1. Introduction

In recent years, as society has developed by leaps and bounds, Chinese national corporations have entered a period marked by both opportunities and challenges. The sharp rise in energy demand has significantly accelerated economic development, especially in the natural gas and crude oil exploration industries. The global crude oil market one of the most financially integrated and volatile commodity markets has consistently experienced price fluctuations. These changes are driven not only by fundamental supply and demand dynamics but also by various financial activities that have emerged alongside the growing demand for crude oil. A key example is oil futures trading, where investors speculate on potential changes in the financial market, effectively transforming crude oil from a purely physical commodity into a financial asset.

China is the largest distributor of domestically produced oil and natural gas, playing a vital role in the global energy sector. Sustainable and renewable energy exploration has become the prime focus of the country. The country searches for sustainable energy solutions to fulfill global standards regarding environmentally friendly practices and directs attention toward sustainable and renewable energy sources to establish long-term economic stability and social progress. In the Forbes Global 2000 ranking, PetroChina maintained position number 32 on the list of global public companies. PetroChina stands as the key oil-industry leader in China while handling critical business obstacles. Growing regulatory pressure and increasing demands for resource allocation remain the main challenges faced by PetroChina. These operating constraints expose the weaknesses of conventional financial evaluation methods as they affect resource management decisions, especially in policy-sensitive enterprises. The European Union has increased speed in implementing the CBAM (Carbon Border Adjustment Mechanism) carbon pricing system. The implementation of this policy will drive up refined petroleum export costs for China by 4–6 percent [1]. The reserve-replacement ratio stands at 11.3 years, while the lifting cost amounts to $50 per barrel. The evaluation method determines the risk of valuation collapse when the carbon pricing system reaches a $100 per ton point.

In 2023, 78 percent of PetroChina’s capital expenditures must be recovered through conventional oil and gas operations [2]. The reduction of assets by 7.2% between 2020 and 2023 requires evaluation to determine proper valuation levels. From a strategic viewpoint, this structure detects how policy requirements contribute to financial metric distortions. The responsibilities have transitioned from private firms to publicly owned companies, including PetroChina, because market failures continue in rural areas where essential infrastructure does not exist. This creates substantial investment challenges for private enterprises. The company will spend 5 billion RMB annually to deliver natural gas services to rural consumers. A better assessment method exists through the Harvard financial analysis framework. The research utilizes this structure by performing PESTEL evaluation and property assessment evaluations. Systematic analysis of financial records allows organizations to enhance their exploration efficiency levels. The financial analysis of this model allows stakeholders to conduct exact evaluations of their data.

Researchers investigated PetroChina’s financial response to oil price changes through impairment stress testing analysis. This paper implements ROCE carbon sensitivity analysis to measure the impact of carbon pricing on the company while adding quantitative outcomes. This approach provides important strategic information about financial risk management for profit and capital allocation performance in an increasingly carbon-conscious global market.

2. Literature review

The world's economic recovery combined with rising energy requirements and higher crude prices becomes even more challenging due to carbon taxes imposed on environmentally-deficient products. The European Union established the Carbon Border Adjustment Mechanism (CBAM) in 2023 to enforce carbon tax on imports of iron steel cement and aluminum products [3]. This prevention strategy fights against carbon leakage through requirements that imports will carry the same cost for carbon as domestic production to promote global industrial sustainability [4]. The CBAM system creates extensive adjustments that affect worldwide trading systems and worldwide investment models. The reporting requirement for importers to document greenhouse gas emissions in their imports exists but financial payments will not be enforced from 2023 to 2025 [4]. The period functions as a trial to enhance the methods measuring embedded emissions and synchronize carbon price levels between import goods and the EU Emissions Trading System (ETS). The compliance of CBAM with the World Trade Organization rules faces difficulties regarding the principles of non-discrimination and most-favored-nation treatment [3]. Developing countries must manage the mechanism carefully to prevent cases of unfair treatment. The CBAM functions as an essential instrument in worldwide decarbonization processes because it pushes countries to choose environment-friendly technology options alongside emission minimization strategies. The CBAM operates alongside multiple global energy transition forces that include the growth of renewable energies along with modifications within fossil fuel markets. DNV Energy Transition Outlook 2023 observes rising renewable energy outputs for new demands yet fossil fuels keep their usage high because of international energy market disruptions [5]. Governments actively implement trade tools including carbon border adjustments to link trade policies with environmental goals because they detect this approach as increasingly necessary [6]. The United States has started to use trade-related measures to fight climate change through both its Inflation Reduction Act and its CBAM implementation [6]. The measures target carbon emissions by backing environmentally friendly industrial processes and limiting heavy-pollution industrial activities. The world economy recovery together with carbon taxes on high-carbon products managed through CBAM mechanisms directs global energy demand and investment patterns toward new directions. These measures encounter obstacles related to World Trade Organization compliance and fairness towards developing countries but serve as essential steps for worldwide decarbonization objectives.

