PetroChina Company Limited (PTR) Q2 2021 Earnings Call Transcript

PetroChina Company Limited (NYSE: PTR) Q2 2021 earnings call dated Aug. 25, 2021.

Corporate Participants:

Chai Shouping — Chief Financial Officer and Board Secretary

Huang Yongzhang — Executive Director and President

Dai Houliang — Chairman

Ren Lixin — Senior Vice President

Analysts:

Neil Beveridge — Sanford C. Bernstein — Analyst

Unidentified Participant — — Analyst

Horace Tse — Credit Suisse — Analyst

Matty Zhao — Bank of America — Analyst

Nelson Wang — CICC — Analyst

Presentation:

Chai Shouping — Chief Financial Officer and Board Secretary

Good afternoon, ladies and gentlemen. I’m Chai Shouping, PetroChina’s CFO and Board Secretary. On behalf of the Company, I’d like to welcome you to our 2021 Interim Results Presentation.

First, allow me to introduce the Directors and top management present today. They are: Chairman, Mr. Dai Houliang; Executive Director and President; Mr. Huang Yongzhang; Senior Vice President, Mr. Ren Lixin [Phonetic]; Vice President, Mr. Li Luguang; Vice President, Mr. Tian Jinghui; Vice President and Chief Engineer, Mr. Yang Jigang.

The presentation today includes four parts: first, overview of financial performance in the first half of the year; then, overview of operational performance; then, remarks from the Chairman, followed by a Q&A session.

Now, I will walk you through the Company’s financial performance in the first half. In H1 2021, PetroChina’s realized oil price, $59.45 per barrel, up $20.43, $3.4 lower than H1 2019, down 5.4% or a two-year average decline of 2.7%. Revenue, RMB1.2 trillion, up RMB267.54 billion, or 28.8% better than the same period of 2019.

Operating profit, RMB88.46 billion, up RMB94.5 billion year-on-year, RMB17.8 billion higher than H1 2019 at a average two-year growth of 11.9%.

Net profit attributable to the parent RMB53.04 billion, up RMB83.02 billion, RMB24.62 billion higher than H1 2019 and saw average two-year growth of 36.6%.

Earnings per share RMB0.29, a seven-year high in the same period.

PetroChina enhanced asset management further optimized debt structure and saw more solid financial foundation. As of June 30, total assets, RMB2.5 trillion, up 1.8% versus the year — the end of last year. Interest-bearing debt RMB382.73 billion, up 3.7% versus the end of last year. Composite cost of interest-bearing debt 2.54%, down 0.33 percentage points. Debt-to-asset ratio 45%, down 0.1 percentage point. Debt-to-capital ratio 21.6%, up 0.3 percentage points.

We value cash flow management, and saw large FCF increase. Cash flow from operation, RMB116.03 billion, up RMB36.95 billion year-on-year, or 46.7%. FCF, RMB4.67 billion, up RMB30.98 billion.

Guided by the business development plan, we optimized investment structure and advanced key projects in a coordinated way. Capex in H1 was RMB73.8 billion, down 1.2% year-on-year. Such a scale is reasonable and controllable. In H1, we loved to boost exploration and development. E&P spend, RMB54.08 billion, or 73.2% of the total. R&C business saw faster upgrading and structural adjustment, took RMB16.6 billion, or 22.5% of the total capex. We upheld low-cost growth and love to beef up by management, quality and efficiency. Major costs were effectively controlled. In H1, lifting cost, $10.59 per barrel, up 1.1% adjusted for RMB appreciation. Lifting cost in China $11.21 per barrel, down 2.8% adjusted for RMB appreciation. Cash processing cost, RMB159.27 per ton, down 1.3% year-on-year. Marketing cost RMB388.81 per ton, down 9.4% year-on-year.

Operating profit of E&P segment, RMB30.87 billion, up RMB20.52 billion year-on-year. Price changes of oil and gas products added to the profit by RMB56.28 billion. Sales changes cut the profit by RMB4.36 billion, among which higher gas sales added RMB3.68 billion and lower crude sales cost [Phonetic] RMB8.04 billion, mainly due to factors like OPEC compliance, leading to last overseas crude sales that cost RMB8.09 billion.

