Just now, international oil prices have plummeted to another new low. On March 30, 2020, WTI crude oil fell below $20 and briefly touched a new low of $19.92/barrel. Notably, it was also the first time in 18 years since February 2002 that WTI fell below $20/barrel. The price also easily broke the low point of the 2014-2016 oil price crash cycle. When the COVID-19 outbreak suddenly "flapped" like a black swan, the "gray rhinoceros" of falling oil prices that was seen in the distance also suddenly arrived with force. Combined with this, industry insiders predict that the oil industry's hard days are coming. In this situation, how to let the domestic upper, middle, and downstream industries out of the dilemma, to find out the way to crack, is a top priority.

1. Upstream exploration and development, production reduction is not the right way, cost reduction is the king

    As far as the entire domestic upstream industry is concerned, although there are a lot of resource reserves submitted every year, due to the lack of innate endowments and the serious inferior quality of resources, domestic oil and gas production is not ideal, and it is an indisputable fact that the degree of external dependence is rising every year.

    When the international oil price is high, the domestic exploration and development industry can do well. In recent years, when the international oil price remained at $50 per barrel, the average exploration and development cost of domestic oil and gas exploration enterprises was basically in a tight balance state of about $50. The cost of oil and gas fields with high output and good efficiency is below US $50, and the cost of small oil and gas fields with high cost is higher than US $50 or even about US $90.

Older fields in the east, in particular, have relatively high costs, and the decline in production has generally gone unchecked. In recent years, the old oil fields in the east have made every effort to basically ensure the production and efficiency, at least most of them have achieved a profit, only a few oil fields are still struggling in the state of loss.

    However, with the collapse of international oil prices, the "grey rhinoceros" has finally arrived under the influence of the novel coronavirus outbreak. Some even predict that the drop in international oil prices will be disastrous for the domestic oil and gas industry.

Especially for the private enterprises that are sharpening their knives and trying to enter the domestic oil and gas exploration industry, the drop in oil prices is just like a pot of cold water to their pockets that are still in high fever. The oil and gas exploration industry itself has a large investment cost and risk, and the cost recovery cycle is relatively long.

International energy giants rich in exploration and development experience in China's onshore risk exploration harvest is not fruitful, let alone the lack of their own financial strength and experience is not rich private enterprises. Plummeting oil prices will only discourage private companies from exploring for oil and gas.

    However, it is impossible for the central enterprises, which bear the responsibility of ensuring national energy security and are represented by "three barrels of oil", to reduce production to seek to cope with the impact of falling oil prices. Because the central enterprises bear the heavy responsibility of ensuring national energy security, they must exert efforts in exploration and development to ensure national oil and gas security, which is the responsibility of political responsibility, economic responsibility and social responsibility.

Therefore, in this regard, the upstream enterprises of the central enterprises must first ensure the national oil and gas supply, even if the loss is serious, the total output cannot be reduced. Based on this, the upstream enterprises of the central enterprises must make efforts to practice internal skills, work hard and work hard to reduce various management expenses and reduce exploration and exploitation costs.

    Take CNPC as an example. On March 12, the company quickly launched the "Special Action Plan for Improving quality and Efficiency in 2020". According to the plan, it is necessary to integrate the actual situation of all aspects, focus on the long-term focus on the current situation, ensure that free cash flow is positive, the asset-liability ratio does not rise, the income of employees is guaranteed, focus on the improvement of labor productivity of all employees, and further improve the quality of development and the ability to create efficiency. It is necessary to implement specific targets, strengthen the classification of inefficient and negative assets, and accelerate the development of oil and gas business with high quality and efficiency. It is necessary to strengthen the special treatment of loss-making enterprises, clarify the work objectives of loss-making enterprises to turn around losses within a time limit, and block the hemorrhaging of benefits. It is necessary to focus on optimizing and increasing efficiency, reducing cost and operating efficiency, establish the concept of "all costs are controllable", work hard in scientific and technological efficiency, optimize investment structure, reduce inventory, and reduce material procurement costs, formulate quantifiable, operational, and assessable implementation plans, refine work measures, and pass on the pressure layer by layer to ensure that the work is implemented. Strengthen supervision and inspection, and seriously pursue responsibility and accountability for floating work style, insufficient spirit of responsibility, and unsatisfactory measures. We should strengthen confidence, actively respond to the impact of the epidemic and the impact of low oil prices, take solid steps to implement measures to improve quality and efficiency, and resolutely win the battle against the epidemic and the battle to achieve efficiency.

    Prior to this, on March 10, Sinopec held a 2020 financial Work (video) conference, which pointed out that in the face of the severe situation of international oil price fluctuations, the prominent contradiction of domestic refining overcapacity, the price of chemical products, and the fierce competition in the refined oil market, and the year of the major examination in the fight against the novel coronavirus pneumonia, risks are intertwined and the pressure is rising sharply. It is necessary to firmly establish a new development concept, implement the requirements of quality first and efficiency first, give full play to the central role of financial management in enterprise management, take the initiative to act, and provide strong financial support for the company's high-quality development. It is necessary to practice the hard work of leading by value, and vigorously promote the optimization and efficiency of production and operation, the revitalization of assets and the creation of efficiency, and the turnaround and efficiency of enterprises in difficulties. We will practice hard work in cost control, make clear the direction of cost reduction in an in-depth analysis of cost composition, tap the potential of cost reduction in the advanced level of benchmarking industries, and stimulate the driving force of cost reduction in strengthening the concept of tight living. We must practice hard work to prevent risks, correctly treat risks, accurately identify risks, accurately prevent risks, and hold the bottom line of no systemic risks. We will practice hard work in cash flow management, focusing on centralized management of funds, management of revenue and expenditure of funds, and management of the cost of funds.

