China National Petroleum Corp (CNPC), Asia’s largest oil producer, is reassessing its global strategy with an eye on reviving its dealmaking activities. The company is considering investments in gas liquefaction, deep-sea drilling, and enhancing production from aging wells as it seeks to overcome stagnant oil output at home and limited new opportunities globally.
Faced with declining domestic demand due to slower economic growth and the rise of electric vehicles, CNPC, along with its listed subsidiary PetroChina, is navigating a complex landscape of geopolitical barriers that restrict its options. Despite these challenges, the company is exploring ways to expand its international footprint and return to the aggressive acquisition strategy that characterized its operations in the 1990s and 2000s.
Revisiting Past Strategies
According to Lu Ruquan, director of CNPC’s Economics and Technology Research Institute (ETRI), the company may revive its approach of investing in large oil and gas assets as an operator, a strategy it employed two decades ago with significant acquisitions like the $4 billion purchase of Canada’s PetroKazakhstan and the takeover of Devon Energy’s operations in Indonesia. Lu, who has a deep understanding of CNPC’s strategic planning from his previous role as head of strategy and development at CNPC International, likened the company’s decades of overseas investment to “a vessel sailing to midstream.” He emphasized that CNPC needs to “paddle harder” to avoid losing momentum in the global energy market.
If CNPC follows through with this shift, it would mark a return to the more acquisitive strategies of the 1990s and 2000s, when the company made significant moves into markets like Sudan, Chad, Kazakhstan, and Indonesia. These moves were instrumental in establishing CNPC as a major global player in the oil and gas industry.
Financial Firepower and Strategic Focus
CNPC has the financial resources to make a substantial impact on the global oil and gas landscape. In 2023, PetroChina alone held $37.5 billion in cash equivalents, positioning the company well for potential acquisitions. Lu indicated that CNPC may look to expand its investments in liquefied natural gas (LNG), particularly in Qatar, where the company secured a stake in QatarEnergy’s massive gas liquefaction plants last year. This deal also included a multi-year offtake agreement, underscoring CNPC’s interest in securing long-term energy supplies.
In addition to LNG, CNPC is exploring opportunities in South American deep-sea oil fields, particularly in areas adjacent to major discoveries in Guyana, where China’s CNOOC Ltd, as part of an Exxon Mobil-led consortium, has made significant finds. These investments could help CNPC expand its share of global production, which has declined in recent years. Despite producing more than Exxon Mobil, PetroChina’s share of global output dropped to 11% in 2022, down from nearly 14% in 2019, reflecting the company’s cautious approach to international acquisitions following the 2014/15 oil price collapse.
Navigating Geopolitical and Operational Challenges
While CNPC is poised to explore new opportunities, the company faces significant geopolitical hurdles. Sanctions on key oil-rich countries like Venezuela, Iran, and Russia limit the company’s options for expansion. As a result, CNPC may focus on extending existing contracts in Kazakhstan and Indonesia, where its agreements are nearing expiration.
One of CNPC’s strengths lies in its ability to extract more oil from aging fields—a skill honed over decades at the Daqing field in northeast China, one of the world’s most productive oil fields. This capability could prove valuable as the company looks to optimize production from mature assets both domestically and abroad.
However, the geopolitical environment presents challenges that are perhaps the most significant since CNPC first ventured overseas in 1993. Chinese companies, including CNPC, have refrained from new investments in Russia amid the global fallout from Russia’s invasion of Ukraine. At the same time, strained relations with the United States have closed off opportunities in the world’s largest oil market, where $250 billion in deals were made during last year’s industry consolidation. CNPC and PetroChina, which do not own any U.S. producing assets, further distanced themselves from the U.S. market when PetroChina delisted from the New York Stock Exchange in 2022 due to auditing concerns.
Strategic Alliances and Future Prospects
CNPC’s strategy of forming alliances with international oil majors, leveraging its construction and engineering expertise while relying on partners for commercial and legal acumen, has its limitations. Lu cautioned that such alliances, like the one with Chevron in Kazakhstan’s Kashagan field, often leave CNPC with insufficient access to operational information and a weaker position in protecting its interests. To succeed in the complex global energy market, CNPC will need to strengthen its commercial and legal capabilities.
Conclusion
As CNPC reviews its global strategy, the company is at a crossroads, balancing the need to expand its international presence with the realities of a challenging geopolitical environment. With substantial financial resources and a proven track record in managing mature assets, CNPC has the potential to make significant moves in the global oil and gas industry. However, the company will need to navigate geopolitical risks, enhance its operational capabilities, and carefully select its investments to achieve sustainable growth in the years ahead.
