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Energy

Sinopec to add hydrogen to 1,000 gas stations by 2025

Strong chemical demand to help raise first-quarter profit above 2019 level

A Sinopec gas station in Beijing: The company's chairman, Zhang Yuzhuo, said March 29 that it would offer hydrogen fuel at 100 of its 30,000 Chinese service stations by year's end. 

HONG KONG -- Sinopec, the Chinese state-owned oil producer, said Monday that it will offer hydrogen at up to 1,000 of its service stations in the country by the end of 2025, signaling support for Beijing's efforts to deploy the gas to help achieve President Xi Jinping's carbon neutrality targets.

While new figures released by Sinopec, formally China Petroleum & Chemical, also showed that the company's core oil operations have come roaring back to life, the hydrogen plan underlines how it and peers PetroChina and CNOOC are under pressure to come up with road maps to put Xi's 2060 carbon-zero vision into practice.

Hydrogen is "one of the major focal points in our strategic transformation" from fossil fuels, Sinopec Chairman Zhang Yuzhuo told analysts and reporters on a conference call Monday, noting the company's "competitive advantage lies in distribution" in the form of its 30,000 gas stations around China. He said it would offer hydrogen at 100 stations by year-end.

"We aim to attain our carbon neutrality 10 years earlier than the national target," he said.

Sinopec shares rose 5.5% Monday in Hong Kong to close at HK$4.21 while gaining 1.2% to close at 4.29 yuan in Shanghai.

Sinopec is already China's largest producer of hydrogen, as the gas is both a byproduct of the company's oil refining and chemical manufacturing operations and an input in its fuel refining. The company generated 3.5 million tons of the gas last year, but is considering increasing production from fossil fuel sources and eventually, from renewable energy sources for both fueling and feedstock applications.

The hydrogen drive could add a twist to slow-moving plans to list Sinopec Marketing, the unit that operates the company's gas stations.

Sinopec Vice President Huang Wensheng said on the call Monday that "there is no timetable for listing," but added that the unit "is now facing a new environment and new situation." Sinopec restructured the business in 2014 by bringing in investors including Tencent Holdings and Bank of China.

On top of hydrogen, Sinopec also plans to raise its production of natural gas by 10% each year through 2023, to reach 42 billion cubic meters by then.

"We see growing demand in the years to come," said President Ma Yongsheng.

PetroChina, a core listed unit of China National Petroleum Corp., is prioritizing natural gas even more in its carbon action plans. Chairman Dai Houliang pledged last Thursday that natural gas would compose 55% of the oil-focused company's total output by 2025.

"Natural gas should remain a growth driver for CNPC in the next five years because it is an important replacement for coal to help meet China's goal for peak carbon emission by 2030," wrote Ronald Cheng, analyst at S&P Global Ratings, on Monday.

PetroChina also aims to develop wind, solar, and geothermal energy sources, with an eye to having its carbon emissions peak in 2025, five years ahead of the national target proclaimed last year by Xi. The goal, Dai said, is to reach "near zero carbon emissions by 2050."

CNOOC, another state-owned oil producer, also aims to increase its natural gas production to support its emissions cutting drive. Chairman Wang Dongjin said in a statement on Thursday that the company "expects to increase the proportion of natural gas production to 30% in 2025" from around 21% of all output last year.

CNOOC, which has a higher proportion of maritime oil and gas assets than its two peers, has pledged to increase wind power output. Chief Executive Xu Keqiang told reporters at an online news conference that the company will gradually increase spending on wind from between 3% and 5% of the total capital expenditures to more than 5% in the near future.

At the same time, the oil majors' core operations are rebounding sharply from last year's weak performance.

Sinopec alerted shareholders on Sunday that its net profit for the quarter ending Wednesday will be higher than expected, at between 16 billion yuan ($2.4 billion) and 18 billion yuan. This compares with its net loss of 19.9 billion yuan a year before and a profit of 14.7 billion yuan in the first quarter of 2019.

Senior Vice President Yu Baocai said Monday that the company's chemical unit is performing "extremely well," with segment results in February and March at a "historic best" for the group. He forecast that overall demand would grow 10% for the year, while acknowledging that competition could heat up with rivals raising production capacity.

Sinopec is a leading producer of basic chemical products, churning out 12.06 million tons of ethylene, 17.37 million tons of synthetic resins and 1.06 million tons of synthetic rubber last year.

PetroChina also highlighted chemicals in its 2020 results statement last week.

"In the second half of the year, with the rebound of oil prices and the rapid progress of resumption of work and production, the demand steadily increased and surged in the third quarter, which led to the accelerated recovery of the relevant chemical product market," Dai said then.

After recording a net loss of 29.98 billion yuan during the first six months of 2020, PetroChina posted a net profit of 48.98 billion yuan in the second half. That was almost triple what it earned in the same period of 2019 and more than its full annual profit that year.

Despite the bullish tone of their latest results, and anticipation of a stronger oil prices continuing, PetroChina projected that it would reduce its capital expenditures this year by 3% to 239 billion yuan.

S&P's Cheng, however, said he expected the company will still increase capex 3% this year. Sinopec meanwhile plans to spend 167.2 billion yuan on capital works, 24% more than in 2020 and 14% more from than in 2019. CNOOC said it will invest between 90 billion yuan and 100 billion yuan. That would represent an increase of 13% to 26% from last year.

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