Once the pride of Communist rulers and now hit by a global glut and slowing domestic growth, China’s largest oilfield epitomises Beijing’s reluctance to cut jobs at loss-making state-run operations.
Thousands of oil pumps painted black, yellow and red stretch to the horizon in Daqing, which has produced more than two billion tonnes of the black gold since it started flowing almost 60 years ago.
But many are now motionless, with production cut and the city suffering its first economic contraction for more than three decades last year.
As oil prices hovered near historic lows, the field lost around $ 800 million in the first two months of 2016, its top Communist official said in March according to state-run media.
“It (Other OTC: ITGL – news) ‘s because of the Americans,” said a local oil worker surnamed Wang.
Analysts partly concur, blaming price declines on the United States’ doubling production in recent years.
The shale oil boom in the US saw it export oil for the first time in 40 years in January, and the OPEC cartel of oil producing nations has failed to agree production cuts.
As the world’s biggest crude buyer, China benefits from low prices but it is also the world’s fourth biggest producer, with a larger output than Canada — meaning millions of jobs are at risk.
Western oil majors have been hammered by price falls, and BP alone has cut 11,000 jobs since the beginning of last year.
Widespread redundancies would ravage Daqing, where the sector employs some 10 percent of nearly 3 million residents.
The oil field, owned by PetroChina (HKSE: 0857-OL.HK – news) , the listed subsidiary of Chinese oil giant CNPC, produced some 38 million tons in 2015, down thirty percent from its peak, according to Nikkei.
But while several local workers told AFP that they had taken wage cuts of up to a quarter, jobs were still secure.
– Iron Man –
The Daqing oil field — and its fate — are heavy with symbolism.
When oil was discovered there in the late 1950s, China’s internationally isolated Communist party, named the field and the city which grew up around it “big celebration”.
Its first generation of oilmen, notably “Iron Man” Wang Jinxi — part of a team who drilled with primitive tools in temperatures as low as -30 Celsius — were lauded as examples of the socialist work ethic.
When Mao Zedong in 1964 declared “In Industry, Learn From Daqing,” the party’s propaganda apparatus flooded the country with books, songs, films and plays praising the city.
But the city’s “Iron Man” park — its centrepiece a bust of Wang on a plinth bearing the slogan “The iron man spirit is a precious spiritual treasure” — is now crumbling and littered with broken statues.
“It’s the most classic example of industrial China,” Lin Boqiang, an energy researcher at Xiamen University, told AFP, adding: “That era is over”.
State-firms such as CNPC have to maintain employment “because of their social responsibilities,” he added.
In February China’s President Xi Jinping was quoted telling officials from Heilongjiang, the province that includes Daqing: “Economic restructuring today cannot come at the cost of workers? well-being.
“We must guarantee the incomes and treatment of front-line employees,” he added.
– Bankruptcy –
Across China’s northeast, where steel and coal firms support entire cities, there is significant overcapacity in both sectors.
CNPC can subsidise losses at Daqing with profitable operations elsewhere, such as refining, analysts said, but smaller firms face bankruptcy without government bailouts.
The nation’s growth has fallen to a quarter-century low. China will cut 1.8 million coal and steel jobs, officials said this year. But no time frame was given, and ratings agency Fitch said the plan faces “immense” social challenges.
After the state-run Longmay mining group said last year it would slash 100,000 jobs, miners staged massive protests.
“We are still employed. But wages are just 38 percent of what they once were,” a Longmay worker called Chen told AFP.
Beijing has earmarked some 150 billion yuan ($ 23 billion) to cover redundancies and retraining.
Restructuring would be “a big problem” for social stability in Daqing, said Michal Meidan, a consultant at Energy Aspects in London, because oil “runs the city”.
Half a world away, well digger Wang — wearing a frayed blue jacket emblazoned with PetroChina’s orange logo — agreed.
“All these wells are losing money, but they will keep producing,” he said. “Otherwise what would workers do?”