Opex and others rose by RMB31.4 billion, including RMB19.99 billion from purchase, RMB2.8 billion from taxes, exclusive of income tax and RMB2.31 billion from DD&A.

For operating profits of refining and chemical segments, RMB22.19 billion, up RMB32.73 billion. Refining business booked RMB13.46 billion, up RMB27.1 billion. Higher margins added RMB26.2 billion. Higher crude oil [Phonetic] added RMB400 million. Net opex added RMB500 million. Chemicals business, RMB8.73 billion, up RMB5.63 billion. Price changes added RMB22.86 billion. Sales changes added RMB3.31 billion. Higher opex cut the profit by RMB20.54 billion, including RMB19.29 billion from purchase, service and others.

Operating profit of marketing segment, RMB6.64 billion, up RMB19.53 billion. Marketing business in China booked RMB2.66 billion, up RMB17.28 billion, including RMB15.64 billion from higher gross margin, RMB1.07 billion from more sales and RMB570 million from lower opex. Operating profit of international trade, RMB3.98 billion, up RMB2.25 billion year-on-year.

Natural gas and pipeline business segments booked RMB36.8 billion, up RMB22.5 billion year-on-year. Operating profit of natural gas marketing business, RMB13.23 billion, up RMB19.4 billion year-on-year. Sales price in China averaged RMB1.75 cubic meter, up 1.3% year-on-year. Due to lower cost and higher sales price, imported natural gas made a profit.

Operating profit of city gas business, RMB8.59 billion, up RMB1.63 billion. OP of pipeline business, RMB1.68 billion, down RMB16.2 billion, mainly due to less pipelines on the PetroChina after the transactions. Others added RMB17.75 billion, largely from the RMB18.32 billion gain of Kunlun Energy pipeline disposal.

To reward our shareholders, the Board plans to payout interim dividend of RMB0.1304 per share, 45% of net profit attributable to the parent under IFRS, totaling RMB23.87 billion, the highest interim dividend since 2015.

That’s for the financial review. Next, Executive Director and President, Mr. Huang Yongzhang, will review the Company’s operational performance in H1.

Huang Yongzhang — Executive Director and President

Thank you, Mr. Chai. Now, I will brief you on the Company’s operational performance in the first half of the year. In the first half of the 2021, as COVID-19 somehow moved [Phonetic] to the side, world economy is picking up, and China’s economy is steadily recovering for the better. Global oil demand saw material uptick with climbing crude prices. Riding on the macroeconomic recovery, rising oil prices and demand, we upheld the five strategies of innovation, resource, market, internationalization, green and low-carbon and promoted coordinated progress in production operation, quality and efficiency, reform and innovation, as well as ESG efforts. We actively advanced upgrading the market, management and quality, try [Phonetic] to file [Phonetic] management and cost control, managed to sustain steady operation of oil and gas industrial chain with ever-improving production dynamics and, of course, strengthen [Phonetic] results.

Domestic exploration made notable progress and development efforts saw proactive capacity building. In H1, we highlighted efficient aspiration and enhanced risk and concentrated exploration. 35 results, including five strategic breakthroughs were made: Huhhot-1 [Phonetic] well in Junggar Basin; the first major breakthrough in Southeast [Phonetic] are shipping the exploration of a trillion cubic meter gas province. Letan-1 [Phonetic] well in Erdos Basin, first automation pre-salt well with industrial gas flow broke new grounds for automation pre-salt exploration. Tianan-1 [Phonetic] well in Sichuan Basin with great potential Jurassic lacustrine shale oil is set to open a new chapter for aspiration in Sichuan. As oil prices rose, we took initiative to boost production operation, slow down the natural declines in legacy oilfields like Daqing, and push for cost-effective competitive building in new blocks, such as in Changqing, Tarim and Sichuan, much progress was made. Average inputs for each new oil and gas wells fell by over 5%, as output per well climbed by 6.2% and 5%, respectively.

