China's Oil Production Tanks, Foreign Oil Dependency Nightmare Intensifies
Chinese workers install scaffolding at an offshore oil engineering platform in Qingdao, east China’s Shandong province on October 1, 2016. Manufacturing activity in China continued its rebound in September on improving production and demand, government data showed on October 1 — a positive sign for the world’s second-largest economy. / (Photo STR/AFP/Getty Images)
By Tim Daiss
China’s daily crude oil production in October fell to a more than seven-year low, data from the country’s statistics bureau showed on Monday. The development comes as global oil prices are still off from $115/barrel in mid-summer 2014 to now hovering in the mid $40s range amid record high global oil output and historically high oil inventory levels. Prices dipped into the mid-$20s range in January.
Low oil prices have forced China’s state-owned oil majors to trim oil exploration and production activities. Also, contributing to the country’s falling oil output are maturing oil fields and aging infrastructure. However, the scenario will likely remain unchanged until oil prices can find a floor and start trending upward again around $60/barrel giving oil companies an incentive to drill for more oil.
China’s October oil production dropped 11.3% from the same period a year ago to 16.05 million tonnes, the country’s statistic bureau reported. However, production for the month is up marginally from 15.98 million tonnes produced in September. On a daily basis, October production was 3.78 million barrels per day (bpd), the lowest since May 2009, and down from 3.89 million bpd in September.
The country’s largest oil producer, PetroChina, reported in October that its crude oil production for the first nine months of 2016 dropped to 696.6 million barrels from 722.9 million a year earlier. China National Offshore Oil Corp. (CNOOC) posted a 7.7% drop in net oil and natural gas production in the third quarter.
Even though oil prices climbed into the mid-$50s range last month amid talk that OPEC would reach a 1% oil production cut at its November meeting, the short-term market movement failed to convince China’s oil companies that those price points would last.
China’s oil production declines come as the country has increased its foreign oil imports to record highs. China’s crude oil imports in September rose to a record high, 33.06 million tonnes for the month, 8.04 million barrels per day, (bpd) – 18% higher than the 6.8 million bpd recorded in the same period in 2015
Some of the increase in imports have been to fill the country’s strategic petroleum reserves, which are reportedly nearing full capacity. However, some of this can also be attributed to China’s lack of production. Meanwhile, China’s economy is continuing to show signs of improvement.
China’s foreign oil dependency rate, which hit 60% in 2013, has now exceeded that mark, and will likely remain above 60% for the long-term in light of its domestic production slowdown.
With maturing fields and aging infrastructure, China will have to intensity its already massive global oil search, increasing reliance on producers in places from troubled South Sudan, to Niger, Iran, Iraq, Saudi Arabia, Angola, Russia, and Venezuela, among others.
One answer for Beijing energy planners would be to consider taking advantage of U.S. shale oil exports. Though posing a potentially embarrassing geopolitical about-face for Beijing, at least U.S. production offers security of supply.
This article was written by Tim Daiss from Forbes and was legally licensed through the NewsCred publisher network.
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