Oil and gas firms to integrate new energy

China’s oil and gas companies should use more new energy during extraction and accelerate their new energy generation, states an action plan issued by the National Energy Administration. 

Large fossil energy companies should speed up their transformation into “integrated energy suppliers”, the plan states, with the aim of keeping oil production stable and increasing gas production.

The oil and gas sector uses a lot of energy during upstream production, for example in geological investigations and drilling.

Downstream, in 2021, oil and natural gas accounted for 27.4% (18.5% and 8.9% respectively) of China’s primary energy consumption. By 2025, that proportion will be 30%, according to an analysis published in China Electricity News. Oil demand will approach its peak in 2025, and gas will grow beyond that year.

However, Energy Observer pointed out that the oil and gas sector faces two major challenges: to peak and eventually neutralise its carbon emissions, and to transform to new energy. (The category of new energy includes mainly wind and solar, and possibly hydrogen and geothermal, but not hydro or nuclear.)

The industry accounts for about 20% of China’s carbon emissions, according to the Economic Daily

A government white paper on transforming energy companies to low carbon predicts that by 2050 the proportion of oil and gas in primary energy consumption will drop to 17.8% (from 27.4% in 2021). So the growth of the industry will be significantly limited in the next two decades and it must transform its main products from fossil fuel to new energy.

The gist of the newly released plan, which is titled “Action Plan for Accelerating the Integrated Development of Oil and Gas Exploration and Production and New Energy (2023–2025)”, does not come out of the blue. The 14th Five-Year Plan for Renewable Energy Development (2021–25) mentioned “integrated development” of renewable and fossil fuel energy as an important part of China’s low-carbon transformation.

Oil and gas giants have already begun to use new energy during production and to accelerate their involvement in new energy. For example, PetroChina has started many wind, solar, geothermal and carbon capture and storage projects; Sinopec has vowed to be the number one hydrogen energy company in China; and CNOOC (China National Offshore Oil Corporation) is developing offshore wind. The Paper calculated that the three major oil companies have established nearly 40 new energy companies and research and development institutions in the past three years.

However, there is a long way to go. For example, a 2022 study found that non-fossil energy accounted for less than 1% of the energy consumption of Sinopec’s upstream companies. 

Read China Dialogue’s earlier report on China’s energy transition.