The $8.9 billion increase in domestic spending during the two years was greater than their total international expenditure, including acquisitions, in 2006, Wood Mackenzie said.

“All three companies have dramatically increased their expenditure on domestic exploration and production activities over the last five years to the extent that each company is now investing at a greater rate than most of the major international oil compnaies,” Wood Mackenzie senior corporate analyst Norman Valentine said.

The increase in domestic spend has resulted in several major discoveries, Valentine added.

“PetroChina’s multi-billion barrel Nanpu oil and gas field and Sinopec’s giant Puguang gas discovery significantly strengthen the companies’ portfolios which are dominated by established and maturing producing fields,” he said.

“Increased domestic expenditure has also increased liquid output from onshore legacy fields. For example, PetroChina has increased production from enhanced oil recovery projects in the Daqing field, whilst Sinopec has halted production declines from its Shengli area”.

Wood Mackenzie believes that these discoveries are likely to maintain China’s long term production levels rather than cause a substantial increase in overall domestic oil supply.

However, the impact on gas developments over the next five to ten years is potentially more dramatic, with knock-on effects for the global gas business given the substantial scale of the gas reserves in the Sichuan basin and at the Nanpu field.

This may mean that the oil companies will become increasingly selective in pursuing some of the more speculative overseas liquefied natural gas opportunities and gas import pipeline developments, instead concentrating on the development of domestic gas resources.

“Returns from domestic upstream investment are likely to compare favourably with what can be achieved through the exploitation of international opportunities,” Valentine said.

Published: 26 July 2007 02:04 GMT  | Last updated: 30 July 2007 02:31 GMT