Overseas cooperation saw steady advances and sound growth. In H1, we took active and sound steps to resume production and operation in key projects and continue to optimize business portfolio and asset structure. A number of major discoveries were made by enhancing work in enhanced exploration. Risk aspiration in Ningxia broke new grounds, all seven test wells drilled with highest daily oil output of 419 cubic meters. Projects in test saw major discoveries. Six test wells got large oil and gas flow, being conducted. In Kazakhstan Aktobe, a number of test wells saw high-yielding oil flows.

This slide shows our major production results in the first half of the year. In H1, oil and gas output, 820 million BOE, including 730 million BOE in China, up 3.5% year-on-year. Crude output in China, 370 million BOE, up 0.6%. Marketable gas output in China 2.2 Tcf, up 6.7% year-on-year. Domestic gas takes a larger share in the production mix, which was further optimized.

Refining and chemical structure further improved with solid strides in key projects. For refining business, we optimized crude allocation and gave priority to integrated and efficient subsidiaries, stood around 610 million barrels, up 6.7% year-on-year. Output of refined products, 54.906 million tons, up 5.4% year-on-year. Gasoline and kerosene up 15.1% and 49.1%, respectively. We pursued market-oriented growth and adjusted field [Phonetic] mix. Diesel gasoline ratio, 0.92, down by 0.26. Guangdong Petrochemical products is well underway.

For chemicals business, we upgraded ethylene feedstock allocation and capped a high utilization ratio, more high value-added products were produced and marketing strategies fine-tuned. Chemical commodities totaled 14.72 million tons, up 6.3% year-on-year. Output of synthetic resin and rubber up by 1% and 3.5%, respectively. The Company tapped into the rich ethane resources in its gas fields and with its own terminologies completed the national demo ethane to ethylene projects at Changqing and Tarim. Changqing, with 800 kilotons capacity succeeded its product on August 3. Tarim, with 600 kilotons capacity is under test run. The two well add 1.4 million tons of ethylene capacity and become new profit drivers for PetroChina’s chemicals business.

Refined products marketing saw visible improvements with enhanced value creation capacity, with better linked production and marketing in view of modern changes, boosted precision marketing and actively expanded end-users and direct sale clients. In H1, refined product sales, 80.33 million tons, up 4.9%. Sales in China, 53.592 million, up 10.3%, among which gasoline up 16.2%, kerosene up 76.3%.

We further expanded retail business, adding another 156 gas stations. Non-oil business excludes all channel sales model, covering both online and off-line. Gross margin, RMB2.28 billion, a record high. International trade better underpins the value chain. Maximized both domestic and international resources and market, expanded international fields and the chemicals market. Trade volume, 220 million tons, up 2.8%.

Natural gas marketing surpassed in both volume and efficiency with robust demand for natural gas amid carbon peak and neutrality target. We worked flat out to expand market, upgrade structure and services and promote partnership. We actively developed direct supply and direct sales clients, enhanced partnership with city gas clients and power plant and pushed for early commissioning of new clients.

Gas sales, 134.1 BCM, up 11.9% year-on-year, among which sales in China, 96.3 BCM, up 17.6% year-on-year, end-user sales, 22.26 BCM, up 23.1%. We’ll strictly implement national pricing policies, improved sales structure and boost online transaction. Sales profit saw a large jump. Key projects, including Tangshan LNG terminal for contingency and peak shaving are well underway. Phase 3 of Jiangsu LNG is basically complete.

New energy and new businesses are taking off. Industry strategic layout further improved. In 2021, we will plan to add new energy capacity of 3.45 million TCE per annum. We newly signed geothermal heating contract for 10 million square meters. Clean alternative project being built. We’ll replace fossil fuel use of 350,000 TCE annually. We gained approvals for 815 megawatt of wind and photovoltaic, launched a hydrogen purification project of 2,000 SPM [Phonetic] per hour. With proactive planning in hydrogen refueling, Taizicheng and Futian stations for Beijing Winter Olympics are now up and running. Six more are under construction. We are planning six new energy bases in Beijing-Tianjin-Hebei region, Jilin, Daqing, Qinghai, Yumen and Eastern Hebei. We’ll boost debottlenecking efforts on new energy and materials, strengthen external technical exchange and cooperation and form an R&D system in this regard.

