Mainland output of crude oil and natural gas is likely to fall for the second successive year because of the slump in world prices, leading to closure of wells and lay-offs. Output of crude last year was 159 million tonnes, down from 162.1 million tonnes in 1997, representing the first year-on-year fall for more than 20 years. Output of natural gas was 21 billion cubic metres, down from 24.5 billion in 1997, the first year-on-year decline since 1985. Outlook magazine said the mainland oil industry faced a tough year because its exploration and development costs, at more than US$6 a barrel, were more than double those of Exxon and British Petroleum. The situation is worse for fields in the west, which have to pay high transport costs to ship their oil to refineries. Last year, the production cost of one tonne of crude in the Tarim field, in Xinjiang, was more than 600 yuan (about HK$558.66), plus 470 yuan to transport it to a refinery in Lanzhou or 500 yuan to one in Luoyang. A tonne of imported oil, including tax, costs less than 800 yuan. This year, the mainland would have to shut down wells where production costs were too high and cut costs ruthlessly, including laying off staff, Outlook said. As from this year, the government abolished a subsidy of 168 yuan a tonne for small and medium-size wells in the western region and will halve the investment in Tarim to 400 million yuan. The fall in world prices cut the profits of the mainland's three biggest oil companies by 12.7 billion yuan last year from 1997, the magazine said, but it gave no details. Weak demand and low prices in the mainland are hurting imports and exports. Last year, exports of crude oil were 15.6 million tonnes, down from 19.83 million tonnes in 1997, and imports fell to 27.32 million tonnes from 35.47 million tonnes. A national anti-smuggling campaign failed to lead to higher legal imports of crude or of oil products, whose imports fell to 21.74 million tonnes from 23.79 million tonnes in 1997.
