A foreign oil tanker docks at a port in Zhoushan, Zhejiang province, on May 21. [Photo by Yao Feng/for China Daily]
Domestic firms boosting production, seeking greener alternative sources
While China has stepped up efforts to boost domestic crude oil production and is also trying to replace oil with cleaner alternatives including natural gas, biomass and renewable energy, insiders predict that the country's dependency on foreign crude oil imports will not ease in the short term.
China, the world's largest importer of crude oil and gas, imported 440 million metric tons of crude oil in 2018, a year-on-year increase of 11 percent, with its foreign oil dependency ratio reaching 69.8 percent. This reliance is expected to grow in 2019, according to China National Petroleum Corp's Economics and Technology Research Institute.
Domestic oil companies have made significant progress in efforts to raise production in the past few years. As a result, China's decline in crude oil production slowed in 2018, with total crude production reaching 189 million tons, 3 million tons less than the previous year and 1.3 percent down compared with the same period in 2017, according to an annual report released at the end of April on China's energy development by the China Electric Power Planning and Engineering Institute.
The decline in production is much slower compared with the 2016-17 period, when China's domestic crude production saw a reduction of 14.87 million tons, down 6.9 percent year-on-year in 2016 and a loss of 8.18 million tons, down 4.1 percent year-on-year in 2017, it said.
The country's three giant oil companies - China National Petroleum Corp, the country's largest oil and gas producer and supplier; China Petroleum and Chemical Corp, the world's largest refiner by volume; and China National Offshore Oil Corp, the nation's largest producer of offshore oil and gas - have been increasing investment in oil and gas exploration since the latter half of 2018 to boost oil and gas reserves and ensure energy security.
Shengli, China's second-largest oilfield complex after Daqing, produced more than 1.2 billion tons of crude since 1961 to January.
China made significant efforts to boost domestic oil reserves last year, but this was still not enough to ease the country's surging demand for the black gold, said Li Li, research director at energy consulting company ICIS China.
Despite the decline of China's crude oil production slowed down last year, after two consecutive years of production cuts, Li said China's dependency on foreign crude oil imports will continue to rise this year, due to the country's surging demand and booming refining sector.
Domestic crude oil output has faced a bottleneck for years, and despite the slowdown in crude production decline last year, we can only expect stable production rather than a rise in the near term, which is still far from enough to meet the gap, said Li.
The consulting company estimated that the dependency ratio will reach 72 percent in 2019, higher than the 69.8 percent in 2018, and will continue climbing in the years to come.
Li said the country's growing refining capacity, with several mega-refining projects to come online this year, will also require a substantial amount of crude to meet demand and thus lead to more foreign crude oil imports.
According to the China Electric Power Planning and Engineering Institute, momentum remained strong in China for the further expansion of refining capacity, with refining capacity reaching 850 million tons per year in 2018. Another 35 million tons of capacity was put into operation last year, it said.
The domestic refining market is expected to be further diversified this year, with numerous private refining projects actively under construction, which will further boost the country's total refining capacity.
Private enterprises including Zhejiang Petrochemical, Hengli Petrochemical and Shenghong Group have been constructing sizable oil refineries, which are expected to increase capacity by 1.52 million barrels a day from 2019 to 2021.
China National Petroleum Corp's Economics and Technology Research Institute forecast that China's surplus oil refining capacity will continue to increase this year with more private refinery projects commencing operations. Total oil refining capacity is expected to reach 863 million tons this year, it said.
According to Oil 2019, the International Energy Agency's annual outlook for global oil markets, which was released at the end of April, China will exceed the United States to have the world's largest refining capacity in 2024.
Analysis from Bloomberg Intelligence estimated earlier that China will see rapid refinery expansion from 2019 to 2021, with additional capacity of 3.1 million barrels per day.
Li said the country's policy on refined oil exports will also affect the amount of crude imported to a large extent.
"China's booming refining sector will add more pressure to crude demand, and unless the government restrains policy on refined oil exports to suspend the investment impulsion for refining projects, this will only require more crude imports in the months to come," she said.
Editor:Yaling