    From this point of view, the next step of central enterprises to improve the quality and efficiency of exploration and development, to reduce costs is the only way.

2. In the middle stream refining and chemical industry, production reduction and production conversion are fundamental to upgrading

    For the middle stream refining and chemical enterprises, the market competition is already quite cruel. In particular, the expansion of refining, the rapid development of private refining, international giants have also laid out China's refining and chemical market, coupled with the central enterprises refining and chemical enterprises, the three-pillar refining and chemical market competition pattern has long dyed the market blue ocean into a red sea.

    The COVID-19 pandemic and falling oil prices have added fuel to the already fierce competition in the refining and chemical market. Since the beginning of the year, quite a number of refining and chemical enterprises have fallen into the mire of losses. Coupled with the sharp decline in sales of downstream sales industries, refining and chemical companies have a difficult road ahead. The production cut has been fully reflected in the enterprise statements in the first two months of this year. The loss of individual refining and chemical enterprises has been in the double digits of 100 million yuan.

    If the first two months of refining industry to reduce the processing volume because of the epidemic "black swan" caused by, then into March, the oil price of the "gray rhino" rapid impact, for refining enterprises, is a fatal blow.

The short-term loss can be adhered to, but the long-term loss, the local refining and private refining may not be sustainable.

    From the point of view of the central enterprises, the recent rapid production of medical polypropylene raw materials, production of melt blown cloth, production of masks is for the country to win the social responsibility and responsibility of epidemic prevention and control, but we can also see that the demand of the market is the real pursuit of enterprises, market needs, enterprises must grasp the market opportunity, timely transformation of production. This is the survival and development of the enterprise requirements.

    In the first two years when the international oil price was high, experts in the refining and chemical industry had foreseen the market crisis and issued a three-year window for the transformation of refining and chemical enterprises. If the opportunity was missed, some refining and chemical enterprises would enter the ranks of bankruptcy. Now under the double impact of "black swan and gray rhinoceros", the three-year window of transformation is further compressed. If refining enterprises want to survive the crisis and reduce conventional gasoline and diesel production, the transformation of production should be a top priority.

    Especially under the current situation of heavy pressure, the pace of technological upgrading of refining and chemical enterprises needs to be further accelerated. Only in this way, by reducing the cost of products through technological upgrading, can the products have a place in the market, find opportunities in the crisis, overcome difficulties, and live and live better.

    Therefore, production reduction, production conversion, technology upgrading, and cost reduction are the fundamental way for the refining and chemical industry to break through the dilemma and relieve the crisis.

3. Downstream oil product sales, expanding the market to increase sales, service is the foundation

    Under the epidemic, the national sales of refined oil products decreased by about 20% in the first two months. With the end of the epidemic in China, it is inevitable that the total sales of oil products will rise.

    However, in terms of the past of the entire sales industry, the full and extremely fierce market competition and price war have never stopped. In the contradiction complex of efficiency and market, the oil sales industry has suffered from the development of the "Chu and Han Dynasty rivalry" to the "Warring States period competition for deer". With the collapse of the "gray rhino" and "barometer" of international oil prices, a new round of competition and fighting in the industry will be more intense.

    The focus of its interpretation will also be the game in the contradiction between the market and the benefit. If you want to keep the market, you must give up the price to a certain extent, and the price war will lose benefits and even losses; Without a price war, you will helplessly watch your market territory lost, lost the existing market position, and then want to recover the lost land in the future, I am afraid it is more difficult, and even difficult to have the opportunity to turn over.

    Whether it is a private, state-owned, foreign-funded enterprise gas station, for this industry, the long-term game in the international oil price decline, to keep the market is certainly the consensus. If a rival falls in the competition, the other parties in the competition will take the opportunity to seize this position and lay the foundation for expanding the market and increasing sales in the future.

    According to the official website of the National Development and Reform Commission (NDRC), the new oil price mechanism will set a lower limit for domestic refined oil prices and establish a risk reserve fund for oil price regulation. The ex-factory price of liquefied petroleum gas (LPG) will be lifted to simplify the operation of price adjustment of refined oil products. Among them, the upper limit of oil price adjustment is 130 US dollars per barrel, and the lower limit is 40 US dollars per barrel, that is, when the international market oil price is higher than 130 US dollars per barrel, the maximum retail price of gasoline and diesel is not mentioned or less. Below $40 per barrel, the maximum retail price of gasoline and diesel will not be reduced; When operating between US $40 and US $130 per barrel, domestic refined oil prices will be adjusted normally according to the mechanism and will rise and fall when necessary.

    This news has injected a shot in the arm to stabilize the healthy development of the domestic oil and gas market. For the downstream of the competition in the oil industry, under the guarantee of the bottom price, the market competition in the future is at least a little more stable.

    But to keep the market position or further expand the market to increase sales, in addition to the product quality that must be adhered to, price will no longer be the only most important factor, good service will be an important way to determine the future of the market and stick to customers.

    Of course, the oil sales industry can not only cling to the only thigh of oil products to survive, Sinopec, CNPC gas station set up convenience stores, has broken through the conventional sales of tobacco, tea, water "old three", in the broader field to enter, to a certain extent, the benefits of convenience stores have exceeded the benefits of gasoline and diesel sales.

     Especially during the epidemic period, Sinopec and CNPC have carried out the upgrade of not getting off the bus, opened up the market of "oil selling vegetables", and provided more convenient services for the people at home to buy and deliver goods to their homes. It not only demonstrates its social responsibility, but also lays a good reputation for occupying a broader market in the future.

    In this regard, in the long run, good service is the basis for the survival and development of the oil industry to win benefits.

From <Oil Link>