China’s fourth oil company has achieved successful transformation! New business revenue soars as Yanchang Petroleum undergoes a historic transformation

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Revenue from new businesses has surged, marking a historic transformation for the century-old Yanchang Petroleum. Today, it is no longer just that fourth oil source that relies solely on oil extraction for its livelihood. 2017 was another year of turmoil for the oil industry. Under immense market pressure, the traditional business models of oil companies can no longer sustain their long-term development, and oil companies around the world are accelerating the adjustment of their strategic approaches. Abroad, the three major oil companies, which have a significant scale advantage, have accelerated the expansion of their overseas operations. In China, PetroChina and Sinopec have also accelerated the transfer of internal mining rights, allowing older oil fields such as the Daqing Oil Field, Yumen Oil Field, and Henan Oil Field to have the opportunity to explore for and produce oil and gas in new fields. It is particularly interesting to see what will become of Yanchang Petroleum, China’s fourth major oil company, which is smaller in scale but has a longer history. During the oil price downturn, Yanchang Petroleum found its own unique path and pursued a distinct approach to development. It is reported that Yanchang Petroleum’s sales of chemical products reached a new high in 2017, with figures expected to exceed 31 billion yuan, representing a growth rate of 23%. This century-old oil company is transforming into a brand-new integrated energy company. ◆◆◆ A century-old oil field seeks transformation; Yanchang Petroleum’s history dates back over 100 years, as it was here that China’s first oil well on land was drilled. Starting in 2007, Yanchang Petroleum joined the club of companies with an annual oil and gas production of 10 million tons, and in 2013 it made its debut on Fortune’s list of the World’s Top 500 Companies. Despite its considerable oil and gas production, the sudden plunge in oil prices has put it in a difficult situation. In 2015, Yanchang Petroleum incurred losses for the first time in 10 years. Although Yanchang Petroleum holds a unique historical position in the history of China’s petroleum industry, compared to the three major petroleum companies, its room for development is somewhat limited, and it faces a much more challenging situation than those other companies. Following the sharp drop in oil prices, to withstand this oil price downturn, there are foreign companies such as ExxonMobil and Chevron that focus on developing \"oil and gas sweet spots,\" as well as companies like Shell and BP that concentrate on natural gas. In China, there are companies such as CNPC and Sinopec that implement internal transfer of mining rights, allowing older oil fields to be used for exploring and producing oil and gas in new fields; there are also many companies that acquire overseas assets during periods of low oil prices. However, as a company, Yanchang Petroleum has an advantage in domestic oil and gas fields only in the Shaanxi region. As a result, Yanchang Petroleum has few \"oil and gas prime areas\" to choose from, and it lacks the kind of opportunities that oil fields such as Yumen and Henan have to develop new fields. CNPC and Shell are giants in terms of financial resources, and Yanchang Petroleum does not match them; as a result, it faces greater risks when attempting to acquire oil and gas assets overseas. Achieving a breakthrough in oil and gas resources is undoubtedly extremely difficult for Yanchang Petroleum. Therefore, under these circumstances, Yanchang Petroleum embarked on a major transformation that essentially reshaped the future of this century-old oil company. ◆◆◆ Two major energy projects reshaped Yanchang Petroleum. 2015 was the second year of the sharp drop in international oil prices. That year, Yanchang Petroleum celebrated its 110th anniversary. That year, Yanchang Petroleum established a completely new development strategy: to build an industrial framework of \"one core and two wings,\" with the energy and chemical manufacturing industry as the core, and technology commercialization and the integration of industry and finance as the two wings. This adjustment means that Sinopec’s business focus will shift from pure oil exploration and production to the energy and chemical industry. Since it is difficult to achieve major breakthroughs in upstream oil resources, the downstream petrochemical industry has been identified as the focus of development, even becoming the core of business operations. This business restructuring is regarded as one of the most significant corporate transformations in the century-long history of Yanchang Petroleum. This also means that the energy business carried out by Yanchang Petroleum is no longer focused solely on oil, but rather involves oil, natural gas, and coal in parallel. Yanchang Petroleum has made it clear that it will pursue horizontal development by integrating various industries such as oil, gas, coal, chemical processing, and electricity generation, while also extending its industrial chain vertically to increase added value. It is committed to accelerating the development of industries related to new energy, new materials, and high-end fine chemicals. To achieve this transformation, Yanchang Petroleum is currently advancing two large-scale integrated energy projects: the Jingbian coal, oil, and gas resource comprehensive conversion project and the Yan’an coal, oil, and gas resource comprehensive utilization project. The total investment in these two major projects is expected to exceed 60 billion yuan. In July 2014, the comprehensive conversion project of coal, oil, and gas resources at Jingbian by Yanchang Petroleum achieved successful trial operation in one go. This project is the largest energy and chemical project in Shaanxi Province in terms of one-time investment, with an investment amount of 27.5 billion yuan. In 2016, this project achieved an annual polyolefin production volume of 1.03 million tons and generated profits of 850 million yuan. It became the