2.6 Variations in Energy Company
Profitability and Demands
that the Petrochemical
and Power Sectors Develop
Sustainably
In 2016, the diverging price trends of major
energy sources caused business performance to
vary in the different energy sectors. In particular,
coal companies significantly improved their
operating performance, while upstream oil and
gas companies made losses and midstream oil and
gas companies enjoyed steady profits. The profitability of coal-fired power plants declined and
non-fossil energy companies registered losses.
In the first half of 2016, a slight rise in the
coal price helped to improve the performance of
coal companies. Between January and April, the
coal mining and coal washing and preparation
sector reported total profits of RMB 960 million,
down 92% on the same period in 2015. From
May onwards, however, coal company profits
increased month by month. In 2016, the cumulative profits of the coal mining and coal washing
and preparation sector reached RMB 109.09
billion, up 223.6% on 2015. In contrast, the total
profits of the mining industry decreased by
27.5% against 2015. Total profits of the coal
mining and preparation sector were 60% those of
the mining industry, significantly improving the
performance of coal companies.
The performance of oil and gas companies
varied greatly—oil and gas exploration and
development suffered losses but refining and
chemicals made huge profits. According to the
CNPC Economics & Technology Research
Institute, due to lower international oil prices, the
profits of China National Petroleum Corporation
(CNPC), which has a large share of the upstream
oil and gas exploration and production business,
decreased sharply by 94.34% in 2016, while
China National Offshore Oil Corporation
(CNOOC), which is also in the upstream business, suffered a huge loss of RMB 7.735 billion
in the first half of 2016. Benefiting from national
legislation on oil products, China Petroleum &
Chemical Corporation (or Sinopec), which has a
higher share of the refining and chemical
businesses, reported profit growth of 11.2%. In
the context of lower oil prices, the performance
of international and Chinese oil companies was
weaker. As a result, reducing investments and
costs and improving operational efficiency was a
common remedy for most oil companies.
In 2016, the profit margins of coal power
companies were squeezed significantly due to
lower feed-in tariffs, rising coal prices, a sharply
decreasing electricity price and lower output.
According to statistics from the China Electricity
Council, between January and November 2016,
the total profits made by the top five Chinese
power generation groups amounted to RMB 54.2
billion, down 45% on the same period in 2015. In
particular, the profits of coal power businesses
dropped by 67.4%. Preliminary estimates show
that the reduction in profits in China’s coal power
sector resulting from lower feed-in tariffs, rising
coal prices and lower output were RMB 110
billion, RMB 7 billion and RMB 7.4 billion
respectively.
Due to difficulties connecting renewable
energy to the grid, non-fossil energy companies
suffered large losses. In 2016, the restrictions on
connecting non-fossil energy to the grid became
a severe problem—about 150,000 GWh of clean
power was not used effectively, equivalent to a
reduction in turnover of RMB 60–80 billion.
This undoubtedly affected the profitability of
non-fossil energy companies. In addition, lower
renewable energy subsidies also resulted in
higher financial losses for these businesses. Initial estimates show that the gap that renewable
energy subsidies failed to cover in 2016 exceeded RMB 60 billion.
12
2.7 Coalbed Methane Is Developing
Well, but Challenges Need
to Be Addressed Urgently
On November 24, 2016, the National Energy
Administration of China released the 13th
12
Xiao Jianxin et al., Analysis of China’s Energy
Development in 2016 and the 2017 Energy Outlook for
China, in Energy of China, Issue 3, 2017.
418
S. Yaodong and A. Gillespie
Profitability and Demands
that the Petrochemical
and Power Sectors Develop
Sustainably
In 2016, the diverging price trends of major
energy sources caused business performance to
vary in the different energy sectors. In particular,
coal companies significantly improved their
operating performance, while upstream oil and
gas companies made losses and midstream oil and
gas companies enjoyed steady profits. The profitability of coal-fired power plants declined and
non-fossil energy companies registered losses.
In the first half of 2016, a slight rise in the
coal price helped to improve the performance of
coal companies. Between January and April, the
coal mining and coal washing and preparation
sector reported total profits of RMB 960 million,
down 92% on the same period in 2015. From
May onwards, however, coal company profits
increased month by month. In 2016, the cumulative profits of the coal mining and coal washing
and preparation sector reached RMB 109.09
billion, up 223.6% on 2015. In contrast, the total
profits of the mining industry decreased by
27.5% against 2015. Total profits of the coal
mining and preparation sector were 60% those of
the mining industry, significantly improving the
performance of coal companies.
The performance of oil and gas companies
varied greatly—oil and gas exploration and
development suffered losses but refining and
chemicals made huge profits. According to the
CNPC Economics & Technology Research
Institute, due to lower international oil prices, the
profits of China National Petroleum Corporation
(CNPC), which has a large share of the upstream
oil and gas exploration and production business,
decreased sharply by 94.34% in 2016, while
China National Offshore Oil Corporation
(CNOOC), which is also in the upstream business, suffered a huge loss of RMB 7.735 billion
in the first half of 2016. Benefiting from national
legislation on oil products, China Petroleum &
Chemical Corporation (or Sinopec), which has a
higher share of the refining and chemical
businesses, reported profit growth of 11.2%. In
the context of lower oil prices, the performance
of international and Chinese oil companies was
weaker. As a result, reducing investments and
costs and improving operational efficiency was a
common remedy for most oil companies.
In 2016, the profit margins of coal power
companies were squeezed significantly due to
lower feed-in tariffs, rising coal prices, a sharply
decreasing electricity price and lower output.
According to statistics from the China Electricity
Council, between January and November 2016,
the total profits made by the top five Chinese
power generation groups amounted to RMB 54.2
billion, down 45% on the same period in 2015. In
particular, the profits of coal power businesses
dropped by 67.4%. Preliminary estimates show
that the reduction in profits in China’s coal power
sector resulting from lower feed-in tariffs, rising
coal prices and lower output were RMB 110
billion, RMB 7 billion and RMB 7.4 billion
respectively.
Due to difficulties connecting renewable
energy to the grid, non-fossil energy companies
suffered large losses. In 2016, the restrictions on
connecting non-fossil energy to the grid became
a severe problem—about 150,000 GWh of clean
power was not used effectively, equivalent to a
reduction in turnover of RMB 60–80 billion.
This undoubtedly affected the profitability of
non-fossil energy companies. In addition, lower
renewable energy subsidies also resulted in
higher financial losses for these businesses. Initial estimates show that the gap that renewable
energy subsidies failed to cover in 2016 exceeded RMB 60 billion.
12
2.7 Coalbed Methane Is Developing
Well, but Challenges Need
to Be Addressed Urgently
On November 24, 2016, the National Energy
Administration of China released the 13th
12
Xiao Jianxin et al., Analysis of China’s Energy
Development in 2016 and the 2017 Energy Outlook for
China, in Energy of China, Issue 3, 2017.
418
S. Yaodong and A. Gillespie