China's NOCs Grow Power Businesses as Oil Demand Peaks

- China’s ongoing electrification and declining oil demand are prompting the country's three NOCs to diversify, with power moving up their strategic agendas.

- CNPC recently launched a dedicated power arm that will work to integrate its gas and renewables businesses and strengthen its power trading capabilities.

- Two of the three have partnered with companies specializing in nuclear fusion research and wind turbine manufacturing.

The Issue

China’s rapid electrification, driven largely by the exponential growth of electric vehicle (EV) use, is colliding with "downward trends” in oil markets, according to state refiner Sinopec. Together, these forces — as well as the government's shifting priorities — are exerting significant pressure on the country’s three national oil companies (NOCs): Sinopec, China National Petroleum Corp. (CNPC) and China National Offshore Oil Corp. (CNOOC). The three are struggling to adapt to swiftly changing market dynamics and are searching for new business opportunities in renewable energy and in power overall, including nuclear fusion.

China Is Powering Ahead

China’s electrification drive is entering what experts call an “accelerated phase.” The Energy Research Institute (ERI), a Beijing‑based think tank associated with the National Development and Reform Committee — the state economic planner — recently reported that end‑use electrification, i.e. the share of electricity in China's final energy use, is projected to reach 35% by 2030, up from 29% in 2024. By then, EVs are expected to account for more than 70% of new vehicle sales in China, according to a forecast from China International Capital Corp. (CICC), China’s state‑owned investment bank. By 2060, the ERI expects China's broad electrification — including direct electricity use, synthetic fuels produced using electricity and commercial heat generated from electricity — to rise to a 78%-83% range.

This shift has profound implications for the country's state oil and gas companies. China's oil demand has peaked and is forecast to decline by another 15%-20% from a 2023 baseline, according to Dai Jiaquan, chief economist at CNPC’s Economics and Technology Research Institute. Speaking at a conference in October, Dai said the trend requires the oil industry to rethink its growth logic and move away from dependence on fossil fuels toward low-carbon energy.

In less than a year, the rapid market changes have prompted China's three NOCs to expand their exposure to renewables, moving beyond former niche investments such as EV charging and battery swapping stations into the country's crowded clean power arena.

Analysts note that the NOCs’ power strategies go beyond expanding their installed renewable power generation capacity as they work to integrate clean energy into their portfolios, shifting from being oil and gas producers and refiners toward being multi‑energy providers. The companies' ability to leverage their customer base, infrastructure and resource integration should allow them to reposition themselves during this shift, observers say.

The NOCs are stepping into power-related areas considered to have the fastest growth, highest profitability and strongest policy support. These include user‑side integrated energy services, virtual power plants, green power trading and energy storage operations.

Nonetheless, coal and gas-fired power together still accounted for 40% of China's generating capacity as of end-October.

PetroChina Leads the Pack

In 2024, investments in new energy — including renewables and green hydrogen — by PetroChina, the listed arm of CNPC, totaled 24 billion yuan ($3.4 billion), a near-22% year‑on‑year increase, according to the company's 2024 annual report. PetroChina continues to integrate its oil and gas exploration business with new energy, positioning itself as a hybrid player straddling fossil fuels and clean power, the annual report said.

Much of the company's 2024 new energy capex went toward the installation of more than 5 gigawatts of solar and wind generating capacity, up more than one‑third year on year. The company's new renewable power projects last year included the start-up of the 500 megawatt Jilin Oilfield Angge scheme, the company's largest single-capacity grid-connected wind power project to date.

Sinopec and CNOOC are also building renewable power portfolios, with each having installed some 2 GW of wind and solar capacity so far, mainly at their own oil and gas production sites. However these numbers pale in comparison with national growth in renewables, which saw installed wind and solar capacity rise from 226 GW in 2016 to 1,730 GW by the end of October this year.

This rapid growth is expected to continue, with the International Energy Agency projecting an average of 460 GW of new wind and solar capacity to be added each year in China through 2035.

CNPC's New Power Arm

In November, CNPC held an official ceremony to mark the operational launch of China Petroleum Electric Energy Co. (CPEEC). Although the subsidiary was originally registered in 2017 as a subsidiary of CNPC's Daqing Oilfield Electricity Power Group in the northeastern city of Daqing — home to the oil field of the same name — the November ceremony amounted to relaunch.

Initially, the power subsidiary focused on sourcing electricity from the wholesale market and supplying power from its fossil-based power assets to regional electricity users. But CPEEC will now be CNPC's national power affiliate, integrating the group's gas‑fired power assets, coordinating renewable projects and participating in China’s evolving power markets.

Speaking at the relaunch, CNPC Chairman Dai Houliang said CPEEC will act as the group’s hub for new energy development, a vehicle for power market reform and a center for optimizing electricity supply, production and sales. The move aligns CNPC with broader industry trends such as large‑scale integration of renewables into the grid and rapidly growing demand for renewable electricity, he added.

The change to CPEEC's role represents a "major initiative" by CNPC, one Beijing-based analyst told Energy Intelligence. Others saw the move as signaling a structural shift for the state-led oil and gas industry as the NOCs identify the urgent need to transform and find new growth drivers by moving into the electricity value chain. The three NOCs are no longer content to remain “consumers of electricity,” one analyst noted and are instead positioning themselves as “operators of electricity.”

Sinopec is following suit, albeit in a smaller way. In October, the state refiner obtained electricity market trading qualifications, marking its entry into wholesale power sales. The company's newly established power trading subsidiary — the Sinopec Chongqing Fuling Shale Gas Sales Co. — will manage regional natural gas trading and gas‑to‑power supply, enabling direct sales to industrial users. At the company's third-quarter briefing in October, Vice President Huang Wensheng outlined Sinopec’s strategy of “stabilizing oil, expanding gas, promoting hydrogen, increasing power and strengthening services.” He emphasized the refiner’s transformation into an integrated energy service provider, accelerating its EV charging business, which, while small in national terms, is the largest of the three NOCs', and investing in its stalled hydrogen refueling operations alongside refined oil products.

While each of the NOCs has its own corporate strategy, they all have to comply with Beijing’s energy and industrial policies, including the call to embrace clean energy. China’s Action Plan for Accelerating Oil and Gas Exploration and Development Integrated with New Energy (2023–25) encouraged oil and gas companies to build wind and solar projects on their production sites and to participate in power market trading. Achieving China's target of peak carbon emissions by 2030 will require 17.5 trillion yuan ($2.5 trillion) in new green energy investments over the next five years, or some $500 billion annually, CICC estimates.

Agreeing New Partnerships

Like some Western oil companies, the NOCs are also venturing into more advanced new energy technologies, including nuclear fusion. In June, CNPC and China National Nuclear Corp. (CNNC) jointly invested 14.5 billion yuan ($2 billion) to establish Fusion New Energy Co., which will focus on the research and development of nuclear fusion. Through CNPC's investment arm, Kunlun Capital, the NOC has become the second‑largest shareholder in Fusion New Energy after CNNC. Kunlun has also invested 3 billion yuan ($420 million) acquiring a 20% stake in state-owned Fusion New Energy (Anhui) Co., the commercialization platform for magnetic confinement fusion research, backed by the Chinese Academy of Sciences.

In September, CNOOC and private wind turbine maker Mingyang Smart Energy set up the CNOOC Dongfang Energy joint venture, covering power generation, transmission and distribution. Experts say the partnership shows the integration of technology and resources between a state energy company and a leading private domestic renewable player, with both aiming to leverage their separate expertise in developing offshore and wind power projects.

Source: Energy Intelligence