first petrochemical project in Shaanxi Province to reach a production volume of over one million tons, and it also represented the biggest source of profit growth for Yanchang Petroleum. In August 2017, the completion project for the comprehensive utilization of coal, oil, and gas resources in Jingbian, Yan’an, was launched. With an investment of 14.413 billion yuan, it is planned to be completed and put into operation by 2020, and it is expected to generate annual sales revenue of 7.673 billion yuan. This project is expected to lift Yanchang Petroleum’s polyolefin production capacity to the forefront in the country. Another large-scale coal, oil, and gas integrated project, the Yan’an Coal, Oil, and Gas Integrated Conversion Project, also began construction in September 2015. It is reported that this project is the largest energy and chemical project under construction in Shaanxi Province, and it represents the future of Yanchang Petroleum. With a total investment of 21.6 billion yuan, it is expected to begin operations in mid-2018. In 2016, the revenue from Yanchang’s petrochemical products exceeded 10% for the first time, reaching 10.93%. By 2017, its sales revenue from chemical products is expected to exceed 31 billion yuan, with a growth rate of 23%. ◆◆◆ Two revolutionary performance optimization technologies have caused a sensation in China. In terms of independent innovation in the energy and chemical industries, Yanchang Petroleum has also made significant progress over the past two years. In 2017, two revolutionary energy and chemical technologies developed by Yanchang Petroleum were introduced, causing a nationwide sensation. In 2012, the Dalian Institute of Chemical Physics and Yanchang Petroleum began to collaborate on the research and development of the \"complete process technology for producing ethanol from syngas\" project. In 2014, the two parties launched the “100,000 tons/year syngas-to-ethanol industrial demonstration” project. By January 2017, this project had completed the entire process and produced qualified anhydrous ethanol with a purity of 99.71%, setting an unprecedented record. It is reported that this project is the world’s first industrial-scale coal-based ethanol production facility that utilizes technology with independent intellectual property rights in China. It represents a major breakthrough in the application of advanced coal chemical industry technologies, and it establishes China’s leading position in the field of coal-to-ethanol technology and its industrial implementation on the international stage. In April 2017, Yanchang Petroleum and Dalian Institute of Chemical Physics jointly established a high-tech industrialization company focused on catalyst production and technology dissemination – Yanchang Zhongke (Dalian) Energy Technology Co., Ltd. Its main activities at present involve the licensing of patented technologies for coal-based ethanol as well as the production of key catalysts. In July, the feasibility study report for the company’s 2,000 tons/year comprehensive molecular sieve catalyst project was approved. By December 2017, Yanchang Petroleum Group signed another agreement with Dalian Institute of Chemical Physics; the two parties collaborated on the development of a 500,000 tons per year synthetic gas-to-ethanol (DMTE) process package as well as new technologies for the efficient utilization of coal. Together, they established the Yanchang-Dalian Institute of Chemical Physics Xi’an Clean Energy (Chemical Engineering) Research Institute. “Building on the successful operation of the \"100,000 tons per year ethanol production from syngas\" industrial demonstration project, Yanchang Petroleum Group has decided to invest 2.31 billion yuan to build the world’s first ethanol production facility capable of producing 500,000 tons per year from syngas. Another groundbreaking technology is the 10,000-ton per year coal powder pyrolysis-gasification integrated technology (CCSI), independently developed by Changling Petroleum. In April 2017, this technology passed the technical appraisal organized by the China Petroleum and Chemical Industry Federation. It is reported that this technology possesses originality and independent intellectual property rights, with its overall level being at the international forefront. It represents a significant breakthrough of transformative importance for China’s energy and chemical industry, enabling the maximization of coal resource utilization rates, conversion efficiency, and added value. Furthermore, in December 2017, Yanchang Petroleum signed a strategic cooperation agreement with the globally renowned chemical company Topsoe. The two sides will carry out strategic cooperation in various fields such as catalyst research, environmental protection, new materials, energy chemicals, and talent training. They will work together on scientific and technological research efforts, including basic research, laboratory studies, pilot tests, and the application of research results, in order to promote the advancement of the energy chemicals industry. ◆◆◆ From oil companies to energy firms, a report released by the International Energy Agency (IEA) in November 2017 indicated that from 2016 to 2040, the petrochemical industry will be the sector with the greatest increase in oil consumption. Although the demand for oil as an energy source will be affected to some extent due to the development of new energy sources, there is a significant increase in demand for oil for industrial uses. The development prospects for the energy and chemical industry are undoubtedly vast. Yanjiang Petroleum stated that in recent years, it has adhered to a development strategy that emphasizes both oil and gas, as well as the simultaneous development of oil-related and chemical industries. Through the integrated development of these various sectors—including oil, gas, coal, and electricity—the company’s industrial scale has continued to expand, its product portfolio has become more diverse, its innovation capabilities have improved significantly, and there has been a notable degree of industrial clustering. As a result, a comprehensive energy and chemical industry framework has begun to take shape.