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Page added on January 18, 2017
China’s Oil Collapse Is Unintentionally Helping OPEC
OPEC’s campaign to prop up oil prices is getting unlikely support from its biggest customer.
China’s production is forecast to fall by as much as 7 percent this year, extending a record decline in 2016, according to analysts at CLSA Ltd., Sanford C. Bernstein & Co. and Nomura Holdings Inc. That’s about the same size as the output cut agreed by Iraq, the second-biggest producer in the Organization of Petroleum Exporting Countries, which late last year reached a deal to trim supply to support prices.
“China’s domestic crude output decline will certainly help OPEC’s plan to reduce global supply,” said Nelson Wang, a Hong Kong-based oil and gas analyst at CLSA, who sees a 7 percent slide this year. ”Even if that isn’t China’s intention, it’s just the reality that China can’t produce more under the current circumstances.”
While China consumes more oil than almost any other country, it’s also one of the world’s biggest producers, with fields stretching from offshore its southern coast to the far north east. The collapse in prices that began in 2014 is taking its toll, and the nation’s output suffered a record decline last year. That plays into the hands of OPEC as it seeks to prop up the global oil market, forcing China to depend more heavily on imports.
Brent crude, benchmark for half of the world’s oil, averaged about $45 a barrel last year, more than 50 percent below levels in 2014, the year OPEC decided to tackle a global glut by keeping the taps open. The crash in prices triggered a rethink by the group, which banded together with 11 non-member countries late last year and agreed to a collective cut of almost 1.8 million barrels a day.
The deal triggered a rally, which was unable to hold above $58 a barrel amid concern higher prices would spur higher output elsewhere, particularly from U.S. producers. Brent was trading 1.3 percent higher at $56.58 a barrel as of 8:24 a.m. New York time on Tuesday.
China’s output slumped in 2016 as state-owned firms shut wells at mature fields that had become too costly to operate after the crash. Crude production fell 6.9 percent in the first 11 months of 2016 to about 4 million barrels a day, the first decline since 2009 and the biggest in data going back to 1990.
The International Energy Agency estimates output fell 335,000 barrels a day last year as the country’s biggest producers cut spending, and will slide a further 240,000 barrels a day this year. Production shrank to a seven-year low in October “with no uptick in activity expected from the major companies,” the Paris-based group said last month.
Daqing, Shengli
Supply from the Daqing field, one of China’s biggest and oldest, slipped about 3 percent last year to 732,200 barrels a day, according to data from China National Petroleum Corp. While the nation’s biggest explorer plans to maintain output at the field, it aims to cut spending on exploration and engineering there by 20 percent this year, it said in December.
Output at China Petroleum & Chemical Corp.’s Shengli field, which contributed 65 percent of the company’s domestic crude production last year, will shrink almost 2 percent, the subsidiary that operates it said this month.
There’s “little hope” the country’s aging oilfields can reverse the declines even as prices rebound, while new discoveries may not raise output as much as expected because of high production costs, said Bernstein’s Neil Beveridge, who forecasts the country will pump 4 percent less this year. Even after explorers improved efficiency over the past two years, the break-even point for new onshore oilfields is still about $50 a barrel, he said.
Supporting Imports
CNPC and China Petroleum & Chemical Corp., known as Sinopec, declined to comment. Nobody answered calls to China National Offshore Oil Corp.’s press office in Beijing.
National Energy Administration, the country’s energy regulator, forecasts that output this year will remain stable at about 4 million barrels a day, NEA director Nur Bekri said at the agency’s annual meeting in December, according to a 21st Century Business Herald report. The NEA didn’t respond to a faxed request for comment.
Lower domestic production will help support the nation’s imports, especially in the first half of the year, according to Virendra Chauhan, an analyst at London-based Energy Aspects Ltd. That will increase the country’s reliance on overseas supply, which is forecast to rise above 65 percent of its total crude use this year, according to CNPC’s research arm.
China’s oil imports in 2016 grew at the fastest pace in six years and the nation was the world’s biggest buyer in December. Inbound shipments climbed 13.6 percent last year, while imports in December rose to record 8.6 million barrels a day. This year, though, the Asian nation will boost its purchases by 4.8 percent, according to the median estimate of eight analysts in a Bloomberg survey last month.
