2019 Annual Report

2019 Industry Review

The global oil and gas industry was faced with growing risks and uncertainties against the backdrop of international political
and economic complexities. The industry was navigating through opportunities and challenges on stormy waters.

Global Oil & Gas Industry

World energy consumption grew slowly and energy transition kept degrees and the Asian premium further narrowed. The LNG trade growth
moving forward. As major economies slowed down in economic growth rose to 12.2%, which was nearly twice the growth rate of pipeline gas,
and trade tensions escalated, global primary energy consumption grew driving the global natural gas trade grew steadily.
slowly to 13.82 billion tons of oil equivalent, which was 0.6 percentage There was a significant increase in oil and gas reserves discovered
points down from a year earlier. Despite the process of reducing globally with E&P investments on the rise. The newly discovered
greenhouse gas emissions being challenged across the globe, the shift recoverable reserves of oil and gas amounted to 1.28 billion tons of oil
to clean energy was still underway. China and the EU led the way in equivalent globally, marking a significant increase of 60% year-on-year.
boosting the use of renewable energy and natural gas, which were the 25 major discoveries were above 100 million barrels of oil equivalent,
fastest-growing energy sources in 2019. mainly from South America and Africa. Global E&P investments rose 8%
Global oil market was struggling to balance with oil prices lower than from the year of 2018, indicating onshore E&P investment growth across
the previous year. Oil prices were down from a year earlier as a whole. the globe except for a slight decline in North America. 110 offshore oil
Brent crude futures averaged at USD 64.2 per barrel in 2019, down 10.5% projects were launched in 2019 around the globe as international oil giants
year-on-year. With global economic growth at its lowest since the financial showed more interest in offshore oil resources.
crisis in 2008, the demand increase in oil fell below 1 million barrels per Global refining/ethylene capacity grew remarkably but
day for the first time since 2011. As many oil producing countries have to underperformed as a whole compared with the previous year. Global
cut production, the world's oil supply and demand staggered to reach refining capacity saw a net increase of 117 million tons per year largely
balance. from emerging economies and developing countries such as China,
LNG trade expanded rapidly amid the natural gas demand slowdown. Saudi Arabia, Malaysia and Turkey, marking the greatest addition for a
As a result of the sluggish growth in natural gas consumption in North single year since 1970. However, global processing volume for crude
America and Asia Pacific, global natural gas consumption and production oil failed to grow in tandem with the refining capacity and remained
grew at 3.5% and 3.4% respectively, which were 1.8 percentage points basically the same as a year earlier. Refinery utilization rate declined
down from a year earlier. Natural gas prices in major markets fell in varying across the major refining markets in Europe, America and Asia Pacific.

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 2019 Annual Report
2019 Industry Review

Global ethylene capacity rose to 11.8 million tons per year in 2019, up The E&P action plan started to pay off with a boom in oil and gas
6.7% year-on-year, and reported weaker performance compared with a investment. 2019 was the beginning year of China’s Seven-Year E&P
year earlier. Action Plan in order to vigorously promote domestic oil and gas E&P.
Upstream investment increased remarkably, and crude oil production
Trading volume of oil and gas assets increased but the number of deals
rebounded after three years of downward movement. The full-year crude
slumped and U.S. shale assets transaction started to cool down. The
oil production was approx. 191 million tons with an increase of about 1.1%
upstream M&A market remained lackluster, seeing only 220 deals closed in
from a year earlier; natural gas production was approx. 173.8 billion cubic
2019, down 30% from a year earlier. However, the transaction amount totaled
meters, up about 9.8% year-on-year. Unconventional gas accounted for
USD 190 billion, up 30% year-on-year, thanks to mega-deals. The transaction
more than one-third of total natural gas production as both tight gas and
of US shale assets started to decline in terms of both the number and value of
shale gas outputs hit record highs.
deals, i.e. down by 49% and 67% respectively year-on-year.
Capacity growth for refining and ethylene picked up momentum
resulting in further excessive refining capacity with private companies
China's Oil & Gas Industry
accounting for an even greater share. In 2019, China's refining capacity
China’s energy mix continued to improve amid a slowdown in energy expanded to 860 million tons per year, marking another refining boom
consumption. The Chinese economy was under downward pressure in after 2014. The total ethylene capacity stood above 30 million tons per year
2019. The total energy consumption reached 4.79 billion tons of standard for the first time, up 21.1% year-on-year. New additions to refining capacity
coal, up 3.2% year-on-year, indicating a slight retreat. The shift to low- were mainly from the private-sector refineries. The domestic refining
carbon energy made headway, with non-fossil fuels power generation overcapacity issue became graver.
increasing by 6% year-on-year. Renewable energy power generation
Reforms in the oil and gas system were unprecedented to push ahead
was refocusing on quality improvement over capacity expansion. As the
with energy transition in a pragmatic manner. Government departments
government work report proposed for the first time to promote hydrogen
stepped up efforts to reform the oil and gas system in 2019. The oil and gas
energy, some local governments and companies has started working on
industry opened up to private and foreign investors in full measure. Major
and implementing their hydrogen energy initiatives.
breakthroughs were made in improving the mechanism for the operation
China's dependencies on foreign crude oil and petroleum both stood of oil and gas pipeline networks. A national oil and gas pipeline network
above 70% and refined products consumption saw anemic growth. company was established to facilitate a market-driven oil and gas industry.
China’s demand for crude oil surged as a result of large private refineries
coming on stream, pushing its dependencies on foreign crude oil and
petroleum up to 72.5% and 70.8% respectively. Economic stress, weak car
demand and more alternative energy sources, among others, hampered
gasoline, diesel, and kerosene consumption into mediocre growth.
Meanwhile, exports expanded to exceed 50 million tons for the first time.
The rise of large private-sector refinery companies contributed to a more
diversified landscape in the domestic market.

The increase in gas production hit a new high and the building of
natural gas production, supply, storage and sales system made steady
headway. The full-year natural gas consumption stood above 300 billion
cubic meters, up 9.6% year-on-year and accounting for 8.3% of China’s primary
energy consumption. The full-year natural gas supply was 310.6 billion
cubic meters, up 9.5% year-on-year and domestically produced natural
gas grew by 9.6%, marking a new record high. Natural gas import
growth slowed sharply compared with the previous year, with a foreign
dependence rate of 45.2%, which was barely changed from the previous
year. Steady progress was made in the building of natural gas production,
supply, storage and sales system. In particular, the construction of key
connectivity projects, LNG terminals and gas storages picked up pace to
ease effectively gas supply crunch in winter. Source: 2019 Report on Oil and Gas Industry Development by CNPC ETRI

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