By Jason Chau
China's "Big Three" oil-and-gas companies snapped quarters of earnings decline at the start of the year thanks to the war-driven surge in energy prices, but the conflict doesn't bode well for the sector long-term.
Cnooc, PetroChina and Sinopec all benefited from higher oil and gas prices in the first quarter of the year, but the energy shock will ultimately accelerate Beijing's shift away from fossil fuels, analysts say.
At first glance, the quarterly earnings point to brighter prospects for the trio: All three reported a rise in oil and gas production, as well as higher profits.
However, even the prevailing tailwinds are distributed unevenly.
Cnooc, China's largest offshore oil-and-gas producer, stands to benefit the most near-term. Thanks to its pure focus on exploration, drilling, and extraction, the state-owned enterprise can capitalize on the energy shock, said Morningstar director Chokwai Lee.
PetroChina's earnings strengthened too, even though its footprint across both upstream production and downstream refining leaves it more exposed to surging costs of feedstocks like crude oil, natural gas and naphtha.
Things aren't so rosy for China's largest refiner, Sinopec.
While the firm's first-quarter earnings were also lifted as oil prices inflated the value of inventory accumulated before the war, analysts say it is the least well-placed to withstand a prolonged crisis due to its heavy reliance on Middle East imports.
Moving forward, much will depend on how long the hostilities last, how long it takes markets and trade to normalize, and Beijing's policy response.
According to S&P Global Ratings, China imports 70% of its oil, with over half sourced from the Middle East. Beijing has long viewed this as a critical vulnerability, prompting officials to instruct producers to aggressively diversify reserves.
"The conflict reinforces the importance of energy security, leading to a continued emphasis on state-owned enterprises to ensure domestic oil production against external risks," said Xu Qinhua, director of the Center for International Energy and Environment Strategy Studies, a Beijing-based research institute.
Some of those efforts are already taking shape.
Cnooc is developing offshore projects in places like the South China, while increasing capacity in Brazil and Guyana.
Similarly, PetroChina is expanding inland gas operations. New gas pipelines from Russia, such as the planned Power of Siberia 2 project, are also in the works, said analysts at Citi.
In the immediate term, Beijing's efforts to keep domestic fuel costs down are creating headwinds for refiners like Sinopec.
Price caps intended to ensure stability are squeezing refining margins, an impact S&P analysts expect to become more visible in coming quarters. Export curbs on refined products, introduced early in the war to prioritize energy security, also pose a setback as domestic fuel demand softens, they said.
Sinopec's access to China's strategic petroleum reserves--which can roughly cover up to 110 days of oil imports--provides a substantial buffer, but the prospect of a prolonged energy shortage has cast uncertainty over feedstock supplies.
Perhaps most critically, the crisis has validated Beijing's decades-long push into green energy. Last month, President Xi Jinping remarked that China's early move into wind and solar has proven prescient, providing a foundation for both energy security and economic resilience.
"A lot of governments are going to say that they need to move to renewables for energy security and supply diversification," said Michal Meidan, head of China energy research at the Oxford Institute for Energy Studies.
"All things being equal, this will be a boost for Chinese renewables," she said.
As the fallout from the war accelerates China's position as the world's leading adopter and exporter of renewable energy, its fossil-fuel giants could increasingly be left in the cold.
Write to Jason Chau at jason.chau@wsj.com
(END) Dow Jones Newswires
May 07, 2026 04:11 ET (08:11 GMT)
Copyright (c) 2026 Dow Jones & Company, Inc.
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