Rapidly Aging
China is seen leading a trend across the region. Asia-Pacific’s crude output will drop by about 1 million barrels a day to 6.5 million by 2020, according to Wood Mackenzie Ltd., as exploration since 1990 has yielded mostly natural gas and capital spending was cut because of the slump in oil prices. China will account for 47 percent that decline, according to the consultant.
“China’s largest oil fields are aging rapidly,” said Gordon Kwan, Nomura’s Hong Kong-based head of Asia-Pacific oil and gas research, who sees the country’s output falling 5 percent even as prices rise. “Advanced technology can only mitigate the decline rate, but can’t reverse the structural trend.”
15 Comments on "China’s Oil Collapse Is Unintentionally Helping OPEC"
rockman on Wed, 18th Jan 2017 4:39 pm
“China’s oil imports in 2016 grew at the fastest pace in six years and the nation was the world’s biggest buyer in December.” Which would seem to beg the question: is the decreased domestic production is natural or voluntary? As the article points out some high cost producers were shut it. In a country where the govt has absolute control over oil production levels it would make sense to preserve domestic resources since the price of imports has fallen so much. Contrast that to the US which has increased oil exports to record levels in recent years. And beyond those oil exports the US is refining about 1 BILLION BBLS of oil per year and exporting all those products.
And now the federal govt wants to sell SPR reserves into flooded market for less then that oil cost us to acquire and store. The US, the largest oil importer on the planet (50% more then #2 China) would seem to be acting more like a leading global NET oil producer then a major oil consumer/importer. The US is disbursing its fossil fuels (including coal and NG) as though we are “energy independent”.
Go figure. Not that the oil patch is complaining: the faster the US depletes its energy resources the sooner we can get those high prices back.
makati1 on Wed, 18th Jan 2017 5:29 pm
Bloomberg forecast = Oxymoron.
I suspect that Rockman’s idea that the cut in production is a choice based on saving domestic resources is correct.
Had the U$ not been so greedy, it too would have another hundred years of cheap domestic oil to burn. But they sold it off as fast as they could get ti out of the ground. Too bad.
Sissyfuss on Wed, 18th Jan 2017 10:12 pm
Mak, the US has a merchant mentality first and formost. Now we have a commander in thief who will take this philosophy to levels not seen since we bought land with beads and blankets.
makati1 on Wed, 18th Jan 2017 10:48 pm
Sissy, I see a great possibility that the U$ will be plundered down to the bone, by the elite, to try to keep hegemony over the world and will lose both ways. While a certain redneck farmer here keeps pounding that I made a mistake moving to Asia and the Ps, I think I will have the last laugh. We shall see. Meanwhile, it is sunny and 87F here today.
Sissyfuss on Thu, 19th Jan 2017 12:14 am
Mak, did you get affected by the latest rain bomb? Says it killed 7 and drove 7000 from their homes. Nobody’s safe when Gaia is pissed.
Cloggie on Thu, 19th Jan 2017 2:40 am
China’s Oil Collapse Is Unintentionally Helping OPEC
Not to mention Russia.
Cloggie on Thu, 19th Jan 2017 3:04 am
Sissy, I see a great possibility that the U$ will be plundered down to the bone, by the elite, to try to keep hegemony over the world and will lose both ways.
You may have missed that the “plundering elite” was side-lined in November. I see the “great possibility” that the country will fall apart, sooner than you think.
While a certain redneck farmer here keeps pounding that I made a mistake moving to Asia and the Ps, I think I will have the last laugh.
Not wanting to ruin both your daily ranting past-time, but you must realize that the Ps are still de facto a US colony. And if the Ps stop being a US colony, you may look old in more than one way.
You have this naive attitude that the world is one big happy kumbaya family, where in reality you are the funny old white guy from America with dollars (as long as the dollars last).
If I were an American, I would set up shop in the poorer white areas in the US, away from the cities. And not play the colonialist in the 3rd world.
http://tinyurl.com/hvz9yfs
Japanese soldier standing before crude US propaganda poster in the PS during WW2.
https://s-media-cache-ak0.pinimg.com/736x/05/81/d4/0581d48c67f30d625a818c7a0ef8f1a4.jpg
Americans (and Filipinos) in Japanese captivity.
