China relies heavily on increasing oil production

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China's initiative to increase by 20% 2019 investments in oil exploration $ 77 billion, to boost production in two former oil fields signals a new strategic direction. The goal is to increase domestic production by 50%, or more than 2 million barrels a day over the next five years.

While China is working to avoid declines in its established fields, domestic demand and global demand for oil is expected to increase. This growing demand will easily outpace China's increased production and may weigh on world supply at current prices.

Why? China's current domestic oil production is expected to be no more than 4 million barrels a day in 2019, as the country imports more than 10 million barrels a day to meet domestic demand. Only 25 years ago, the Chinese were able to satisfy all their domestic demand by producing 4 million barrels a day.

For this $ 77 billion, ExxonMobil's exploration and development budget for 2018 was only $ 20.2 billion to produce 2.2 million barrels a day, plus natural gas and natural gas. NGLs. & Nbsp; China's investment aims to boost production to 6 million barrels a day annual investment of $ 38,500 per prospective barrel of flow per day. & nbsp; This contrasts with $ 29,500 per barrel paid paid by Canadian Natural Devon for current oil sands production, or $ 36,000 per barrel in the United States Gulf of Mexico. & nbsp; US onshore transactions have valuations ranging from $ 45,000 to $ 65,000 per barrel of fluid per day. & Nbsp; All this to say that for China, oil is a strategic badet that is worth far more than its price on the world market.

This important effort to increase the oil production of the Asian nation raises a number of issues, ranging from the potential impact on world oil prices to China's ability to successfully mimic success. unprecedented shale revolution in the United States.

In fact, China is currently in a situation comparable to that of the US oil market just 10 years ago. & Nbsp; & nbsp; An interruption of the oil supply on a global scale, like cutting half of the oil that flows into the Strait of Hormuz, would drive up the price of oil, in addition to reducing access to oil.

And reducing access to oil would be a problem for China.

On the strategic front, China is concerned about its ability to project a large fleet of blue waters around the world without its safe oil reserves. & Nbsp; An interruption in global supplies would put additional pressure on China to strengthen its military to protect trade routes around the world. & nbsp; & nbsp; Deviating national supplies for the benefit of the military in times of global shortage would have serious negative consequences for the Chinese economy.

The value of oil for China exceeds the price on the world market, but rather considers what this oil allows China to achieve with its national economy and its global influence. & Nbsp; That is, & nbsp; The Chinese government considers oil as a derivative of the national GDP. & Nbsp; Oil accounts for only 10% of China's gross energy consumption, while China's largest contributor to smog and CO2 emissions accounts for more than 60% of gross energy supply. & Nbsp; There is a need to strengthen domestic oil supplies, as well as natural gas, nuclear and renewable supplies, to accelerate the decommissioning of coal-fired power plants.

China's major oil and gas companies, including China National Petroleum Corporation and China National Offshore Oil Corporation, are listed on both the Chinese and US stock exchanges, causing the stock price to fall. & Nbsp; Potential rates of return for old oil fields should not be high. & Nbsp; Public shareholders may face lower rates of return, as the government primarily uses investor funds for its own domestic initiatives.

The $ 15 billion spending increase will be a boon to all oil services companies operating in China, including, of course, Schlumberger, Halliburton, Baker Hughes, NOV and others. & Nbsp; Assuming that the Chinese government maintains the initiative, the increase in sales and profits of these companies will offset any weakness in the American shales.

Shale will it work in China?

But the main difference between today's China and the United States in the 1990s is that American producers have developed hydraulic fracturing for oil shale deposits, which has led to an increase in oil and gas supplies on the internal market. The dramatic change in gas supplies has lowered domestic natural gas prices from $ 11 per thousand cubic feet in 2008 to less than $ 3 per thousand cubic feet today.

For more than 10 years, China has been actively using US shale technology in the United States through joint ventures with US companies in the US shale basins. & Nbsp; In China, the recently announced Shell and Sinopec& nbsp; This project will target fields in eastern China. & nbsp; & nbsp; An earlier company with Hess has proved non-commercial.

