What NLNG can learn from PetroChina’s plans to grow natural gas

Despite Nigeria Liquefied Natural Gas (NLNG) giant strides, there is still much to learn as China’s largest oil and gas producer, PetroChina who is aiming to grow its gas output at a much faster rate than oil over the next five years.

PetroChina has set a target to lift domestic natural gas production by 4 to 5 percent annually, lagging behind the country’s demand growth for gas, an indication that the country would be dependent on imported gas and LNG in coming years.

“We believe the central government will definitely have a series of policy measures to facilitate our efforts to increase proved reserve and production, which will be beneficial to us,” PetroChina vice-chairman Zhang Jianhua told reporters.

China’s natural gas consumption surged 17.5 percent year on year in first half of 2018 to 134.80 Bcm. PetroChina’s domestic gas production was at 46.71 Bcm, accounting for 60.3 percent of China’s total production. The company’s gas output grew at 2.5 percent year on year, falling behind the country’s growth level at 4.9 percent.

“We are looking for sustainable production growth of 4 to 5 percent,” Zhang said.

Petrochina’s vice president Ling Xiao said PetroChina imported 24 Bcm of natural gas from central Asia, 2.2 Bcm from Myanmar and 9.4 Bcm of LNG in H1 in order to meet domestic demand. This pushed up its total import volumes by 8.92 Bcm from H1 2017 to 35.6 Bcm.

“To ensure supplies in the coming winter, which is the peak consumption season in China, PetroChina had signed contracts with domestic buyers to supply 84 Bcm of gas, which would be sourced through a combination of domestic output and LNG imports,” Ling added.

According to S&P Global Platts Analytics, LNG is playing an increasingly important role in China’s energy security as China surpassed South Korea as the world’s second largest LNG importer in 2017, its LNG demand is on track to hit 47 million mt in 2018 and could exceed that of Japan by 2030 as Beijing seeks to raise the proportion of gas in the country’s energy mix to 15 percent,”

China’s spot requirements are also growing, as its contracted obligations rise at a much slower rate than its demand projections, meaning Chinese importers will play an increasing role in global LNG market fundamentals and prices.

“China’s crude oil output peaked in 2015 and has been going down since then despite demand for oil growing steadily over the years as oil demand was at 13.49 million bpd in H1, up 2.3percent from last year,” data from S&P Global Platts’ Analytics showed.

PetroChina’s domestic proven and developed crude oil reserves fell below 9 billion barrels by the end of 2008, from 9.05 billion barrels in 2007. The downward trend has continued since then, hitting 5.18 billion barrels by the end of 2016, although it had recovered slightly to 5.59 billion barrels at the end of 2017, according to filings with the US Securities and Exchange.

“The company’s domestic crude production fell 1.3 percent year on year to 2.01 million bpd in H1, accounting for 52.3 percent of China’s overall crude output,” PetroChina said.

The decline was because of ageing of its flagship Daqing oil block as the downtrend is unlikely to be reversed despite new oil discoveries by the company.

“Domestic oil and gas resources are not good enough for significant production increases,” vice chairman Zhang Jianhua said on the sidelines of the company’s interim briefing in Hong Kong on Thursday.

Zhang added that PetroChina would lift crude oil production in response to the government’s calls to speed up exploration and development work in an effort to meet the country’s strong domestic demand for fuels.

DIPO OLADEHINDE