(Dong Xiucheng) low oil prices andThe door to oil and gas exploration is fully openWhat impact will it have on our country’s economy
(Source: "Economic Daily", "China Environment News" 2020-05-14)
Since March, international oil prices have plummeted. Entering May, there has been a rebound. As of the close on the 13th, light crude oil futures for June delivery on the New York Mercantile Exchange in the United States rose 6.79%, but still only closed at $25.78 per barrel.
On April 20, the price of the May contract of U.S. West Texas Light Crude Oil (WTI) futures plummeted by more than 300%, closing at -$37.63 per barrel. This was the first time that oil futures fell into negative territory since 1983 when oil futures were traded on the New York Mercantile Exchange.
Oil prices are a thermometer of the world economy. Is the current low oil price a short-term shock, or will it last for some time? Will low oil prices be a blessing or a worry for our country's economy? What impact will it have? How should we respond when this happens? In this regard, Economic Daily reporters interviewed relevant experts.
Low oil prices will continue for some time
There is no doubt that the direct trigger of this year’s plunge in oil prices is the global epidemic of the new coronavirus.Dong Xiucheng, researcher at the National Institute for Opening-up and Opening-up, w88 casino, and professor at the w88 casino of International Business and Economicssaid that after March, the COVID-19 epidemic spread in many overseas countries, companies suspended operations and production, and residents reduced their trips out, causing a significant reduction in crude oil demand, and early oil inventories were nearly saturated.
As of May 14, a total of 4.42 million people have been diagnosed with COVID-19 in 214 countries and regions around the world, with a total of 297,000 deaths, including 1.43 million confirmed cases in the United States.
The International Energy Agency predicted in its April "Petroleum Monthly Report" that global oil demand will drop by 9.3 million barrels per day year-on-year in 2020, hitting a record low.
Because of these complex factors, earlier this year, both the oil-exporting countries OPEC and non-OPEC countries were unwilling to cut production, setting off a wave of price wars in the international crude oil market and accelerating the sharp decline in crude oil prices. In the end, the two sides reached an agreement to reduce oil production, reducing production by an average of 9.7 million barrels per day starting in May, setting a record for OPEC production reductions and equivalent to 1/10 of global crude oil supply
Dong Xiuchengsaid that the promotion of alternative energy has led some countries to even set a timetable for the withdrawal of fuel vehicles, and demand from developing countries has gradually slowed down. These changes on the demand side make it possible for oil consumption to peak in the next few years.
He said that the current OPEC production cuts have driven up oil prices, but they will not be high in the future and are more likely to remain in the range of US$30 to US$50.
In the industry, this view is quite representative. On April 26, former Sinopec Chairman Fu Chengyu said at an online forum that oil prices will continue to fluctuate downward in the next 1 to 3 years. Oil prices will remain below $50 per barrel for several years, although this may still be below the production costs of many oil-producing countries.
The impact on our country’s economy is both good and bad
“Falling oil prices can balance the international balance of payments and reduce my country’s foreign exchange expenditures.” Dong Xiucheng said.
my country is a net oil importer, and its dependence on foreign oil is as high as 70.8%. Data show that in 2019, my country's total import volume was US$2.07 trillion, and oil import volume was US$240.4 billion, accounting for 11.6% of total imports. Oil import volume was 3.7 billion barrels, and the average import price was US$64.97/barrel.
Dong Xiucheng said that if crude oil prices stabilize at US$35 per barrel in 2020 and imports remain the same as last year, my country will save US$110 billion in expenditures.
At the same time, low oil prices will reduce economic and social operating costs. Petroleum is a basic energy source and a basic chemical raw material. The industrial chain is very long. The trend of oil prices has a great impact on other energy prices and industries.
In the international market, natural gas prices have been falling since this year. The CME Group recently announced that starting from May 18, some natural gas futures will be marked as tolerable negative prices. A report released by the International Energy Agency states that natural gas demand will drop by 5% in 2020, which will be the largest year-on-year decline in consumption since the large-scale development of natural gas.
Coal prices have also plummeted this year. Some overseas institutions believe that there are no signs of a rebound in global coal market demand in the short term, and a price rebound is unlikely.
As far as my country is concerned, newly released data from the National Bureau of Statistics show that in April, my country’s consumer price index (CPI) rose by 3.3% year-on-year, and the industrial producer price index (PPI) fell by 3.1% year-on-year, a decrease that was 1.6 percentage points larger than the previous month.
Among them, the decline in PPI was greatly affected by the sharp drop in crude oil prices. Data show that in April, prices in my country's oil and natural gas mining industry fell by 35.7%; prices in the petroleum, coal and other fuel processing industries fell by 9%; and prices in the manufacturing industry of chemical raw materials and chemical products fell by 3%. The three industries collectively affected the PPI decrease by approximately 0.76 percentage points, accounting for nearly 60% of the total PPI decrease.
