The three state-owned oil giants are choosing different paths toward low carbon future. Plans are many, but progress is slow and the state monstrosities face existential threats.
Photo from CFP
By HOU Ruining
The once almighty Three Barrels (CNOOC, PetroChina, and Sinopec), China’s state-owned oil companies, are losing ground to renewables. CATL, a NEV battery maker, now has a larger market cap than PetroChina, despite PetroChina and Sinopec powering 90 percent of China’s cars. As the shift to clean, renewable energy accelerates and China sets out on its path to carbon neutrality, the road to Three Dinosaurs' survival is long, winding, and bumpy.
Last year, Exxonmobil ended decades of gushing profits with a loss of US$22 billion (143 billion yuan). In Europe, both BP and Shell booked losses exceeding US$20 billion. The picture in China is no less dire with Three Barrels all reporting huge drops in earnings. PetroChina’s profits fell 70 percent in the first three quarters last year, with the others not doing much better.
The Three Barrels were already under strain at the dawn of viable electric vehicles. Sales of internal combustion engine cars declined for the first time in thirty years in 2018 and dropped even faster in 2019. Oil earnings suffered consequently.
Further undermining the fossil fuel industry is China’s climate vision. Last September at the UN General Assembly, President Xi Jinping announced the aim to peak greenhouse gas emissions before 2030 and reach carbon neutrality by 2060. In October, a guideline aimed to increase electric vehicles to 20 percent by 2025 and phase out internal combustible engine cars by 2035. China is expected to cap crude oil consumption by 2025.
Barrels are finally compelled to rethink their future. The existing oil business is not going away any time soon and will provide cash flow for a pivot to cleaner energy. But the beginning of the end is close, if not already here.
The Three Barrels’ futures depend on natural gas, often seen as the most viable transition fuel to renewable energy. Natural gas currently accounts for 9 percent of China’s primary energy consumption, a percentage expected to double in the next ten years. But low prices do not provide the obese, obsolete profits the dinosaurs have grown fat on. Last year, PetroChina’s natural gas production exceeded oil for the first time but contributed to only 16 percent of total revenue.
All three companies are expanding their gas operations, to 55 percent in PetroChina’s case by 2025. CNOOC and Sinopec have smaller natural gas reserves.
But natural gas is only slightly more efficient than the filthy crude currently burned and the infrastructure required for natural gas production will be useless when renewables take over. Carbon capture and storage fans are really doing nothing more than trying to extract maximum profit from dirty fuel, and even if it works, commercial deployment is still far off.
In the long run, Three Barrels will have to go low-carbon or even carbon-free, each betting on different energy forms.
Sinopec has thrown itself into hydrogen power and produces 14 percent of China’s industrial hydrogen as a byproduct of oil refining. It leads to domestic fueling station installation though the number of stations is around an irrelevant 100, ten times more are planned by 2025. Even the most starry-eyed predictions do not foresee hydrogen cars having any significant effect on emissions any time soon.
CNOOC has chosen to proceed with wind power, albeit cautiously with one small wind farm off the coast of Jiangsu since September. PetroChina has not really made any commitment with various insignificant announcements on piecemeal plans last year.
It’s the same story around the world. Investment in renewables is risky and costly. Unwinding the fossil fuel business means huge losses. And the sheer size of companies entails some unsurmountable managerial challenges.
Three Barrels may hope that natural gas will win them time in the pivot to renewables, but foreign counterparts, facing pressure from both society and shareholders, have shown much more resolution to change. In terms of the development of renewable technology and spending on renewable infrastructure, Three Barrels are disconcertingly far behind their foreign peers. Despite many blueprints and plans, material progress is perceptible nowhere except in PR releases. In crucial areas they are losing ground to younger, smaller companies; this is alarming considering their existing distribution networks.
Hydrogen will provide for 12 percent of the country’s total energy consumption if carbon-neutrality is attained by 2060, but plastics derived from fossil fuels, are not going anywhere soon and will stay relevant long after fossil fuels are phased out as an energy source.
To be more competitive, Three Barrels may need to step out of the energy sector and expand downstream into automaking, public utilities and textile manufacturing, demanding an enormous amount of time, money, and talent. But the shift is already well underway. The age of the dinosaurs might not be over, but the comet is hurtling earthward. It’s no longer a matter of being too big to fail, perhaps these Jurassic companies are too big to survive?
