Industry Association Says China Lacks Incentives in Domestic Oil Extraction

State-owned companies lack incentives to develop domestic oil and natural gas fields amid increasing extraction difficulties, according to the China Petroleum and Chemical Industry Federation (CPCIF).

The return of existing domestic oil and gas fields is declining as extraction becomes more difficult, CPCIF said in a report released on January 11.

In addition to this, rising taxes continue to blunt exploration initiatives. In the first 10 months of 2011, profits from domestic oil and gas development grew 38.5 percent year-on-year, lagging behind a 61.6 percent growth in taxes on the extraction of the resources, said the report.

Investment in oil and gas extraction only grew 3.1 percent to 191.8 billion yuan between January and October, according to the CPCIF data.

Zhu Fang, vice director of the information and market department of CPCIF, told Caixin that slowed investment will have a negative impact on China's future oil and gas production.

The country's top three state oil giants -- China National Petroleum Corp., Sinopec Group and China National Offshore Oil Corp. -- have been increasingly turning to overseas for resources, which Zhu saw as an another reason for their low enthusiasm to develop domestic fields.

Customs data show China imported 254 million tons of crude oil in 2011, up 6.3 percent from a year earlier. But the CPCIF said domestic crude oil production only rose 0.6 percent to 203 million tons in the first eleven months.