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China Oil & Gas Watch: 1H22

Fitch Ratings expects Chinese national oil companies’ (NOCs) upstream operations to benefit from soaring oil and gas prices in 2022. Upstream investment should sustain their strong growth momentum, which is likely to support future domestic production. China’s demand for refined oil products is expected to recover in 2H22 as pandemic control eases. However, several integrated downstream projects will come on stream this year, and we continue to see domestic supply and demand imbalances. Fitch expects refining margins – excluding inventory gains or losses – to narrow, as high crude costs cannot be fully passed through under the current pricing mechanism for refined oil products.

We also expect gas import losses for the NOCs to widen from surging gas prices and the time-lag effect of the contracted prices. Amid a sluggish domestic economic environment, cost pass-through will be more difficult – given rising gas costs. Fitch expects Chinese oil & gas issuers’ financial profiles to remain strong, as the weak refining business performance will be offset by strong upstream growth. Pure upstream operators such as CNOOC Limited (A+/Stable, standalone credit profile (SCP): a) are likely to enjoy higher earnings growth and sustain their net cash position. We expect the net debt to EBITDA ratio for PetroChina Company Limited (A+/Stable, SCP: aa-) and China Petroleum & Chemical Corporation (Sinopec, A+/Stable, SCP: a-) to stay below 0.5x during 2022-24, which is commensurate with their respective SCPs.
Source: Fitch Ratings

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