Strong domestic demand, declining output and historically low oil prices: Faced with this perfect storm, China’s government under President Xi Jinping decided that it had seen enough and in May announced reforms aimed at giving the market a more decisive role in China’s oil and gas industry.

After six years of stellar growth, production in the world’s second-largest economy began to decline at the end of 2015. Total yearly crude production fell by 6.9% in 2016 to 1.464bn barrels, China’s largest output drop since at least 1990. Bloomberg predicts a further drop of around 7% in 2017.

“The increase in imports was further magnified by production declines amidst lower oil prices,” says Michal Meidan, lead analyst for Asian energy policies and geopolitics at consultancy Energy Aspects.

“In a low price environment, the Chinese Government seemed to ease some of its requirements to cap imports as it is also boosting stockpiles, but this year, with expectations of higher oil prices combined with a more tense geopolitical outlook, the government is keen to stabilise output.”

"This year, with expectations of higher oil prices combined with a more tense geopolitical outlook, the government is keen to stabilise output."

The reforms, a key plank of the nation's 13th Five-Year Plan for 2016−2020, are intended to promote more diverse shareholder ownership of state-owned heavyweights such as China National Offshore Oil Corp (CNOOC), China Petrochemical Corp (Sinopec) and China National Petroleum Corp (CNPC).

"Market should play a decisive role in resource allocation and the government role should be better played in order to safeguard national energy security, boost productivity and meet people's needs," stated the reform guideline approved by China’s Central Committee (CPC) and the State Council.

The ultimate goal is greater efficiency as the world’s fifth-largest producer aims to increase domestic crude output to 200 million tonnes by 2020 and natural gas capacity to more than 360 billion cubic metres.