.
The Security Council, with the backing of
China, had adopted the harshest sanctions
against North Korea last month after
Pyongyang’s fourth nuclear test in January
and a rocket launch the following month.
China has so far been the most important
ally of the reclusive country, whose leader has
called for more nuclear weapons and stronger
defense capabilities.
The latest U.N. sanctions need member
states to prohibit imports of North Korean
gold and rare earth metals. However, the trade
in the coal and iron ore from Pyongyang is
allowed to continue if the proceeds from it are
related to “livelihood purposes.”
Beijing added that it will continue to
import coal, iron and iron ore from North
Korea if the transactions are related to the
livelihood purposes and if the revenues are
not used to develop North Korea’s nuclear and
missile programs.
Myanmar currently imports most of its fuel.
The Myanmar Investment Committee
granted the Chinese firm approval to build
a 100,000 barrels-per-day (bpd) refinery in
the southeast coastal city of Dawei, Li Hui, a
vice president of Guangdong Zhenrong and
head of the company’s refining business, told
Reuters.
The Chinese firm will hold 70 percent of
the project, and the remaining 30 percent
shared by three Myanmar firms - militarylinked Myanmar Economic Holdings Limited,
Myanmar Petrochemical Corp, an entity
affiliated with the country’s energy ministry
and Yangon Engineering Group, controlled by
privately-run HTOO Group of Companies,
Li said. As the approval came before the
government led by Aung San Suu Kyi’s
National League for Democracy was sworn
in, Li said his firm was ready to work with
the new Myanmar authorities to ensure the
project gets off the ground.
“We are confident (about the project) as it
has taken into considerations interests from all
parties and the refinery will benefit the local
people as well as the economic development
of the country,” said Li. Guangdong Zhenrong,
which first announced the project in 2011,
won the green light from Beijing in late 2014
to proceed with the plan.
DOWNSTREAM
Petrochemical prices rise in
Asia amid plant repairs
IBT, April 4, 2016
China firm wins Myanmar
approval for $3 bln refinery
Chinese state-controlled commodity trader
Guangdong Zhenrong Energy Co has won
approval from the Myanmar government to
build a long-planned $3 billion refinery in the
Southeast Asian nation in partnership with
local parties including the energy ministry,
company executives said on Tuesday.
The project, which also includes an
oil terminal, storage and distribution
facilities, would be one of the largest foreign
investments in decades in Myanmar.
Week 13 07•April•2016
REUTERS, April 5, 2016
Prices of petrochemicals are rising in Asia,
reflecting higher crude oil prices last month
as well as supply reductions resulting from
periodic checkups of production facilities.
Petrochemical products, especially
intermediate materials, are now quoted at
prices 10% to 40% higher than their most
recent lows. While demand remains firm in
China and other Asian markets, prices of
synthetic resins are expected to fall by narrow
margins as part of price-cut negotiations in
Japan.
Spot prices of ethylene, used to make
a variety of synthetic resins and other
w w w. N E W S B A S E . c o m
ChinaOil
petrochemicals, are now around $1,200 per
ton, 40% higher than the most recent low in
early February.
Periodic repairs of ethylene production
facilities in Thailand started in February.
Japanese producer Tosoh and South Korean
petrochemical manufacturers are also
conducting regular checkups. Repairs are
concentrated this year, with a number of
them planned to take place in Japan and other
countries in May or later.
Demand for petrochemical products
remains strong in China and has only been
affected to a limited extent by the slowdown
in the country’s economy. China’s imports
of low-density polyethylene, used to make
wrapping materials, increased about 30% in
volume in February from a year earlier. The
nation’s imports of benzene, for production of
engineering plastics, exceeded 100,000 tons
for the first time in eight months. Inventories
of petrochemicals have been building up in
China since the Chinese New Year, said an
official at a major Japanese trading house.
NIKKEI, April 4, 2016
SERVICES
KBR wins refinery work in
China
Houston engineering and consulting firm
KBR won a contract to work on a refinery for
a client in China.
KBR will revamp a fluid catalytic cracker
unit, which plays an important role in gasoline
production, by bringing in its Maxofin
technology. The Maxofin technology allows
for higher production of propylene.
“This project demonstrates our
commitment to deliver innovative
technologies that help the client meet their
performance objectives,” John Derbyshire,
President of KBR Technology & Consulting,
said in a statement Thursday.
In the announcement KBR also said it
developed the world’s first fluid catalytic
cracker commercial unit in 1942, and has
done 120 such projects around the world
since. The price of the deal was not disclosed.
The client’s identity was kept confidential.
As part of the restructuring KBR
initiated in December 2014 the company
has looked for opportunities to expand in
Asia. It has also narrowed its focus on several
business segments, including its proprietary
technologies in oil and gas processing, as it
sheds others.
KBR’s stock was down slightly in early
trading Friday.
CHRON, April 1, 2016
P15
ENERGY FINANCE WEEK
NewsBase’s new weekly monitor covering
energy-specific project finance, acquisitions and
company performance from around the world.
To find out more and sign up for a Free Trial,
click here or call us on
+44 131 550 9281
Decom
Special Report 2016
£700
BUY TODAY TO CLAIM YOUR 10% DISCOUNT
A Special Report on decommissioning in 2016,
containing the following and much more:
™™
Cost cutting
Improved cost-cutting and cost estimation is fundamental in the low-price
environment. We discuss enhanced cost-optimisation strategies with Amec
Foster Wheeler.
™™
Brent’s big lift
High-profile projects remain on course, such as the removal of Shell’s Brent
Delta platform’s topside in the North Sea. We spoke to the project’s director
to gain crucial and exclusive insight.
™™
Innovation
Finding new solutions to old problems is critical in the decommissioning
field. We look at lessons that can be learned from nuclear power
decommissioning and other sectors.
To find out more and buy the report, click here or
visit:
shop.newsbase.com
Implementation Day
Iran Special Report - Update
£600
January 2016
™™
Implementation Day: sanctions lifted
Implementation of the lifting of sanctions on Iran signals a new era for
Iran and the world oil market.
™™
Fate of the nation
Burdened by years of international sanctions, Iran is in dire need of
foreign investment, particularly in its energy sector.
™™
Land of opportunity
Home to the world’s fourth and second oil and gas reserves respectively,
Iran presents unique opportunities to firms throughout the value chain.
™™
Stiff competition
Investors from China and Russia lead the queue, but Tehran is also keen
to attract players from Europe, the Americas and elsewhere in Asia.
Click here for more information and to buy this
Special Report in the NewsBase shop.
v
NEWSBASE
Our customers include...
If you are interested in your company’s logo appearing on this page, please contact your Customer
Accounts Manager on +44 131 478 7000.