China Reports Record Oil and Natural Gas Production in 2023

For years, China has been working hard to make unconventional gas production commercially viable. Its shale deposit geology is much more challenging than the one in the United States, which made progress slow and challenging, but progress, as the numbers suggest, was nevertheless made.The record production of energy commodities came amid recovering demand after the pandemic lockdowns that decimated said demand temporarily.

While it fell short of the expectations of many analysts and energy traders, demand for oil and gas in China stimulated both record domestic output and significantly higher imports.LNG imports, for instance, remained at record 2022 levels, and monthly oil imports broke records on several occasions during the year. China is likely to have remained the world’s largest importer of crude oil last year based on data for the first ten months.

The increase in energy demand that drove the increase in output and imports was commonly attributed to post-pandemic recovery. Interestingly, trader behavior during the year suggested they were disappointed with the pace of this recovery, apparently expecting it to be an uninterrupted upward line rather than a curve.

Even so, China did not disappoint energy exporters, with imports steady and growing for most of the year. In November, imports of crude fell, for the first time since April, by over 9% on the back of high levels of storage and weaker demand from refiners, per Reuters, which also cited a slowdown in economic growth towards the end of the year.

The slowdown may be temporary, however, given that last month, Beijing issued the first batch of crude oil import quotas for refiners and the total was a substantial 60% above the first batch of quotas for 2023.For 2024, China released a total of 179.01 million metric tons of crude import quotas for 41 refiners. This compared to a quota of 111.82 million tons issued in the first batch of quotas for 2023, data supplied by traders and consultancies showed.

Despite this increase in import quotas, some analysts have predicted that demand for oil in China is set for slower growth this year, at a rate of 4% over the first six months. The basis for the prediction is weaker diesel fuel demand due to the decline in the real estate industry. This, however, should be offset by stronger demand for jet fuel and petrochemicals, Reuters reported in November.

Demand for gas is also expected to remain healthy as China moves forward with its plan to increase the share of gas in power generation and reduce the share of coal, even as it builds new coal power plants. This is the long-term perspective, however. For this year, it would all depend on international LNG prices, as always. Now that China has a steady supply channel with Russia and is boosting domestic production, it is better placed to avoid financial pain in case of a price surge.