We launched carbon peak and neutrality action plan, with energy saving are the first view, we’ll try to reduce consumption, increase the yields of clean alternatives in our production to cut carbon emission. We enhanced carbon removal and launched 18 CCUS appraisal and experimental projects. Total capacity, 600 kilotons per annum.

Emphasizing green and low-carbon was further cemented the foundation for sustainable development. We’ll strictly comply with laws and regulations, embrace social responsibilities, include green and low-carbon internal corporate strategies, strengthen ecological protection to become an outstanding corporate citizen globally. The Board has renamed HSE Committee as Sustainable Development Committee, adding ESG and other sustainability topics, as well as strategic planning into its scope and responsibilities. We remain committed to the integration and coordination of development and environmental protection. With priority on the latter, we’ll enhance clean production, energy saving and emission cuts. In H1, we saved energy use of 350,000 TCE and water of 4.5 million cubic meters.

We carried on with venting gas recovery and led the funding of China Oil and Gas Methane Alliance. As one of the first 10 companies to enter China’s carbon trading market, we engaged in the first day’s trading. We heightened technical research and demo application of CCUS and took on carbon peak and carbon neutrality for a station program. We actively enforced China’s overall planning of carbon peak and neutrality, formulated green and low-carbon action plan. According to our three-step plan of clean alternative, strategic replacement and green development, we strive to peak carbon at around 2025. At 2035, supplying more green and zero carbon energy than the fossil fuels we consume. And reach near zero emissions at around 2050.

We’ll stick COVID control on a ongoing basis, with over 93% of staff vaccinated. We enhanced employee health management and issued 10 measures on building healthy enterprises, and its implementation program. Here on this slide, our 2021 operational targets and delivery in H1, for your reference.

In H2, we will carry on with the deployment of the Board, seek to build a world-class international energy company, exert ourselves and press ahead, delivery good performance to reward our shareholders and give back to society.

Thank you. That’s all.

Chai Shouping — Chief Financial Officer and Board Secretary

Now, let’s welcome our Chairman, Mr. Dai Houliang.

Dai Houliang — Chairman

Dear investors, friends from the media, ladies and gentlemen, good afternoon. I’m very pleased to join you online once again to share our H1 performance and outlook for the future. First of all, as always, on behalf of the Board, top management and in higher staff, my sincere appreciation to our investors, analysts and friends from the media for your long time trust and support.

Just now the top management shared with you our 2021 interim results. In 2021, with rapid recovery in China’s economy, and rebound in market demand and international oil prices, we coordinated various efforts in production and operations, improving both quality and efficiency, reform and innovation, as well as ESG management. We maintained safe and reliable operations across both oil and gas value chain, quality and efficiency of our development saw significant improvement.

In H1, explorations from multiple highlights, with major breakthroughs and discoveries in key basins, like Junggar, Ordos, Sichuan, and Bohai Bay. Our oil and gas reserves continue to expand and resource space further consolidated. Oil and gas production and sales, along with refining and chemical business, grew in both volume and profits, product mix further optimized, output and sales of home-produced gas and chemical commodity went up by 6.7%, 17.6% and 6.3%, respectively. New energy and new material business layout picked up pace, growing a low-carbon transition and digitalization made headways. Key projects are proceeding orderly.

Our business segments are turning profit. Net profit attributable to parent reached RMB53.04 billion, a seven-year high for the same period, showing further value growth of the Company. And the capital market continue to show positive forecast about the Company. Currently, COVID-19 pandemic is still evolving. Economic recovery is diverging across the world and competition in the oil and gas market intensified, such a tough and complex environment posted certain risk and challenges. Meanwhile, we also see China’s economy continued to recover steadily, with more solid foundation for the better, the government further improved business environment, promoted fair competition and rolled out policies to improve technical innovation and growing a low-carbon development. In China, refined product consumption further rebounded, gas demand maintained fast growth. All this form a conducive environment for our growth.