In 1942 the Japanese economy was 6 times smaller than the US economy.
In 2017 the Chinese economy is in some aspects on par with the American one.
Now I don’t really expect a clash between the US and China other than strong economic friction and don’t think that Trump will risk a clash in the South China Sea. But I do think that sooner or later, China will declare the SCS a “demilitarized zone” (for the US that is) in line with real Chinese power growth. The Ps already signaled they are willing to accept China as the new overlord.
makati1 on Thu, 19th Jan 2017 3:43 am
Sissy, it missed Manila this time. A few showers and clouds but nothing more than usual. The Ps average 20 typhoons/bad storms per year and have endured them for hundreds of years. Nothing out of the ordinary with the exception of the big one three years ago. Yes, there were landslides and some flooding but then this is a volcano based country with little means to hold the deep, ashy clay-like soil in place during heavy rains. It is too deep on the mountainsides to be permanent.
The people here are resilient. Yes, there is/was pain and sorrow, but they move on and get on with life. They know that the government is not going to be able to do much more than some temporary support and to rebuild the infrastructure. There is little in the way of “home insurance’ or government help to rebuild their homes. Then again they do not pay much in the way of taxes either. They are ‘independent’ of a nanny state that rules ever bit of their lives. And that is a good thing.
Thanks for asking.
makati1 on Thu, 19th Jan 2017 3:51 am
Cloggie, the Ps is no longer under the American spell. The new pres is moving toward China and Russia and away from the u$.
You are not me, thank any gods that be. lol. You have no choice. I do and made it. I am in the place I consider the best to live out my last decades. I would not live in Europe for a million fiat U$ dollars. lol.
BTW: I have a small number of USDs here in cash. My resources are ALL in Philippine Pesos and other items of real value. There is a few dollars in my various bank accounts to keep them open. And, if your next remark is that I will be cut off if the ATMs quit, So will you. I’m prepared for the eventuality. Are you?
Cloggie on Thu, 19th Jan 2017 5:03 am
Cloggie, the Ps is no longer under the American spell.
There are still US bases in the Ps. Not that much longer I suspect.
You have no choice.
I have a choice and lived and worked in 5 other European countries before and paid taxes in three.
Four years ago, when I still believed in the immanence of peak oil, I gave optimum location a serious thought… and ended up with… Holland! lol
Now that was an easy “decision”.
Other potential candidates: Germany, Scandinavia, France, Spain.
It was Holland after all.
Reasons:
– remain among your own kind, I live in the SE, far away from Amsterdam and similar rainbow hell holes and still white a la US-1965.
– Holland is the gateway to Europe and everything passes through Rotterdam, meaning food and resources pass through here first.
– Holland is an agricultural super power with mild climate, flat, fertile and enough water.
So it will be Holland where I will spend my last decades.
But on top of that I no longer believe in the immanence of peak fossil and meanwhile have a much more upbeat outlook compared to four years ago.
I’m prepared for the eventuality. Are you?
Yep, grow all my own food, can store it through the winter, house paid off, zero debt, produce all my own electricity and soon will produce most of my own space heating. Need to make 6k first to realize a solar air heater of 10 m wide and 160 cm high, consisting of 10 solar panels, functioning both as electricity generator as well as “black plate” heat absorb-er.
https://deepresource.wordpress.com/2017/01/03/solar-air-heater/
Will be done this year.
The link contains a German example project, with larger absorber surface, but he needs to heat 140 m2, I only 32 m2. And he has no solar panels as absorber.
Davy on Thu, 19th Jan 2017 6:21 am
Nope, makati, this certain redneck farmer has no clue if you made a personal mistake. Only you can know that in your heart. This redneck thinks your mistake is existential and shows clearly with cognitive dissonance when you have to make such extreme anti-American comparisons with your Asia. You try too hard to talk up your adopted Asia and down the west. Most of us here are not children. We know the difference between objectivity and subjectivity. Many here like your message because they hate America. Even many Americans here hate themselves as Americans yet most know extremism. It is also true that some enjoy your extremism because it reinforces their message of hate. People like me don’t like extremism because obviously it is not the truth. It may use facts that are part of the truth but it is the attitude and delivery of those facts that give validity. Extremism may use facts but it also uses distorted delivery. Fake news is everywhere and you are very much part of it makati.
