China, as one of the largest producers and consumers of oil and gas in the world, has recently asked its domestic producers to increase oil and gas production. This decision comes in response to the unfavorable conditions resulting from the Iran war and the reduction of oil supply from this country.
Background and Reasons for Increased Production
The National Energy Administration of China, on October 21, requested major oil companies such as PetroChina, Sinopec, and CNOOC to increase their production capacity and rapidly develop national oil and gas supply bases. Given the eight-month disruptions in oil imports from the Middle East and rising transportation costs, China is urgently seeking solutions to boost domestic production.
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In recent years, China has been striving to increase its domestic energy production, but the Iran war has heightened the urgency of these efforts. According to reports, by the start of the Iran war in February 2025, China is expected to have around 1.3 to 1.4 billion barrels of oil in its strategic and commercial reserves, which have particularly helped reduce imports during times of rising oil prices.
Current Production and Demand Status
In September, China produced an average of 13.99 million barrels of crude oil per day, of which 4.43 million barrels came from domestic production and 9.03 million barrels from imports. These figures indicate that China faced a shortfall of 530,000 barrels per day, which was compensated for by drawing from reserves. In fact, China has used its reserves to meet its needs in four out of the last five months.
However, China is still reliant on its reserves, and in the week ending October 19, Chinese crude oil reserves reached 1.192 billion barrels, reflecting a decrease of 162 million barrels since early May. Additionally, with the reduction of Iranian oil exports, China is seeking alternative sources, including Russian oil. The recent agreement between China and Russia on October 21 emphasizes the importance of oil cooperation.
Ultimately, China is working to increase domestic oil production by utilizing unconventional resources and exploring deep-sea and underground. However, these projects require significant investment and long timeframes and face multiple challenges, including natural decline rates. For this reason, increasing domestic production has now become a priority for China.
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