China to ramp up production of energy, says S&P

HONG KONG - Standard and Poor's believes China's national oil companies (NOCs) are set to boost outlays to secure future energy supplies after several years of relative spending discipline. They will also bump up production in a year that has seen average oil prices well above their all-in cost levels, the ratings agency said.

"China's NOCs will focus on domestic exploration and production (E&P) for oil and gas in order to enhance national energy security," said S&P Global Ratings credit analyst Danny Huang.

"We estimate China's dependence on imported crude oil and imported natural gas exceeded 70% and 40% respectively in 2018, continuing on an upward trend."

Among the NOCs, China Petroleum & Chemical Corp. (Sinopec) will likely see the biggest jump in E&P capex in 2019, mostly to increase production capacity at its Shengli oilfield and Fuling shale gas field, S&P said.

"Sinopec has budgetted 41% higher E&P outlays to nearly Chinese renminbi (RMB) 60 billion in 2019, compared with CNOOC Ltd.'s 20% increase to RMB75 billion and PetroChina Co. Ltd.'s 16% rise to RMB228 billion."

"We have already factored in higher capital expenditure in our assumptions for the three NOCs," said Huang. "Given stringent cost controls in recent years and the focus on returns rather than scale, we believe the higher spending level will not affect the rating on these NOCs."

The S&P report is the first in a quarterly series that highlights key events in China's commodities sector and tracks movements of major commodities.  www.standardandpoors.com (ATI).