Next, we will seize opportunity, follow the general principle of prudent progress, stride forward with oil and gas and new energy business, grow refining and new energy and new material business. And we’ll focus on restructuring, reform and innovation, improve ESG management to build on our current progress and sustain sound momentum.

Crude industry chain will highlight adding reserve, ensuring stable output and boosting sales and profits. We’ll stick to efficient explorations, take SEC ROR [Phonetic] and reserve life as key indicators, focus on key basins and regions, strengthen comprehensive geo studies and appraisals and great success rates to constantly make big discoveries and new strategic principles. We’ll stick to profitable production, tighten cost control, make active EOR efforts in mature oilfields, push new projects to reach intended capacity and profitability.

We will better coordinate refining, marketing and trade, stay market-oriented and client-centered, emphasize structural adjustment of [Indecipherable] and chemicals and market expansion for refined products to build strength, resource allocation, marketing and value creation. Gas industry chain will maintain fast production ramp-up, boosting quality and profits. We’ll cash in on the booming demand, double effort in domestic production ramp-up, speed up capacity building in key gas regions and ensure rapid growth of home-produced gas, for better coordinate and balance domestic and overseas resources and market, fine-tune marketing strategies and sales structure to improve service and our profitability.

We’ll accelerate efforts in new energies, new materials and new businesses and produce sound growth, following the three-step plan of clean alternative, strategic replacement and green development. We will stick to opening up coal [Phonetic] stations, develop solar, wind and geothermal power based on local conditions. We will actively plan out hydrogen industry chain, work hard on new material and new product development, explore carbon and other new businesses to drive our green and low-carbon transition. For further improved quality and efficiency, as our long-term strategy, we bring further and achieve concrete results. We’ll tap into our internal potential and achieve greater success in this regard.

As for reform and innovation, we’ll focus on debottlenecking and key breakthroughs to further modernize carbonless system and capabilities, implement a market-based operation mechanism to fully arouse enthusiasm of entire staff to both production, sales and profits. We enhanced technical innovations, target key bottlenecks to make breakthroughs, advance digitalization, use technical innovation to solve operation and production pains and improve efficiency and profitability. We will strengthen the Company with capable personnel. We will focus on building a new and efficient HR architecture to sustain talent supply for high-quality growth, boost productivity and value of human capital.

Ladies and gentlemen, dear friends, PetroChina will remain committed to the pursuit of green development and reliable energy supply to power customers’ growth and people’s happy life. So right down the sound momentum and exert more efforts to deliver even better performance. And hope that you can continue to support PetroChina and I look forward to forging ahead with you to score new success. Thank you.

Chai Shouping — Chief Financial Officer and Board Secretary

Thank you, Chairman. Just now we briefed you on our 2021 interim results.

Now, we will have the Q&A session. And there will be consecutive interpreting. To give more people the chance to ask, each please raise no more than two questions. And please first inform of which institution you represent.

Now, the floor is open for questions.

Questions and Answers:

Operator

[Foreign Speech] Now, it’s the Q&A session. [Operator Instructions] Thank you.

[Foreign Speech] The first question comes from Neil Beveridge of Sanford Bernstein. Thank you.

Neil Beveridge — Sanford C. Bernstein — Analyst

Congratulations on the result. Just a couple of questions from me. Firstly, on the low-carbon development plan. Can you give us some outline of the capex, which is going to be allocated to low-carbon energy project? Are there any revenue targets that you have? And when you look across solar, wind, hydrogen, geothermal, where do you see the most attractive opportunities for PetroChina?

And my second question is on the dividend payout ratio. We’re now back at 45%, which is close to long-term average. Do you expect the payout ratio to remain at this level over the medium-term? Or are you in the scope to raise the payout ratio higher?

Unidentified Speaker —

[Foreign Speech]

Dai Houliang — Chairman

[Foreign Speech] Chairman, Dai Houliang, will take your first question. PetroChina has always attached great importance to green and low-carbon transition development. We have incorporated green and low-carbon into one of our five strategies and we have included the ESG management under the responsibility of a Board Committee. And under the peak carbon and carbon neutrality goals, we have set a three-step initiative of clean alternative, strategic replacement, and green development.

