China sets higher crude production target for 2020

China is targeting another increase in domestic crude production for 2020, despite state-controlled energy firms cutting their upstream investment plans after oil prices slumped earlier this year.

The national energy administration (NEA) said producers should target crude output of 193mn t (3.86mn b/d) in 2020. That would be up by 1.6pc from actual production in 2019.

China's domestic oil and gas production is dominated by the three big state-controlled firms, PetroChina, Sinopec and CNOOC. The companies have been working to increase upstream reserves and production under a seven-year action plan designed to strengthen China's energy security that was announced by the government in 2018.

The plan helped reverse a three-year decline in domestic output last year. Crude production in 2019 was 3.8mn b/d, up by less than 1pc from a year earlier and still well below the peak of 4.3mn b/d in 2015. Domestic upstream investment surged by 21.9pc from 2018 to 332.1bn yuan ($47bn) last year, the NEA said in December.

But the collapse in oil prices in March and the impact of the Covid-19 outbreak on demand has hit upstream firms' investment outlook, raising questions over China's longer-term plans to boost domestic production.

PetroChina, the country's biggest upstream producer, in late April cut its capital expenditure (capex) plans for 2020 by nearly a third from its original target, to about Yn200bn yuan. The cuts followed the company's first quarterly loss since 2016. The upstream sector accounts for over 75pc of PetroChina's total capex. The company is cutting back its oil field engineering activity, an official said.

Offshore-focused CNOOC has cut its 2020 capex target by Yn10bn to a range of Yn75-85bn. And Sinopec also flagged plans in April to reduce its capex by an unspecified amount in line with market conditions, following a 9.7pc year-on-year increase in upstream spending in the first quarter to Yn6.1bn.

PetroChina produced 2.05mn b/d of crude domestically in January-March, up by 2.3pc from a year earlier. Its natural gas output rose more strongly, gaining by 10.2pc to 11.25bn ft³/d (319mn m³/d). Sinopec's domestic crude output edged up by 0.2pc to 676,000 b/d, while CNOOC's domestic oil and gas production increased by 9.7pc to 957,000 b/d of oil equivalent.

The rise in production reflected capacity expansions following higher capex in 2019. And the lag between investment decisions and output may help producers meet the NEA's latest targets. This year's investment cuts may not have an impact on operations until 2021, when the new capacity coming on line will struggle to offset output declines from maturing wells, an official at PetroChina's upstream arm said.

China aims to boost natural gas output to 181bn m³ (495mn m³/d) this year from 173bn m³ in 2019, the NEA said. The 4.6pc increase in production would be down from an average year-on-year growth of 11pc in January-May and 9.5pc in 2019.