China Overview: Gas Expansion to Secure Sustainable Growth

Maritime Activity Reports, Inc.

February 6, 2017

Yi Wolfgang Wu, Regional Business Development Manager, DNV GL - Oil & Gas, Greater China, Korea & Japan. Photo: DNV GL

Yi Wolfgang Wu, Regional Business Development Manager, DNV GL - Oil & Gas, Greater China, Korea & Japan. Photo: DNV GL

 New research by DNV GL, the technical advisor to the oil and gas industry, reveals that confidence in oil and gas sector growth in China in 2017 has fallen sharply from 61% last year to 23% - lower than global opinion (32%). 

Chinese respondents are also less confident about their organization’s prospects, profits and revenue. However, the research also shows that Chinese companies are rebalancing business portfolios and reorganizing for a new era where gas will be an important part of the energy mix.
The research by DNV GL reveals signs of deep, strategic changes for sustainable growth in China, beyond the sector’s usual cyclical patterns. More than half (55%) expect their companies to diversify into, or invest more in, opportunities outside of oil and gas – a larger share than globally (49%). 
42% expect their business to invest (or increase investment) in renewable energy in 2017. Three in five of those surveyed believe most industry investments in renewable energy mark a shift in long-term business strategy. Chinese respondents say that strategic re-orientation will be their most important measure for cutting costs (47%). 
Short-term agility, long-term resilience is DNV GL’s seventh annual benchmark study on the outlook for the oil and gas industry providing a snapshot of industry confidence, priorities and concerns for the year ahead. It draws on a survey of 723 senior sector players. 
Yi Wolfgang Wu, Regional Business Development Manager, DNV GL - Oil & Gas, Greater China, Korea & Japan, says: “The drop in oil prices and the weakness of the market are now being felt strongly across the sector as shown by a drop in all measures of confidence. However, the sector is taking action through technological innovation, operational optimization, organizational restructuring, and rebalancing business portfolios to secure long-term sustainable growth. With increasing emphasis on environmental protection, natural gas is expected to be an increasingly important part of the energy mix and renewable energy investments signal a more robust, diverse and sustainable energy future.” 
A vast majority (84%) of Chinese respondents expect gas to play an increasingly important role in the energy mix over the next 10 years.  Notably, 45% stated that their organization is actively looking for new M&A opportunities in the gas sector as a result of falling oil prices. 
Further, cost management is still seen as a high priority among Chinese respondents, and has increased from 75% last year to 87% in 2017. There has also been a significant increase in those expecting headcount reductions up from 27% in 2016 to 63% in 2017. Concerningly, more than a third (35%) believe that cost cutting initiatives in their organization are increasing health and safety risk, compared to 19% globally.  
However, cost pressures are also driving some more positive cost control measures. Nearly three in five respondents (58%) agreed that cost pressures were driving more industry collaboration.  Digitalization is also increasingly seen as a means to enhance cost and operational efficiencies. 
Digitalization will be a focus for R&D efforts with a much higher proportion of Chinese respondents than globally (74% versus 49%) agreeing that their business needs to embrace digitalization to increase profitability. 
“The effects of the downturn are now being strongly felt in China and it is concerning to see that this may be negatively affecting HSE levels in China. We as a sector should never compromise on safety,” Wolfgang Wu says. 
He added: “Like the rest of the global oil and gas industry, the key to surviving and thriving is the ability to adapt and embrace digitalization, standardization and the benefits of collaboration. This will enable the industry to transform to meet the demands of the new era and become profitable in volatile markets.” 
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