Your talk of how wonderful your future is because you are in Asia is a clear and documentable failure. You also fail at putting words in my mouth by saying I think I am in a wonderful place. In relation to what is around me a rural Missouri farm growing food is better than downtown Chicago. I have many dangers and a bleak future. I am hoping going rural and farming helps. I have my short term 6 month prep covered without the need for resupply. I have animals, garden, orchard, grapes, and a barn full of tools and hardware for the longer term. This might or might not do any good but it is something. I enjoyed creating this place. I feel good about it. A NUK war which I am in danger of would make this place very difficult. There are too many targets around where I live. I may still survive because of my preparations but the area would be a vast wasteland of radioactive debris.
I have clearly made the point that a collapse process has a clear location quality. Asia is overpopulated and in vast overshoot because of this population. It has a burgeoning middle class that is increasing consumption pressures and walking away from sustainability. We then need to realize collapse is event and event place dependent. A war in the Persian Gulf will affect people differently than a South China Sea one. We have resilience from degree and duration effect that will hit some areas more than others because of preparedness to a type of collapse event. We have the contagion effect with some areas being more connected and hence more likely to be effected by disruption anywhere. Asia score poorly on all of these. North America is poor too. Juan P’s and his Uruguay refuge, if he can get out of Miami and get down there is a good bet. Your Manila P’s is not with 20MIL people in a small island nation of 100MIL.
makati, only you can know if you made a mistake in your heart. You did make a mistake if you think you found a refuge in Manila, Philippines. I don’t believe you have an actual real farm that is yours. It is some kind of goofy ad hoc arrangement between acquaintances you persuaded in letting you stay at if there is a collapse. It will be a horror to get out of Manila in a collapse. Just imagine the lines of people trying to leave. Many no doubt going to your farm too. You impressed some gullible Filipino that you have a good collapse understanding and can guide them. If this farm where solid you would not be here spreading your hate and discontent you would be over there along the Pacific living a hard life working the dirt and living with mosquitos. You would not have the internet to spread hate. I have no doubt the place is beautiful and a great place to retire for a young man with desires for the rigors of life. I am not fooled for a moment this place is a refuge for an old man of 75. This is why you are never there. It is a hard life. Laying around the pool drinking San Miguel and ranting about how great you are and how bad “they” are well, that is lazy living. The lazy life appeals to you as is expected with an old man of 75. Enjoy it but don’t fool yourself. Farming anywhere is tough work. At 75 and living the lazy retired condo life is not something to prepare for such a life.
makati1 on Thu, 19th Jan 2017 6:48 am
Cloggie, there are ZERO U$ bases in the Philippines and there have not been any for over 20 years. There are some troops in Mindanao but they too are going to be kicked out soon, I think. I suspect that Duterte is going to undo the arrangements the previous Prez made with the U$ about storing weapons here and rotating troops.
Davy on Thu, 19th Jan 2017 6:53 am
Looks like a miserable day for an inauguration but actually pretty normal in comparisons to past inaugurations.
http://tinyurl.com/zxdfrzs
Cloggie on Thu, 19th Jan 2017 6:56 am
The situation is “in flux”:
March 2016: US plans 5 new bases
http://www.militarytimes.com/story/military/2016/03/21/us-plans-use-five-new-bases-philippines/82072138/
June 30, 2016: Duterte takes over
September 15, 2016: Ps DefMin wants US troops to remain in Mindanao
http://www.philstar.com/headlines/2016/09/15/1623983/us-troops-remain-mindanao-dnd
October 26, 2016: Duterte wants US mil out in 2 years
http://tinyurl.com/z3xqbn6
rockman on Thu, 19th Jan 2017 8:56 am
That headlines seem a tad more significant the what will happen on the ground. For the most part those bases will be manned by few if any US military personnel:
“The U.S. will be setting up “permanent logistics facilities to support rotational deployments… The Pentagon is likely to invest heavily on construction projects to enhance capacity at those five bases. The rotational presence COULD…leave U.S. military assets and personnel on the ground in the Philippines for long periods IF THE MISSIONS ARE APPROVED BY THE GOVERNMENT in Manila.”
Sounds like the two govts are just hedging their bets. And I seriously doubt it will deter China’s expansion in the region.