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Eric Ng

PetroChina will spend more than US$60 billion in the next 10 years to boost oil and gas production, with gas and overseas operations driving most of the growth, according to its chairman.
The nation's largest oil and gas producer planned to produce the oil and gas equivalent of 200 million tonnes of oil from domestic fields in 2020, chairman Jiang Jiemin said.
Output from projects abroad would reach the same amount in the same year, he added.
The domestic output target represents an average annual growth rate of only 1.86 per cent for the 10 years, compared with 3.77 per cent in the past decade.
But the production target from outside the country is a huge jump from the 14.25 million tonnes recorded last year. However, the objective includes output from low-profit-margin service contracts, while  most of last year's production was from its own fields.
Jiang said PetroChina  would continue to strive for double-digit growth in domestic gas output in the next few years after growing at an average of 17.3 per cent in the past nine years.  Gas accounted for 30.6 per cent of this year's total output.
Outside the country, the oil giant will focus expansion in five regions - Central Asia, the Middle East, Africa, North America and the Asia-Pacific.  
With the exception of the  Asia- Pacific, Jiang said each of the regions  was projected to reach at least  50 million tonnes of annual output by 2020.
'Based on our existing resources base, it is likely for us to reach our overseas 2020 output target,' he said. 
In the company's  three projects in Iraq alone, the combined annual output was expected to reach 90 million tonnes, he said.
However, two of the projects are service contracts, in which the company provides engineering expertise  to expand the output of fields instead of being the projects' investor.
It will  receive only 'razor-thin' margins from such contracts, which often come with significant political risks, even though the capital outlay was relatively small, analysts said.
For example, the contract from the Halfaya  oilfield in Iraq carried a service fee of US$1.40 per barrel, compared with a profit of more than US$30 a barrel from its own fields, according to Mirae Assets Securities head of energy research Gordon Kwan.
Jiang said PetroChina intended to fund the US$60 billion investment primarily from internal cash flows. However, he added that parent China National Petroleum Corp's  86 per cent stake had a lot of room for dilution through new equity issuance without it losing majority control.
PetroChina also would consider raising funds from bank loans, bonds and short-term notes, he said. Its net debt-equity ratio stood at 20.5 per cent at the end of last year.
On natural gas development, Jiang said the main upshot from  PetroChina's recent A$3.5 billion (HK$24.6 billion) joint bid with European energy major Royal Dutch/ Shell  for Australian coal-seam gas projects developer Arrow Energy  was to tap into the latter's expertise in exploiting the unconventional energy.
'Coal-seam gas production cost, including [upfront] investment and operating costs, exceeds that of conventional gas by 30 to 50 per cent,' he said. 'We must achieve some technology breakthrough [to speed up development of our domestic resources].'
China has the world's third-largest coal-seam gas reserves of 38 trillion cubic metres. The gas adheres to coal seams deep underground. 
PetroChina aimed to produce 4 billion cubic metres of coal-seam gas within five years, Jiang said. It produced 60 billion cubic metres of gas last year, primarily conventional natural gas that co-existed with crude oil.
Jiang said efforts to exploit unconventional gas, led by the US, had  pushed down  the global liquefied natural gas market, which may favour China as an importer.
'On this, Russia will adjust its strategy, for example.' he said. 'It has already revised the terms of some long-term supply contracts with Europe [its largest market].'
PetroChina is in advanced talks with Russia's Gazprom,  the world's largest natural gas producer and the country's sole gas exporter, on selling gas through pipelines to China. Recent talks centre on the price of the gas.
'I expect the talks to be concluded in the not-so-distant future,' Jiang said. 'Based on my judgment, we are likely to see the coming on stream of one of the pipelines by 2015.'
Last year, the two firms signed a legally binding preliminary agreement on the sales and purchase of 38 billion cubic metres of gas through the two  countries' northeast border and 30 billion cubic metres through the northwest border.
 Russia has been in discussions over selling piped gas to China for more than a decade.
Jiang said last week  he expected Beijing to increase gas prices this year to balance the price differentials between cheap domestic supply and more expensive gas from abroad, despite inflation concerns.
Slow growth
The expansion of home production represents an annual rate of just: 1.86%



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