3. Financial analysis for PetroChina using PESTEL

3.1. Political environment

PetroChina, as a state-owned enterprise, operates under stringent government regulations that directly influence its decision-making processes and affect competitive fairness among firms. Geopolitical tensions also shape its global outlook. A significant event occurred on October 22, 2021, when PetroChina delisted its American Depositary Receipts (ADRs) from the New York Stock Exchange. This decision has limited China–U.S. trade in the energy sector, potentially hindering global oil industry collaboration and slowing economic momentum.

3.2. Economic environment

The crude oil market is characterized by oligopolistic competition, where firms produce similar but not identical products. PetroChina’s profitability is closely tied to global oil prices. Between June and July 2024, Brent crude traded between $80–$85 per barrel, briefly dipping to a four-month low of around $78 before rebounding. Meanwhile, WTI crude hovered between $75–$80 per barrel, reflecting heightened consumer sensitivity to price changes. The COVID-19 pandemic further disrupted this market, weakening China’s real GDP and reducing consumer purchasing power. As a result, producers, including PetroChina, saw reduced investment incentives and declining profitability. The company, highly responsive to domestic demand and supply shifts, continues to face intense competition from international players.

3.3. Social environment

PetroChina faces the dual challenge of addressing environmental concerns while meeting rising energy demand. Rapid urbanization in China has significantly increased domestic consumption of natural gas, petrochemicals, and fuel. However, this growth has contributed to elevated carbon emissions, intensifying air pollution and creating tension with national climate targets, including China’s pledge to achieve carbon neutrality by 2060. These dynamics place considerable pressure on PetroChina’s strategic decision-making.

3.4. Technological environment

Aligned with China’s "dual carbon" objectives, PetroChina has begun shifting its focus toward low-carbon technologies, such as hydrogen and biofuels, to support renewable energy development. The government’s goal to deploy 50,000 hydrogen fuel-cell vehicles by 2025 and build a $15 billion hydrogen economy by 2030 underscores this shift. PetroChina has partnered with solar and wind energy providers to produce 30,000 tons of green hydrogen annually, aimed at refining and transport applications marking a major step in the nation’s push toward clean energy leadership.

3.5. Environmental environment

As a publicly listed SOE, PetroChina is subject to strict environmental regulations targeting emissions control and cleaner refining processes. The company has formed strategic partnerships with major domestic competitors such as Sinopec and CNOOC to promote sustainable development under green initiatives. These collaborations focus on wind, solar, and hydrogen sectors—though they are highly dependent on environmental conditions. Extreme weather events, such as typhoons, pose operational risks and can significantly disrupt infrastructure and supply chains.

3.6. Legal sector

Since PetroChina operates as a publicly traded company it maintains vulnerability to reputation and compliance-related risks. The company faced a major incident in 2013 after the CNPC chairman together with other executives underwent investigations by the Central Commission for Discipline Inspection (CCDI) due to bribery and abuse of power. The scandal damaged PetroChina's reputation in public eyes which brought about a major loss of revenue and profitability [7]. PetroChina brought forth internal regulations as well as compliance protocols to develop corporate governance standards and minimize future misconduct risk.

