China will play a definitive role in the energy transition, but its national oil companies (NOCs) face an uncertain future as the country reorients its energy strategy. China National Petroleum Corporation (CNPC), China Petroleum & Chemical Corporation (Sinopec), and China National Offshore Oil Corporation (CNOOC) are central actors in the energy sector, and their investments abroad reinforce China’s geopolitical and trade ambitions. But their evolution depends on policy signals from the government as China fleshes out its longer-term climate goals. As the Chinese NOCs confront the long-term transition away from fossil fuels, their strategic direction will matter for both the global oil and gas industry and for geopolitics.
The Chinese NOCs are economic giants. Last year CNPC, Sinopec, and CNOOC produced a combined 4.4 million barrels per day in liquids—equivalent to about 32 percent of China’s oil demand—and 16.1 billion cubic feet per day of gas. Collectively they generated $643 billion in revenue in 2020 (but only $11.8 billion in combined net income, in a calamitous year for the oil industry). The NOCs are among the largest investors in China, with combined capital expenditures of $80 billion in 2019 and $66 billion in 2020. They are also some of the world’s largest employers. The combined workforce of CNPC and Sinopec alone, at about 816,000, is larger than the populations of four U.S. states and the District of Columbia.
Yet the Chinese NOCs will face growing challenges in fulfilling their core mandate as domestic resources gradually decline, and the energy transition poses new threats. As China pursues its newly established goal of peak carbon emissions by 2030 and net-zero status by 2060, policymakers will set the parameters of state investment for years to come. China will not necessarily lean on the NOCs to realize the government’s broader energy transition goals, but the companies will have to meet new demands and accelerate their moves into lower-carbon energy.
Early Strategies Seek to Build on Core Strengths
To date, the Chinese NOCs have not announced dramatic changes in strategy but are taking steps to align with state goals, including improved disclosures, new climate and net-zero commitments, and new investments in low-carbon energy.
The Chinese NOCs offer more emissions data than most state oil companies, but their disclosures are still limited. Sinopec shares slightly more data, including its Scope 1 and 2 greenhouse gas emissions, methane emissions, and emissions from flaring and venting (see table below). CNOOC discloses Scope 1 and 2 emissions as well as its emissions intensity. CNPC publishes only its Scope 1 and 2 greenhouse gas emissions but aims to peak its carbon emissions by 2025 as opposed to the 2030 target for Sinopec and CNOOC. The NOCs’ absolute emissions-reduction targets are modest and could suggest a trajectory that will simply follow declining output at some of China’s largest oil fields. On the other hand, the decline of China’s mega-fields could arguably shift more of the NOCs’ production to less carbon-intensive fields.