THE BUSINESS OF OIL AND GAS IN CHINA
- - Insight - -
The Business of Oil and Gas in China
China is the world’s biggest energy consumer, importing energy to meet demand that cannot be satisfied through local production alone. Rising industrial production and the growing middle class and its increased appetite for cars, larger homes and consumer appliances are contributing to this growing demand.
While China is making important and significant shifts to renewable energy sources, conventional carbon-based fuels will continue to be in high demand for industry, heating and residential use, power generation and transportation.
Recent trade disputes between China and the US mean that China has significantly reduced its imports of US oil, leading to a market opportunity for Canadian producers.
Reforms in 2015 loosened the monopoly of the state-owned oil companies and opened more opportunities for foreign companies wanting to work in China. KPMG’s report on opportunities for Chinese and foreign businesses from the 13th Five-Year Plan states that “If these developments continue, the future of the natural gas industry could be reshaped by free competition in the upstream exploration and downstream distribution and sale of gas.”
Areas of Growth
The market for natural gas is growing quickly, with demand quadrupling between 2007 and 2016.[1] With the mandate to replace coal-burning plants with natural gas, this demand will only continue to grow. The 13th Five-Year Plan expects that gas will provide 10 per cent of the country’s energy by 2020, compared to 6 percent in 2016.[2]
This presents opportunities for liquefied natural gas projects. PetroChina, for example, is one of the investors in the LNG Canada project announced in October 2018 and that will export up to 14 million tonnes of LNG annually.[3] LNG terminals are currently being built along China’s eastern coast and in the south in preparation for receiving greater volumes of LNG imports.[4]
The country’s underdeveloped shale gas market is another potential area for growth. Export.gov writes that “Chinese operators, leading Chinese state-owned oil companies, and new players that have been rewarded shale gas development licenses in previous mineral rights auctions, are interested in partnering with experienced IOCs to deal with the complex topographical conditions in China.”[5]
Similarly, firms with experience in the unconventional gas sector such as tight gas, coal-bed methane and coal gasification may also find opportunities.[6]
Opportunities for Canadian organizations
Compared to locations in the US, Canadian producers benefit from a strategic location to ship product to China. We’re also seen as geopolitically stable compared to other countries that supply carbon-based fuels.
Canadian companies can pursue opportunities to partner with Chinese counterparts for both onshore and offshore projects. In late 2018, for example, China National Offshore Oil Corporation signed cooperation agreements for offshore exploration with nine international oil companies.[7]
Given that domestic oil production has been falling, China is looking to use technology and innovative drilling techniques to boost production and reduce costs. There may be opportunities for Canadian companies to share their operational and technological expertise.
March, 2019
[1] export.gov, China – Oil and Gas.
[2] export.gov, China – Oil and Gas.
[3] Shell Global, LNG Canada.
[4] export.gov, China – Oil and Gas.
[5] export.gov, China – Oil and Gas.
[6] export.gov, China – Oil and Gas.
[7] OilPrice.com, China’s CNOOC Signs Oil, Gas Exploration Deals With 9 Foreign Firms, December 18, 2018.