China Petroleum & Chemical Corporation, commonly known as Sinopec, reported a 2.6% increase in net profit for the first half of 2024. The world’s largest oil refiner by capacity managed to offset weak domestic demand for refined fuels and petrochemicals with record-breaking oil and gas production levels.
Record Output Balances Falling Demand
Despite challenges in the domestic market, Sinopec achieved a net income of 37.1 billion yuan ($5.21 billion) from January to June. The company’s oil and gas production reached a record 257.66 million barrels of oil equivalent, up 3.1% year-on-year. This surge was driven by a 6% increase in natural gas production to 700.57 billion cubic feet and a modest rise in crude oil output of 0.6%, totaling 140.53 million barrels.
However, the company’s revenue fell slightly by 1.1% to 1.58 trillion yuan, primarily due to lower sales and prices of diesel and petrochemical products. Diesel sales dropped 13.8%, while gasoline sales dipped 0.2%. In contrast, aviation fuel sales saw a 7.5% increase. The decline in diesel demand was particularly concerning for analysts, as it reflects broader economic slowdowns and shifts in consumer behavior.
Strategic Shift to LNG and Electric Vehicles
To counteract declining diesel demand and the growing transition from gasoline-powered vehicles to electric vehicles, Sinopec is expanding its liquefied natural gas (LNG) refueling and electric vehicle charging businesses. This shift is part of the company’s broader strategy to adapt to changing market dynamics and focus on more sustainable energy solutions.
The company noted a 10% increase in apparent natural gas consumption in China during the first half of the year. However, domestic refined product consumption fell 0.5% year-on-year, highlighting the challenges facing the traditional energy sector. Sinopec expects crude oil throughput for the second half of the year to remain steady at around 126 million metric tons, matching the first half’s output.
Future Outlook and Economic Pressures
Sinopec also reported a decline in the production of ethylene, a crucial petrochemical component, which fell by 5.5% in the first half of 2024. Capital expenditure was reduced to 55.9 billion yuan, down from 74.67 billion yuan in the same period of 2023, as the company scaled back investments in its chemicals division.
Looking ahead, analysts at Citi warned that Sinopec’s third-quarter earnings could be weaker than the second quarter due to potential inventory losses and lower oil prices. The company faces a challenging environment as it navigates fluctuating crude prices and varying demand for its products.
Despite these challenges, Sinopec remains committed to adapting its strategy to ensure long-term growth and sustainability in a rapidly changing global energy market. The company’s focus on expanding its LNG and electric vehicle infrastructure signals a forward-looking approach as it seeks to balance traditional oil and gas production with new energy ventures.
Source: Reuters
