China’s first-half crude output slides 4.6%

21 July 2016, Week 28 Issue 602

China witnessed a 4.6% slide in crude output in the first six months of the year, following steps taken by producers to shut down fields with “no hope” of making profits at current prices.

According to data published by the National Bureau of Statistics (NBS), a total of just 101.59 million tonnes (4.09 million barrels per day) was extracted in January to June, marking China’s lowest half-year output since 2010.

In comparison, the country lifted an average of 4.3 million bpd in both the first half of 2015 and last year as a whole, indicating that the decline only began setting in this year.

It was particularly pronounced in June, when yields fell by 8.9% year on year, according to the data.

China’s leading oil companies began announcing plans earlier in 2016 to close loss-making capacity to protect their balance sheets.

Sinopec said it would take four mature fields offline in February, shortly after talks in Doha between the world’s top crude producers failed to yield a deal to freeze output.

The president of PetroChina, the country’s top oil and gas producer, said in March that the company would cease operations at high-cost fields with “no hope” of generating income. The company expects its crude yields to fall by 4.9% this year to 924.7 million barrels (2.53 million bpd).

CNOOC Ltd, which dominates offshore production, projects a 5.2% fall in output in 2016.

The decline in domestic production has helped support a growth in imports, which were up 14% in the first half at an average of 930,500 bpd.

Overseas purchases have also risen as a result of Beijing accelerating plans to fill up its strategic reserves.

In more welcome news for China’s authorities, the NBS also reported a 9.7% year-on-year drop in coal production, with yields totalling 1.63 billion tonnes in the first six months of 2016. In June alone, extraction fell by 16.6%.

The decline will be seen as a victory for the National Development and Reform Commission (NDRC), which aims to take 280 million tonnes of coal production offline this year. This is equivalent to 7.5% of the 3.75 billion tonnes of coal that China lifted last year.

The economic planner said in June that the country was on track to meet this target, despite the reluctance of regional authorities to close down mines.

Under Chinese President Xi Jinping, the government has sought to promote the use of gas rather than coal in power generation as part of a drive to combat air pollution. As such, Beijing wants to see gas account for 10% of the country’s energy mix by 2020.

Domestic production of gas rose by 4.1% year on year to 69 billion cubic metres in the January-June period. Beijing expects to see an overall growth of 13% this year.

While China has succeeded in reducing coal production this year, it has seemingly failed to make a dent in its consumption of the fuel. Offsetting the 9.7% drop in domestic yields was an 8.2% rise in imports during the first half, suggesting Beijing will have to do more to meet its cleaner energy goals.

Edited by

Andrew Kemp

Editor

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