[Foreign Speech] As for the capex in green and no carbon development, it will be decided based on the actual circumstances in different years. And we are now preparing a very detailed plan in this regard. And after careful analysis, and in due course, we will disclose relevant information. But all-in-all, our target is to have oil, gas and new energy taking, respectively, one-third of our total energy mix by the year 2035. And capex increase is a progressive process and each year we will increase capex based on the circumstances.

[Foreign Speech] As for which energy resources is most attractive from the prospect of PetroChina? I think we may have detailed judgement concerning different types of energy resources based on their resource conditions and also based on the synergies we have working with other companies. But PetroChina will leverage our advantages. For instance, we believe natural gas will always been a very important — will always have a very important role to play in our new energy development and also in our efforts to achieve carbon neutrality. And in the meantime, for instance, in our existing oilfields, some of the oilfields have photovoltaic or wind resources, and these resources are complementary to the oil and gas resources. So, we will utilize its advantage in these oilfields. And in other places, they still have geothermal resources, and we will, based on the — our resource conditions to develop new energy business. And all-in-all, we will prepare pragmatic pathway to develop new energy and low-carbon initiatives based on the investment and returns, especially on the efficiency and our goals to achieve carbon neutrality.

[Foreign Speech] To develop clean energy and low carbon business, we will pay great attention to technology advancement and R&D. And based on the different technological requirements of developing different business segments, we will set up a new energy research institution to develop or utilize relevant technologies in new energy development and utilization. And in the meantime, we will also develop a series of technologies around CCS and CCUS and to harness PetroChina’s advantage in relevant technologies and the talent. Thank you.

Chai Shouping — Chief Financial Officer and Board Secretary

[Foreign Speech] I’m CFO, Chai Shouping. I will take your second question. Since PetroChina got listed, we have a quite stable payout policy that is a 45% of the net profit or net income attributable to the parent shareholders.

[Foreign Speech] And in recent years, based on the 45% payout ratio in the low oil price environment, the Company has issued special dividends.

[Foreign Speech] In the first half of this year, based on PetroChina’s cash flow, capex and our arrangement for future development, we have decided to pay 45% payout ratio.

[Foreign Speech] And going forward, we will maintain stable payout ratio policies. Thank you.

Operator

[Foreign Speech] The next question comes from [Indecipherable]. Thank you.

Unidentified Participant — — Analyst

[Foreign Speech] With Shanghai Securities News. Congratulations on the stellar results in the first half of this year, which is the best in the same periods in the recent years. And I have two questions. The first one is, we have been witnessing the fading of COVID-19, the recovery of the economy and recovery of demand in the Chinese market as well. So my question is, how do you look at the economy and how do you look at the demand for oil and gas resources in the first half of this year and in the following years?

The second question is, may I have your ratings on the demand of resources and the prices forecast?

Ren Lixin — Senior Vice President

[Foreign Speech] Senior Vice President, Ren Lixin [Phonetic], is taking your question. In the first half of this year, China’s GDP went up by 12.7% year-on-year and for the past two years is an average growth of 5.3%. We estimate the annual GDP growth rate will be over 8%. So if there’s no fundamental change — if there is no significant changes in the fundamentals in the following years, we believe the Chinese economy will still have sound growth momentum and its development is still in a very significant strategic opportunity period and economic operation will be maintained within a proper range.

[Foreign Speech] As for the demand for refined oil products, fueled by the recovering economy in H1, our domestic refined product consumption has recovered to the level of the same period of 2019. And we estimate in the following months of this year, the consumption of refined oil products will be 184 million tons, up by 2.7%. During the 14th five-year plan period, the demand growth for refined products is estimated to be 1.2%, and among which, the demand for gasoline will maintain mild growth rate and demand for diesel will be stable or even have a slight decline and the demand for jet fuels will increase fairly rapidly.

