Chinese Oil Giants Fuel Domestic Growth Amid Global Turmoil

China's state-owned oil companies have played a crucial role in bolstering the country's energy resilience over the past decade. According to Chokwai Lee, Director of Equity Research at Morningstar, Chinese oil companies have performed their role well in maintaining energy security.

In response to the US and Israel's war against Iran in February, China's major oil companies - Sinopec, PetroChina, and CNOOC Ltd - prioritized domestic fuel supplies over exports. Since 2018, these companies have invested heavily in upstream operations and oil storage, pouring hundreds of billions of dollars into increasing domestic oil drilling.

Between 2018 and 2022, China's three major oil companies spent around 2.3 trillion yuan (approximately $343 billion) on domestic investment, significantly more than the approximately $56 billion they invested overseas. This investment helped increase China's oil production to around 4.3 million barrels per day from a low of 3.8 million barrels per day.

However, increasing domestic production comes at a high cost. According to Rystad Energy, the average breakeven point for PetroChina and Sinopec's onshore oil fields is around $55 per barrel, higher than the approximately $37 per barrel breakeven cost for US shale oil production.