Market and product

* Oil companies' upstream output plans echo NEA targets
* NEA encourages shift to petrochemicals from oil products
* 2016-2020 plan for energy sector to complete by end June

China is aiming boost natural gas output by 13.26% in 2016 and has set a lower production target for crude oil in a bid to raise the share of natural gas in the country's energy mix to 6.3%, a working guideline released by the National Energy Administration last Friday showed.

The country's crude oil output target is set at 200 million mt (4 million b/d) this year, and natural gas output at 144 Bcm, according to the the NEA guideline.

The crude output target is down 6.86% from production of 214.74 million mt in 2015, based on National Bureau of Statistics data. Natural gas output last year was 127.14 Bcm.

NEA's lowering of the crude output target does not come as a surprise given the current low global price environment and as China's three state-owned oil giants have already announced production cuts for 2016, mainly from uneconomic wells and from mature fields such as Daqing and Shengli.

PetroChina, the listed subsidiary of China's largest state-owned oil company China National Petroleum Corp., plans to trim crude oil output 5% in 2016, with most of the cut coming from domestic oil wells, which accounted for 83% of the company's production in 2015. About 50% of China's domestic crude oil production last year came from PetroChina. The company reported 2.1% year-on-year decline in domestic crude output in 2015.

Sinopec Group's listed arm Sinopec is planning an 8% cut in overall crude production. Its domestic crude output, which accounts for 93% of its total oil production, fell 4.7% year on year in 2015. With the company shutting four wells in China's ageing second-biggest oil block Shengli, the cut is expected to come mostly from domestic blocks.

CNOOC Ltd. in 2016 plans to cut crude production 3-6% as fewer new projects come on line. Its new oil projects due to come online in China have a total 28,000 boe/d of peak production, around a quarter of the 117,000 boe/d at seven new projects that came on stream last year. Domestic output comprised 68% of the company's total crude production in 2015.

GAS OUTPUT RISES TO MEET CONSUMPTION TARGET

For natural gas, the government's target increase of 13.26% is sharply higher than the 2.9% growth seen in 2015, which was the slowest growth rate since 2008, when NBS data started to be made available to Platts.

China fell short of its last five year plan (2010-2015) for output of 150 Bcm in 2015.

A source close to the matter said the targets had been set to meet the government's goal of raising domestic natural gas consumption to 6.3% of total energy consumption of 4.34 billion mt of standard coal equivalent in 2016.

Natural gas accounted for 5.9% of total energy consumption of 4.24 billion TCE in 2015, according to data released by CNPC Economics and Technology Research Institute earlier this year.

Based on consumption of 191 Bcm in 2015 according to ETRI data, Platts estimates natural gas demand to hit 209 Bcm this year if NEA's target is met.

Sinopec has emphasized its goal is to raise natural gas output by 18% in 2016, mainly from its domestic Sichuan and Chongqing blocks, as it expects demand to be robust due to the government's long-term targets for clean air, according to its 2015 annual report. The company's domestic gas production of 20.81 Bcm in 2015 comprised 16.4% of China's total output.

PetroChina, which contributed 65% or 82.23 Bcm of China's gas output last year, said at a recent media briefing it would lift natural gas production from both conventional and unconventional resources such as coalbed methane and shale this year. But its projected growth target of 1.3% for combined domestic and overseas output is relatively modest. Overseas gas output accounted 7% of the company's total production in 2015.

Offshore producer CNOOC plans to rise its domestic gas output by 23-27% from 7.62 Bcm last year, according to Platts estimates based on its strategy briefing for 2016.

Market observers said lifting imports was also a good way to meet the consumption target, with piped gas and LNG imports available at $7-$8/ MMBtu, while China could lower domestic output from its more expensive fields.

To increase natural gas consumption, the government will push ahead with construction of gas filling stations for vehicles this year and encourage development of gas-fired power plants and heating. Industries in the northern Beijing-Tianjin-Hebei area and eastern Changjiang River Delta and Pearl River Delta areas are being encouraged to replace coal-fired industrial boilers with gas-fired units.

FOCUS ON PETROCHEMICAL PRODUCTS

With the oil refining sector faced with a surplus capacity of 200 million mt/year according to Sinopec estimates, NEA is encouraging integrated refinery and petrochemical complexes to produce more petrochemical products rather than focusing on oil products output.

It is also encouraging the export of oil products and the country's expertise in refinery technology, construction and operation, as it has limited space to build new capacity.

NEA said it will gradually open up oil and gas exploration, development, imports and processing licenses to more participants, adding it will also push ahead with gas pricing liberalization, without detailing the timeline.

The administration targets releasing the 13th Five-Year plan for the country's energy development by end June, which will cover targets for the energy sector over 2016-2020.

NEA is also working on specification standards for National Phase 6 gasoline and gasoil. China plans to fully roll out National Phase 5 gasoline and gasoil, which is broadly equivalent to Euro 5 specifications, on January 1, 2017.