China looking to increase oil and gas production

China is looking to increase oil and gas production to meet growing domestic demand and reduce the record high share of imports in its oil consumption, according to a new report from Rystad Energy.

China’s national oil companies (NOCs) are expected to spend more than $120bn on drilling and well services between 2021–2025, seeking to meet rising oil and gas demand. At the same time, the country aims to supply more of its oil demand from domestic sources, after the share of imported crude oil rose steadily from 2014 to a high of almost 75% last year.

As a result of China’s oil and gas demand growth, drilling activity in the country is expected to remain intense, with the cumulative number of development and exploration wells drilled between 2021–2025 expected to reach 118,000. Development wells will account for 88% of the total and exploration wells will make up the remaining 12%, forecasts the report.

Chinese oil production fell from 1.55bn barrels in 2014 to 1.43bn barrels in 2020. Domestic oil production met just over a quarter of China’s domestic oil needs in 2020. Given that just 2.4% of the world’s proven oil reserves are located in China, the scope for dramatically increasing domestic production is limited, notes Rystad Energy. China’s reliance on imports – and associated energy supply security concerns – has led the government to push its domestic E&P companies to find new reserves and increase domestic output.

According to the market consultancy, domestic production of natural gas remains modest compared to overall demand but has grown from approximately 120bn cm in 2014 to around 190bn m³ last year. This is still short of 2020’s total demand of 330bn m³, meaning the nation remains reliant on imported piped gas and shipped LNG for over 40% of its needs.

With gas consumption on the rise – especially as China looks to use more gas in place of coal in power generation to reduce short-term emissions – the pressure to boost domestic gas production is an overarching imperative. This will also provide a stimulus to the E&P sector, especially if international LNG prices continue to track higher, as seems likely due to anticipated global supply constraints, says Rystad Energy.

While the transition to a low carbon economy is a major priority for China, the report found that balancing this with the nation’s transitional oil and gas needs is still an important consideration. This is outlined in China’s 14th five-year plan for 2021–2025, which emphasises the importance of increasing the share of non-fossil fuels to 20% by 2025.