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Chineseoilproducersmaycutcapacityasplungingcrudepricessqueezeprofit

(2020-04-16 18:04:55)
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Chinese oil producers may cut capacity as plunging crude prices squeeze profit

GLOBAL TIMESWang Sheng22:01 Apr 14 2020

 

China's major oil companies maintained normal production — and some even increased output — in the first quarter of 2020, despite plunging global oil prices that squeezed their profit margins, the Global Times learned.

Some industry insiders said that their decisions were aimed at guaranteeing China's energy security amid the global pandemic. But it is likely that some oil companies will cut their capacity in the next few months out of profit concerns.

A source from the China National Petroleum Corp (CNPC) told the Global Times on Tuesday that CNPC saw a slight increase of its oil equivalent output in the first quarter compared with a year earlier.

Shengli Oilfield, which operates primarily in Dongying,  East China's Shandong Province, a subsidiary of China Petroleum and Chemical Corp, has maintained normal capacity since the COVID-19 pandemic began.

As global oil prices dive, maintaining normal capacity may mean massive losses, as the costs of exploration and production exceed sales revenue.

The Global Times learned that Xinjiang Oilfield in the city of Karamay, Xinjiang Uygur Autonomous Region, a subsidiary of CNPC, has seen a slight decrease of crude oil output in recent days.

"If Chinese oil companies can't reduce production in time, their revenues and profits would fall significantly in the second quarter," the CNPC source said.

As revenue dwindles, Chinese oil companies' spending has to be trimmed, which could delay final investment decisions on new oil projects, sources said.

China National Offshore Oil Corp said in a statement it will cut capital spending by at least 10 percent and reduce losses at some subsidiaries by 5 billion yuan ($708 million) in 2020.

Looking at the big picture, China's big three oil companies are now faced with a dilemma: how to balance the task of pursuing energy security while also making sure the mission does not threaten their survival or set off a wave of bankruptcies among small suppliers.

Dong Xiucheng, a professor at the University of International Business and Economics, told the Global Times that it's essential for national oil companies to carefully maintain a balance of rights and responsibilities against the urgency of making a profit.

"As in recent years the energy industry has become increasingly market-oriented, oil companies could cut their output in line with market conditions," Dong said.

China's three biggest oil companies need to maintain output at about 200 million tons in 2020 for energy security, and strive to achieve national targets.

Liu Chaoquan, vice president of the Economy and Technology Research Institute of CNPC, told the Global Times on Tuesday that national oil companies should put survival first due to plunging oil prices.

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