Rising Crude Prices Fuel Big Oil's New Energy Push
The three major state-owned oil companies in China, colloquially referred to as the "Three Barrels of Oil," encompass China National Petroleum Corporation (CNPC), China Petroleum & Chemical Corporation (Sinopec), and China National Offshore Oil Corporation (CNOOC). These titans are considered the cornerstone of China's basic chemical industry and play a critical role in securing the nation’s energy resources. The interplay and competition among these firms are frequently scrutinized due to their shared sphere in the petroleum and petrochemical sectors. As the year 2022 unfolded, the global oil market witnessed a significant upward pivot which prompted an evaluation of how these industry giants fared during such a tumultuous period.
The momentum in the oil and petrochemical industry throughout 2022 was significantly influenced by the fluctuating prices of crude oil, which serve as a pivotal force swinging the industry's dynamics. Amid a backdrop of increasing global recession fears and geopolitical tensions—especially war in Ukraine—the complexities of international oil pricing revealed convoluted narratives. Prices experienced an initial surge, only to be moderated by evolving economic sentiments as the year progressed.
Advertisement
During the first half of 2022, the global oil market experienced significant upward pressure, driven largely by concerns related to Russia's oil output potential and the tight supply policies of OPEC. Producers, wary of demand shocks, had shifted their focus towards maintaining supply stability in the face of soaring crude prices. Reports indicated that Brent and West Texas Intermediate (WTI) crude averaged around $99.04 and $94.30 per barrel respectively, marking an impressive increase of nearly 40% year on year.
However, as the Federal Reserve adopted an aggressive interest rate hike strategy in the latter half of the year, fears of an impending economic downturn associated with rising inflation paved the way for a shift in market dynamics. Oil prices began fluctuating, reflecting a new phase where demand-side factors began to dictate price stability. This duality in oil demand—tightening and loosening—characterized the latter part of the year as prices remained elevated but faced increasing volatility.
In examining the performance of the "Three Barrels of Oil," evidence of disparity emerged, particularly distinguishing upstream operational benchmarks from the struggling downstream sectors. While upstream activities significantly benefited from soaring crude prices, leading to meteoric revenue growth, downstream operations faced stark challenges related to high feedstock costs and subdued consumer demand.
For instance, in the first three quarters of 2022, CNOOC reported a staggering 67.6% increase in oil and gas sales revenue, reaching nearly 2658.9 billion yuan, primarily driven by the rising international crude oil prices and sales volumes. This result underscores how effectively CNOOC capitalized on the crude price increase. Conversely, companies like Sinopec saw a slight downturn in net profits, with their mainstay refining sector being adversely affected by high oil prices impacting raw material costs and consequently squeezing margins.
According to reports, Sinopec’s net profit declined 5.6% year-on-year even as revenues experienced a solid increase due to robust sales activity. The refining and petrochemical sectors had begun buckling under the weight of high raw material prices and dipping product demand, resulting in a staggering decrease in profitability during the same period compared to the burgeoning revenues seen in upstream operations.
Given the divergent performance metrics, China National Petroleum Corporation (PetroChina) emerged as the leader overall among the three—with net profits climbing by over 60% within the same timeframe compared to the previous year. The financial health of PetroChina showcased a stark contrast to Sinopec as it maintained not only profitability but also robust growth momentum across its operations.
Looking ahead into the uncertain landscape of 2023, questions linger over how these titans will adapt and thrive amidst continuing volatility in crude prices. Projections suggest that oil prices may stabilize between $80 to $90 per barrel, depending on various factors affecting the global market including production levels indicated by OPEC and recovery trends in the US oil output.
Moreover, moving beyond conventional sources of energy, these major players are venturing into the domain of renewable energy as part of their strategy to align with China’s “dual carbon” policy. Initiatives aimed at transitioning toward clean energy have seen significant investment in solar energy, wind power, and hydrogen initiatives. However, the transition phase is still nascent and focused on scaling up project viability rather than immediate operational profitability.
For example, PetroChina's investments into green hydrogen energy have made substantial strides, highlighting initiatives in various geographical locales to build hydrogen purification projects, with a total capability exceeding 260,000 tons per year by 2021—a pioneering move in China’s shift toward renewable sources. In parallel, Sinopec has bold ambitions to become a leader in hydrogen energy and plans to establish 1000 hydrogen refueling stations nationally during the “14th five-year plan” period.
The progress made by CNOOC in renewable energy also reflects a common trend among the three giants, establishing their foothold in hydrocarbon alternatives by developing wind and solar power projects along with ongoing projects to harness hydrogen as a clean energy source.
In conclusion, the "Three Barrels of Oil" have navigated a turbulent environment characterized by significant economic and geopolitical uncertainties. Their overall performance in 2022 has showcased not only a capacity for substantial growth but also resilience against industry headwinds. As they pivot toward renewables, these companies signal a shift in strategic direction that aims to augment their relevance in an evolving energy landscape. The upcoming “2022 Hong Kong-listed company development summit and the 10th strong 100 prize awarding ceremony” anticipated later in 2023 will be momentous as these giants continue competing for positions, all under watchful eyes of investors and analysts tuning in to see how they uphold their growing legacy in the complex world of energy.
Leave a comment