Dong Xiucheng said that falling oil prices is good for industries such as transportation, but not good for the oil and gas industry, especially the upstream oil and gas exploration industry. Since the cost of oil and gas exploration and development in my country is higher than the current oil price, and the cost of crude oil production of a certain scale is around US$50 per barrel, low oil prices have a greater impact on the upstream oil and gas business.
Relevant experts said that no matter how low the international oil price is, my country's oil and gas supply cannot be completely left to the international market. It is necessary to maintain the basic stability of domestic oil and gas exploration and development and avoid ups and downs in domestic energy production.
At the same time, for renewable energy and alternative energy represented by electric vehicles, the drop in oil prices has made alternative energy less economical and will face more severe market tests. Currently, renewable energy and electric vehicles are developed globally on the basis of certain government subsidies. If industrial development is restricted, it will not be conducive to the adjustment of the energy structure.
Seize the opportunity and respond flexibly
“my country should pay close attention to the impact of oil price trends on finance and make corresponding response plans.” Dong Xiucheng said that oil prices and financial markets are closely related. In the United States, the development of shale oil and gas is closely related to the financial market. A large amount of Wall Street capital has been invested in this industry. With oil prices falling, some American shale oil and gas companies have gone bankrupt.
Lin Boqiang said that low oil prices are a favorable opportunity to increase strategic oil reserves, but a practical problem is that reserve facilities are insufficient. Although my country has accelerated the construction of reserve facilities in recent years, as a large country with a dependence on foreign oil as high as 70%, it can consider incorporating reserve facilities into infrastructure construction to increase my country's strategic oil reserve capacity.
Dong Xiucheng suggested that to continue to improve the oil reserve system and improve the reserve mechanism, consider introducing private enterprises to build private oil reserves. At the same time, we can consider launching market-oriented reforms at an appropriate time to further liberalize refined oil prices.
For several major oil companies, reducing costs and increasing efficiency has become a must. Wang Dongjin, chairman of CNOOC, said that this year will comprehensively promote cost control. On the basis that the complete cost of a barrel of oil dropped by 9% year-on-year in 2019, a new low in the past 10 years, we will continue to work hard to reduce the cost of a barrel of oil, with the total cost reduced by no less than 10%, and make every effort to cope with the adverse impact of low oil prices on production and operations.
The door to oil and gas exploration is completely open, and private enterprises are officially competing with the "three barrels of oil"
(Source: "China Energy News" 2020-05-14)
From the first public bidding for shale gas mineral rights in 2012 to the public bidding and transfer of Xinjiang oil and gas exploration blocks in 2015, my country's exploration of opening up the upstream oil and gas exploration and mining field has been continuous.
Starting from May 1 this year, the "Opinions on Several Matters Concerning Promoting the Reform of Mineral Resources Management (Trial)" (hereinafter referred to as the "Opinions") issued by the Ministry of Natural Resources has been officially implemented. All foreign-funded companies with net assets registered in my country that are not less than 300 million yuan are eligible to obtain oil and gas mining rights in accordance with regulations.
At this point, the door to my country's oil and gas exploration and production market has officially been fully opened. Whether private, foreign-funded or other industry enterprises, they will all have the opportunity to compete with the "three and a half barrels of oil", and the upstream exploration and production entities will also become increasingly diversified.
“Achieve all-round market-oriented reform in the upstream, middle and downstream sectors”
The "Opinions" pointed out that it is necessary to comprehensively promote the competitive transfer of mining rights, open the oil and gas exploration and production market, and give full play to the decisive role of the market in allocating resources.
"Domestic and foreign-funded companies registered in the territory of the People's Republic of China with net assets of no less than 300 million yuan are eligible to obtain oil and gas mining rights in accordance with regulations. Engaging in oil and gas exploration and mining should comply with safety, environmental protection and other qualification requirements and regulations, and Have corresponding technical capabilities for oil and gas exploration and production. "The Ministry of Natural Resources stated in the "Opinions" that in addition, oil and gas mining rights will implement a unified exploration and production system. If oil and gas resources that can be exploited are discovered, they can be exploited after reporting to the natural resources authority with registration authority.
In fact, for a long time before, only the "three and a half barrels of oil" including PetroChina, Sinopec, CNOOC and Yanchang Petroleum were qualified in my country's upstream oil and gas exploration and development field, and other capital was unable to enter.