But, other things being equal, apart from the increase in production in China, what will be the likely impact on world market prices? & Nbsp; The addition of 2.0 million barrels per day to the global supply will reduce the price by 50% using the same badysis as that applied above for an interruption of the supply. & Nbsp; The challenge for the Chinese authorities will be to increase the global supply so as not to reduce domestic profits and not eliminate a competitive return on capital for their public shareholders.

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China's initiative to increase by 20% 2019 investments in oil exploration $ 77 billion, to boost production in two former oil fields signals a new strategic direction. The goal is to increase domestic production by 50%, or more than 2 million barrels a day over the next five years.

While China is working to avoid declines in its established fields, domestic demand and global demand for oil is expected to increase. This growing demand will easily outpace China's increased production and may weigh on world supply at current prices.

Why? China's current domestic oil production is expected to be no more than 4 million barrels a day in 2019, as the country imports more than 10 million barrels a day to meet domestic demand. Only 25 years ago, the Chinese were able to satisfy all their domestic demand by producing 4 million barrels a day.

For this $ 77 billion, ExxonMobil's exploration and development budget for 2018 was only $ 20.2 billion to produce 2.2 million barrels per day plus gas. natural gas and NGLs. China's investment aims to boost production to 6 million barrels a day annual investment of $ 38,500 per prospective barrel flowing daily. This contrasts with $ 29,500 per barrel paid paid by Canadian Natural Devon for current oil sands production, or $ 36,000 per barrel in the United States Gulf of Mexico. US onshore transactions have valuations ranging from $ 45,000 to $ 65,000 per barrel per day. All this to say that for China, oil is a strategic badet that is worth far more than its price on the world market.

This important effort to increase the oil production of the Asian nation raises a number of issues, ranging from the potential impact on world oil prices to China's ability to successfully mimic success. unprecedented shale revolution in the United States.

In fact, China is currently in a situation comparable to that of the US oil market just 10 years ago. An interruption of the oil supply on a global scale, like cutting half of the oil that flows into the Strait of Hormuz, would drive up the price of oil, in addition to reducing access to oil.

And reducing access to oil would be a problem for China.

On the strategic front, China is concerned about its ability to project a large fleet of blue waters around the world without its own safe oil reserves. An interruption in global supplies would put additional pressure on China to strengthen its military to protect trade routes around the world. Diverting national supplies for the benefit of the army in times of global shortage would have serious negative consequences for the Chinese economy.

The value of oil for China exceeds the price on the world market, but rather considers what this oil allows China to achieve with its national economy and its global influence. In other words, the Chinese government regards oil as a by-product of the national GDP. Oil accounts for only 10% of China's gross energy consumption, while China's largest contributor to smog and CO2 emissions accounts for more than 60% of gross energy supply. There is a need to strengthen domestic oil supplies, as well as natural gas, nuclear and renewable supplies, to accelerate the decommissioning of coal-fired power plants.

Given that China's major oil and gas companies, including China National Petroleum Corporation and China National Offshore Oil Corporation, are listed on the Chinese and US stock exchanges, the new capital investment initiative has led to a fall in prices. actions. Potential rates of return for old oil fields should not be high. Public shareholders may face lower rates of return, as the government primarily uses investor funds for its own domestic initiatives.

The $ 15 billion spending increase will be a boon to all oil services companies operating in China, including, of course, Schlumberger, Halliburton, Baker Hughes, NOV and others. Assuming that the Chinese government maintains the initiative, the increase in sales and profits of these companies will offset any weakness in the American shales.

Shale will it work in China?

But the main difference between today's China and the United States in the 1990s is that American producers have developed hydraulic fracturing for oil shale deposits, which has led to an increase in oil and gas supplies on the internal market. The dramatic change in gas supplies has lowered domestic natural gas prices from $ 11 per thousand cubic feet in 2008 to less than $ 3 per thousand cubic feet today.

For more than 10 years, China has been active in using US shale technology through joint ventures with US companies in American shale basins. In China, the recently announced Shell and Sinopec company will target the fields of East China. An earlier company with Hess has proved non-commercial.

But, other things being equal, apart from the increase in production in China, what will be the likely impact on world market prices? The addition of 2.0 million barrels per day to the global supply will reduce the price by 50% using the same badysis applied above to an interruption of the supply. The challenge for the Chinese authorities will be to increase the global supply so as not to reduce domestic profits and not eliminate a competitive return on capital for their public shareholders.