China's 2018 reforms regarding domestic oil and gas have landed the sector in good stead but, according to GlobalData, without further investment it will be for nothing (1)

GlobalData predicts Chinese gas production will plateau after 2020, while oil production will fall

China must capitalise on the interest it has secured from foreign upstream investors to maintain its energy security, according to GlobalData.

The country unveiled a plethora of reforms last year, geared towards diminishing its reliance on foreign oil and gas, but the data insight firms claims the economic capital of the east now faces a tricky challenge in turning this into tangible progress.

GlobalData oil and gas analyst Nicole Zhou said: “As the government has pushed companies to improve domestic production rates to meet the rising demand, gas production in China has increased over the past few years, although oil output has remained relatively flat.

“However, further investment is required to maintain this push, with GlobalData forecasting gas production to plateau after 2020 and oil production to decline under current investment scenarios.”

china energy security
Credit: GlobalData

How China has tried to maintain energy security and what it must do next

Over the past few years, the Chinese government has mandated that its state-owned companies increase their domestic energy production and reserves.

Various firms in the country have responded, including China National Petroleum Corporation (CNPC), which promised to increase domestic exploration and development investment by 25% in 2019, along with offering 13 blocks for joint exploration.

China National Offshore Oil Corporation (CNOOC) also announced a new strategy, which involves increasing its domestic exploration capital expenditure (capex) from $1.5bn (£1.2bn) in 2018 to $1.8bn (£1.4bn) this year.

In addition, the company signed strategic cooperation agreements with nine international oil majors in December 2018 for new exploration areas in the Pearl River Mouth Basin, located in the northern part of the South China Sea.

“The directives from the government and early efforts from the state-owned companies are positive signs for international investors in the Chinese upstream sector,” added Mr Zhou.

“However, the joint development opportunities are still in the early stages, as so far only limited details have been released regarding the opportunities on offer and no investment has been committed.”

The agreements are intended to encourage joint development projects, which accounted for 41% of production starting between 2010 and 2015, before declining to 26% from 2015 onward.

The Chinese upstream exploration and production sector is also expected to benefit from external funding and the continued implementation of advanced technology.

Mr Zhou said: “As a result of these new oil and gas upstream joint development initiatives, opportunities for private and international companies are emerging.

“However, if political tensions with the US continue, Chinese state-owned companies may focus on conventional developments or seek other non-US partners to share the risks of unconventional projects.’’