In terms of natural gas, approved by different factors, including the improving economy, the coal to gas switching and the goals for decarbon [Phonetic] and carbon neutrality, the natural gas market in China has seen robust demand, not only in the peak season, but also in the off-season. And in H1, the consumption of natural gas has grown by a two-digit growth rate. So in the second half, the market demand will continue to maintain a very robust momentum, especially we will see rapid growth of natural gas demand for power generation. It is estimated that natural gas consumption will be around 185.6 BCM, up by 8.2%. And in the 14th five-year plan period, the annual growth rate of domestic natural gas demand will hit 7% to 9% roughly and the demand by the year 2025 will hit 440 BCM to 500 BCM, which will provide very broad market space for PetroChina’s natural gas business and would boost this sound and sustainable development.

[Foreign Speech] As for your question concerning the international crude oil supply and demand balance and the forecast for the oil and gas prices, in terms of crude oil in international markets, pulled by the recovering global economy, the oil demand has been improving. And under the focus stances of continued OPEC+ production management, we believe in this year, the global oil supply-demand gap will be around 600,000 barrels per day, and by next year, the global oil demand can basically recover to the level of 2018 and the supply will hit 102 million barrels per day, so it’s a roughly balance of supply and demand. And in the following years, affected by multiple factors including the fading of COVID-19, the adjustment between supply and demand and monetary policies, we believe the international crude supply and demand will continue to adjust. And we estimate within this year, the Brent average price will be $65 to $70 per barrel, in following years, $50 to $70 per barrel.

[Foreign Speech] In terms of natural gas, this year, the global natural gas supply and demand both recovered robustly and the growth rate of demand is faster than the growth rate of supply, and the supply-demand balance is tightening up, which has brought up great recovery of international gas prices. In the following years, we estimate global natural gas supply and demand will continue to tighten and impacted by the delayed final investment decision on some of the most important R&D projects in the world, we believe the LNG supply will continue to tighten. And this year, we estimate the LNG spot cargo price in Northeast Asia will be roughly $11.3 to $11.7 per million BTU, and $6 to $10 per million BTU in the following years. And faced with a fluctuation of oil and gas prices in the international market, PetroChina will continue to have stringent control of our cost and make proper investment in high quality and efficiency. We feel optimistic about our target to build ourselves into a world-class international energy company.

Operator

[Foreign Speech] The next question comes from Horace Tse of Credit Suisse. Thank you.

Horace Tse — Credit Suisse — Analyst

[Foreign Speech] I’m with Credit Suisse. Congratulations on your stellar performance in the first half of this year. My question is around imported gas, and we’ve noticed that in Q1 in this year, it is reported that your imported gas has been able to be profitable. And will that situation be sustained in the second quarter? And what is the general picture in the first half of this year of your imported gas loss? And as you just mentioned that in Asia, the LNG spot price has been maintained at quite high level. So my question is, what measures will the Company take to curb the potential cost inflation of natural gas in the coming peak season of this winter? Thank you.

Chai Shouping — Chief Financial Officer and Board Secretary

[Foreign Speech] CFO, Chai Shouping, is taking the question. In the first half of this year, PetroChina imported natural gas of 37.215 BCM with an earning of CNY3.1 billion.

[Foreign Speech] And among which Q1 has witnessed an earning of CNY8 billion and Q2 had a loss of CNY5 billion.

[Foreign Speech] In the following months of this year, we will redouble our efforts to contain the import losses. For instance, we will hike the production of domestic natural gas in order to reduce our imported volumes, and second, we will import more low-cost natural gas resources in order to reduce the overall loss.

[Foreign Speech] And we’re also working on the convergence of residential gas and non-residential gas prices and try very hard to pass through the costs, and we believe these measures will be very effective for the second half of this year. Thank you.

Operator

[Foreign Speech] The next question comes from Matty Zhao of Bank of America. Thank you.

Matty Zhao — Bank of America — Analyst

[Foreign Speech] With Bank of America. I’ve got two questions. The first is, could you please brief us on any new progress you have achieved in the first half of this year in the development of new energy and new materials? And the second, we have witnessed increase of crude prices. So will that bring up your SEC [Phonetic] reserves for this year?