4. Accounting analysis

Table 1: Accounts Receivable (AR) &financial assets for PetroChina

According to the data in Table 1, PetroChina's inventory has decreased in recent years, but it still occupies a significant proportion of current assets [8]. A high level of inventory may indicate the risk of overstocking in the production or procurement stages. Excess inventory can lead to asset rigidity and lack of liquidity, affecting the flexibility of capital turnover, which may reduce the company's operational efficiency. Furthermore, the high level of inventory implies that PetroChina needs to invest more funds in inventory management and control, which may result in increased management costs and further compress available funds, affecting the company's financial operations.

At the same time, PetroChina's accounts receivable balance is also relatively large. Specifically, the company has a longer accounts receivable turnover period, indicating a slower collection cycle. Inefficiencies in the management system or overly lenient credit policies may lead to difficulties in collecting payments, tying up a large amount of working capital and increasing associated costs. This suggests that PetroChina is facing higher credit risk and financial risk, which may impact the company’s relationships with customers and create challenges in day-to-day operations, further affecting the company's overall business and development.

Table 2: Profitability of PetroChina from 2018 to 2022

During the analyzed period, PetroChina demonstrated notable revenue resilience. In 2020, the company experienced a 23.2% year-on-year decline in revenue [9], largely due to the COVID-19 pandemic, which drove Brent crude prices down to $41 per barrel. However, this downturn was followed by a robust 35.2% rebound in 2021, reflecting PetroChina’s capacity for recovery (Table 2). This resilience can be attributed to two key factors:

(1) The stabilizing role of national energy security policies, which helped maintain supply-demand equilibrium.

(2) The risk-mitigating strength of the company’s integrated business model, combining upstream exploration with downstream refining operations.

Despite the recovery in revenue, profitability remained highly volatile. Net profit fluctuated sharply from a loss of 22.8 billion CNY to a gain of 52.6 billion CNY—representing a swing of 75.4 billion CNY, significantly surpassing the scale of revenue variation. This instability highlights two structural vulnerabilities:

(1) High price sensitivity, as each $1/barrel shift in crude prices impacted annual profits by an estimated 5.0 billion CNY (according to company disclosures); and

(2) Regulatory costs, notably over 30.0 billion CNY in losses incurred in 2021 due to government-imposed price caps on natural gas, which set domestic prices below import costs.

Even as revenue peaked at 2,640.4 billion CNY in 2022, net profits remained below pre-pandemic levels, notably those of 2018. This disconnect points to deeper structural inefficiencies. Two underlying factors stand out:

(1) A sharp increase in upstream costs, with realized crude prices averaging $92.1 per barrel in 2022 versus $45.6 in 2018;

(2) Narrowing refining margins, where an 8% increase in gasoline and diesel output failed to offset a 2.3 percentage-point decline in processing margins compared to 2018.

Together, these trends underscore persistent efficiency challenges and cost pressures—issues that are likely to intensify as PetroChina navigates the broader energy transition landscape.

5. Financial analysis

5.1. Operational efficiency

Table 3: PetroChina's operational efficiency indicators (2018-2022)

PetroChina's inventory turnover days increased from 102.5 days in 2018 to 118.7 days in 2022 (Table 3). This rise in inventory turnover days indicates that PetroChina's ability to convert inventory into sales has decreased. The company is experiencing a slowdown in inventory turnover, which can lead to inventory buildup and inefficiencies in the use of capital. This can damage the company's ability to generate high-quality sales because surplus inventory ties up working capital and restricts operational flexibility.

The variation in the days concerning PetroChina's accounts receivable turnover is relatively insignificant. Nevertheless, compared to its industry peers, the duration of PetroChina's receivables is comparatively longer, which represents a slower collection rate in gathering payments from customers. The accounts receivable period that is relatively longer shows that the company has difficulties in dealing with credit risk and collections, which may contribute to liquidity problems and an increased likelihood of uncollectible accounts.

