China’s Decline in Oil Production Echoes Globally
http://www.wsj.com/articles/chinas-decline-in-oil-production-echoes-globally-1472122393Aug. 25, 2016
China’s struggling oil sector has entered a challenging new phase: long-term decline of its domestic production.
Oil production in China likely peaked last year at around 4.3 million barrels a day, according to new data and interviews with industry executives. The development has significant implications globally, including the potential for higher crude prices over time as China steps up imports to meet rising demand at home.
“The turning point that we’ve been searching for, for years, is happening now,” said Kang Wu, vice chairman for Asia at energy consultancy FGE. As an oil producer, he said, “China is entering long-term stagnation and decline.”
For years, the world’s second-largest economy eked out gains from its aging oil fields as demand surged. But new discoveries haven't been enough to keep production growing, and the crash in commodities prices led the state-owned oil giants to sideline less-productive wells.
All this puts pressure on China’s oil giants to step out on the global stage. Today, more than ever, state-controlled PetroChina Co., China Petroleum & Chemical Corp., and Cnooc Ltd. compete with international companies such as Exxon Mobil Corp. for resources and customers.
At the same time, China will be forced to boost imports. As domestic production falls, additional barrels of oil that China needs to fuel the new cars hitting its streets will come from overseas.
That marks a fundamental shift for a country that not long ago saw energy independence as a key part of national security. It also deepens China’s exposure to global hot spots. Among its biggest suppliers today: Saudi Arabia, Russia, Angola and Iraq.
The imports pose fresh challenges for China’s leaders who are wary of getting dragged into regional imbroglios, while also protecting their interests overseas. China’s first foreign military outpost in Djibouti is in part a bid to safeguard its oil fields and other regional interests.
The global energy industry typically thinks of China as a huge oil consumer, second only to the U.S. It will also soon overtake the U.S. as the biggest importer in terms of total barrels purchased from abroad.
Yet, China is also the world’s fourth-largest producer, which has helped it keep a lid on imports. Oil prices could over time be given a lift by rising Chinese demand, although prices are determined by a wide variety of factors related to global supply and demand....
