PetroChina's Jan-Sep natural gas imports incur $500 million loss as costs rise

State-run PetroChina incurred a net loss of Yuan 3.2 billion (around $500 million) in its imported natural gas business over the first three quarters of 2021 due to higher import costs and rising crude oil prices, and losses are likely to mount further in coming quarters, the national oil company said in its third quarter results briefing Oct. 29.

PetroChina said losses due to gas imports started to accumulate from the second quarter and amounted to Yuan 6.4 billion in Q3, offsetting positive margins in the business in Q1.

China's downstream natural gas prices are partly regulated, and national oil companies incur losses on gas sales with a lag of roughly nine months. PetroChina said its second and third quarter import costs of pipeline gas mainly reflected crude prices that had been steadily rising since mid-2020.

It expects the import cost of natural gas to grow further in Q4 due to the steady increase in oil and gas prices in recent months and sees growing pressure on margins in the coming months.

The losses underscore how the bulk of China's oil-linked natural gas imports are affected by crude oil prices that have almost doubled to more than $80/b in the past year, which for many Asian gas importers is a bigger problem than spot LNG prices due to much higher exposure to contracted supply.

PetroChina said it will continue to enhance the management of gas supply and demand, optimize procurement, control costs and make full use of national policies to bring down the losses.

Higher gas output

PetroChina said it will also further increase domestic natural gas production.

"Vigorously developing domestic natural gas business is a strategy for PetroChina, which is also an important way to promote the company's green and low carbon transition," chief financial officer Chai Shouping said, adding that capital expenditure for gas production had been raised.

PetroChina's domestic natural gas production rose 10.7% year on year to 977.1 Bcf in Q3, while output of 3,136.6 Bcf over January-September was up 7.9% year on year, though overseas gas production dropped by around 6% and 16.5% year on year in Q3 and the first nine months, respectively.

The growth rates of PetroChina's domestic gas production in Q3 and January-September were both higher than its annual target of 5% set at the start of 2021, according to Chai.

Amid higher production and imports, PetroChina's natural gas sales rose 14.4% year on year to 198.7 billion cubic meters over January-September, of which 138.1 Bcm was sold in domestic market, up 16.2% year on year, its data showed.

Crude, oil products

In the oil sector, PetroChina aims to meet its production target of 924 million barrels or 2.53 million b/d set for 2021, said Brian Xing, the company's Deputy Director of Investor Relations.

This suggested the company has to boost crude oil output and throughput in Q4, which only hit 71.7% and 73.1%, respectively, of the annual target.

PetroChina produced 662.3 million barrels or 2.43 million b/d of crude over January-September, down 5.6% year on year due to a slump of 28.7% in its overseas output, the result showed.

The reduction in overseas oil and gas output was mainly due to the production curbs set by OPEC+, said Wei Fang, assistant secretary to the board.

PetroChina marginally lifted its domestic crude production by 0.3% year on year to 2.05 million b/d over January-September, which accounts for 85% of the company's total crude output and 50.7% of China's total crude production.

The company aims to lift throughput by 9.7% from Q3 to 3.65 million b/d in Q4 in order to hit its production target while meeting domestic oil product demand.

S&P Global Platts data showed that it lifted utilization to 76% in October from 72% in a year earlier and 75% in September.

In oil products output, both PetroChina and Sinopec significantly cut their gasoil yield, leading to a supply shortage of the fuel when imports of gasoil blending material light cycle oil were impacted by a hefty consumption tax.

PetroChina's gasoil yield fell to 28.1% over January-September from 32.8% in a year earlier, resulting in output falling 11% year on year to 34.73 million mt despite crude throughput rising 3.9% in the period.

PetroChina's operational results

* Oil, gas outputs from both domestic and overseas

Source: company report

PetroChina's domestic production

(Unit: million mt)

Source: company report

PetroChina's domestic oil product total sales volume

(Unit: million mt)

Source: company report