Huang Yongzhang — Executive Director and President

[Foreign Speech] I’m Huang Yongzhang, President of PetroChina. I’m glad to take your questions. As for our progress in new energy and new materials, PetroChina’s new energy business is starting up very quickly. We have prepared a special program on the development of new energy and new business. During the 14th five-year plan period, we will focus on the six phases [Phonetic] and five projects in the areas of geothermal, wind power, PV power and integrated development of natural gas, power generation and new energy and also the development of associated resources. In this year, we plan to add a new energy development and utilization capacity of 3.45 million tons of standard coal per year. And in the first half, we have already added a geothermal heating contract area of 10 million square meters and we have already gained the approval for building up a wind power and PV power capacity of 850,000 kilowatts, and we’re trying to gain more new approvals. And our geothermal, distributed wind energy and PV power generation and other alternative projects under construction can be translated into a capacity of 350,000 tons of standard coal per year. We’ve also launched a hydrogen purification project and we’re actively working on hydrogen refueling business. As you may know, we have already set up and put into operation Taizicheng and Futian hydrogen refueling stations for the Beijing Winter Olympic Games. And we are also working on the construction of another six hydrogen refueling station, while working to find new opportunities to expand our hydrogen network going.

[Foreign Speech] PetroChina’s new materials business will focus on high performance synthetic materials, degradable materials, engineering plastics, specialty fiber and specialty carbon materials, etc. We have got three new materials projects, which have been launched already.

[Foreign Speech] As for the second question about reserves, especially reserve adjustments given the higher crude prices background, as we have just introduced in our results announcement, in this year, PetroChina’s E&P business has made 35 important results, among which we have five strategic breakthroughs and we have appraised and identified all sizable reserve zones.

[Foreign Speech] By the end of 2020, PetroChina’s SEC domestic crude reserve was 588 million tons and our SEC domestic natural gas reserve was 2.12 TCM. And if it’s calculated based on the crude prices of 2019, our PE reserve, our SEC standards, was 99.2 billion tons and up by 13.9 million tons.

[Foreign Speech] To clarify, based on the crude price of 2019, our SEC P1 reserve was 99 million tons. And the company of E&M will have SEC standard reserve appraisal by the end of each year, and the new reserve statistics will be disclosed by the end of March of 2022. In the first half of this year, the Company’s SEC reserve appraisal has already been conducted, and the crude — approved crude reserve has added by 99.75 million tons. And our basic estimate is that if the 2021 appraisal oil prices go up to $65 per barrel, our SEC crude reserves will add another 85 million tons. Thank you.

[Foreign Speech] Given the time constraints, one final question.

Operator

[Foreign Speech] The last question comes from Nelson Wang of CICC. Thank you.

Nelson Wang — CICC — Analyst

[Foreign Speech] With CICC. My question is around natural gas business. We have witnessed natural gas price reforms in China recently. And I have also noticed that in this off-season, PetroChina has been able to hike the residential gas prices, which is the first time ever. And I’m wondering what other measures can the Company take to make the natural gas prices more market-oriented, for instance, to link the domestic price with international natural gas price? Thank you.

Chai Shouping — Chief Financial Officer and Board Secretary

[Foreign Speech] CFO, Chai Shouping, is taking the question. The natural gas development in China is witnessing great momentum.

[Foreign Speech] For instance, in places like Xinjiang, Ningxia, Guangxi and Ganzhou, the local governments have tried to link the gas prices and which is — which is positive for us to establish a market-oriented natural gas price.

[Foreign Speech] As far as we know, there are now — many provinces in China have been able to finish the convergence of residential and non-residential gas prices during the off-season.

[Foreign Speech] On May 18, the NDRC has issued a notice on an action plan of deepening the price mechanism reform during the 14th five-year plan period. And as for the market reform for natural gas prices, it will be also based on the direction of regulation in the midstream and deregulation in the upstream and downstream.

[Foreign Speech] PetroChina will support the government in natural gas market-oriented reforms and to try to push the establishment and development of a high standard domestic natural gas marketing system and to enhance the end user utilization efficiency of natural gas resources and strengthen the profitability of our natural gas business value chain. Thank you.

[Foreign Speech] This is the end of the results announcement. Thank you for joining us.