In order to speed up my country's oil and gas exploration and production and promote the diversification of upstream oil and gas investment entities, in 2012, the Ministry of Natural Resources conducted a public bidding for the exploration rights of 20 shale gas blocks for the first time to all companies, and a total of 83 companies participated in the bidding. Since then, the Ministry of Natural Resources has conducted public bidding for multiple oil and gas exploration blocks in Xinjiang in 2015 and 2017 respectively.
In the view of Zha Quanheng, an expert from the China Petroleum Consulting Center, it is very worthy of recognition that oil and gas exploration and production have been officially fully liberalized. "Unlike general mining, oil and gas exploration and mining are faced with an invisible and intangible object, which results in high risks, high technology, high investment and a long time period. Therefore, we need more investment entities, large and small, state-owned, private, foreign-funded, and more exploration ideas, which is definitely good for the development of my country's upstream oil and gas."
“The upstream opening up is correct from the perspective of reform. From a legal perspective, it has achieved the goal of breaking the monopoly of a few companies. From the perspective of the entire industry chain, it has achieved all-round market-oriented reforms in the upstream, middle and downstream sectors.”Dong Xiucheng, director of the “One Belt, One Road” Energy w88 and Development Research Center at the w88 casino, said.
“From the reality, it is difficult to achieve immediate results”
Despite the comprehensive liberalization of policies, according to many interviewees, there are still many practical problems in the current upstream oil and gas exploration and production in my country.
“From a practical point of view, it is difficult to achieve immediate results.” Dong Xiucheng said bluntly, “The upstream is characterized by large investments and high risks. It may not be effective after the investment is completed, and the money will be ‘wasted’. Of course, it is not ruled out that other entities will try, but no one dares to say whether reserves can be found after trying.”
It is reported that in the previous rounds of oil and gas upstream reform pilots conducted by the Ministry of Natural Resources, there were many private enterprises and foreign investors that actively participated, but few achieved success. Among the shale gas exploration entities, no company has completed the planned investment, and many have returned the block exploration rights; international oil giants ConocoPhillips, Shell, and BP have also withdrawn from the exploration of my country's shale gas blocks.
In addition to the large investment, in Dong Xiucheng’s view, the core problem is that there are currently no high-quality blocks that can be put out for public bidding. "In the past, the blocks were given to Three Barrels of Oil. Now after the reform, there will be open bidding, and all companies will compete on the same stage. The problem is that there are not many blocks in the hands of the government now, and the better resource potential is in the hands of Three Barrels of Oil. The rest are some 'hard bones.' Maybe these blocks put out by the government for bidding are not attractive enough to Three Barrels of Oil, let alone other companies. Without blocks, it is useless to say anything."
Xu Bo, a senior economist at the China Petroleum Economics and Technology Research Institute, told reporters that even if other companies can successfully enter the upstream, they will only serve as supplements and cannot become the main body. "For so many years, the United States has had a few major oil companies as the main players, with many other small companies just supplementing it. This general trend will not change. It more shows that my country's attitude towards opening up the upstream is in line with the overall requirements of reform and the trend of international oil and gas marketization."
In addition, against the backdrop of the plummeting international oil prices this year, many international oil companies have cut their upstream investments, which to a certain extent has also affected the enthusiasm of enterprises to enter the upstream.
Still needs supporting policies and services
“Comprehensive liberalization is beneficial to promoting oil and gas development, but it does not mean that it is done after liberalization.” Zha Quanheng said, “Policy liberalization is only the first step. There are still problems in further implementing the policy, which requires supporting policy guidance and services. For example, the issue of geological data sharing, relevant departments are very lacking in this aspect, resulting in many enterprises doing useless work, which is also a waste of social wealth.”
According to reports, in the field of foreign oil and gas exploration and production, all operators must submit their geological data, and the country will provide a confidentiality period of 12-24 months before it can be shared with the public. In addition, Zha Quanheng pointed out that a sound and fully market-oriented technical services market should be established and a complete technical services trading system should be formed. At present, our country has a technical service team, but the market is not developed and perfect enough.
"For enterprises, first of all, you have to take this risk. You can't just talk without practice, and you must have sufficient financial capabilities and risk tolerance. From the government's point of view, it is actually strictly supervised by policies and regulations. If the tasks are not completed in accordance with the regulations, whether it is the 'three barrels of oil' or other private or foreign-funded enterprises, they must be unconditionally withdrawn and re-tendered. In this way, the blocks can operate normally. There is no point in opening up if there is no investment in some blocks." Dong Xiucheng pointed out.
Zha Quanheng also expressed the same view on this: "Based on our past practice, effective supervision by governments at all levels is a very important link to ensure that reforms meet expectations. To prevent certain companies from receiving blocks without investing, and from speculating by buying and selling back and forth, this has happened in the West, and my country has had this trend before. If the government cannot keep up with the follow-up work, it is likely to repeat the same mistakes before."
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