PetroChina's asset turnover days went up from 1450 days in 2018 to 1625 days in 2022. This indicates that the company is facing a decreasing trend in its asset efficiency. The increase in asset turnover days implies that PetroChina is taking longer to convert its assets into revenue, resulting in lower asset efficiency and a weaker ability to generate returns on investment. To improve operational efficiency and maintain sustainable growth, PetroChina needs to enhance its operational capabilities and streamline its asset management processes

5.2. Financial performance analysis

Table 4: ROCE coefficients

5.2.1. Benchmark comparison and ROCE dynamics

After the financial evaluation about the operational efficiency of PetroChina, delve deeper into the capital allocation is the key for analyzing the financial performance holistically. Return on Capital Employed (ROCE), serves as a key financial indicator which measures a company’s profitability and how efficient does a company utilize its’ capital [10].

Based on PetroChina’s financial data above from recent years, its ROCE exhibits notable cyclical fluctuations and structural characteristics. From 2019 to 2023, PetroChina’s ROCE fluctuates between 4.2% to 9.1%, which presents a significant dynamics with the correlation coefficient of 0.82 (Table 4). This indicates that the fluctuation in Brent oil price plays a crucial rule in company’s profitability. However, although the fluctuation in ROCE, it still slower than that of international peers. Such as Exxon Mobile’s average ROCE of 12%. The major reasons are the domestic price controls. The government’s “$40 per barrel floor price” policy mitigates the downside risks but also limits profit growth during periods of high oil prices. Additionally, PetroChina takes a higher social responsibility burden than its peers since the large company scale determines the high employ cost indispensably, which further expresses the profit margins of the company.

5.2.2. Sensitivity analysis of ROCE

To further understand the sources of ROCE fluctuations, the research breaks down the ROCE formula to identifying the primary driving factors.

\( ROCE=\frac{EBIT}{Total Assets-Current Liabilities} \) (1)

EBIT means earnings before interest and tax. It represents the company’s operational profit before deducting interest and taxes.

Total assets are the sum of assets owned by a company, including both current and non-current assets.

Current liabilities means company’s debts or financial obligations that owes to someone else.

The final financial performance can be influenced by numerous external and internal factors, those indicators shown below could be the key sectors to change the value of ROCE.

Price Elasticity of Oil: Assuming the other factors remain the same, price can play a decisive rule in the data of ROCE, which exhibits a non-linear relationship. Due to the demand of crude oil is the inelastic, which consumers are not sensitive to the change in the price of oil. Since the oil price is greater than or equals to $80/barrel, In this range, for every 10% increase in oil prices, ROCE tends to increase by approximately 2.1 percentage points. This is due to the amplified profit elasticity in upstream oil and gas businesses when prices rise. When the oil price falls below $50/barrel, a 10% decrease in oil prices results in a smaller decline in ROCE.

Lagged ROCE due to the CAPEX: In the short run, a 10% increase in CAPEX in the current year leads to an average 0.5 percentage point decline in ROCE the following year. For instance, the 27% increase in CAPEX in 2022 caused a drop in ROCE in 2023. In the long term, CAPEX in upstream projects (e.g., shale gas development) takes 5–7 years to deliver returns, while refining and technical upgrades can boost ROCE within 2–3 years.

Government Regulations and potential impact: The rising awareness of green initiatives of companies, the value of ROCE can also be affected significantly. Domestically, there are two policies that contribute to the dynamics of ROCE, which are carbon tax policy and new energy subsidies. The carbon tax policy demonstrates that if China implements a carbon tax of ¥50 per ton of CO₂ by 2030, models estimate that this would reduce ROCE by 1.2–1.8 oil and gas would narrow, improving ROCE.

5.2.3. Remedies for improving corporation’s operational efficiency and ROCE

Through the operational efficiency metrics (Table 3), PetroChina can indirectly enhance its ROCE by cutting the working capital utilization. Since the company accelerates percentage points. Currently, PetroChina's ROCE in renewable energy is relatively low, ranging from 3% to 5%. However, if a 15% subsidy were introduced, the gap in returns between renewable energy and inventory turnover, the working capital requirement will also be cut, which contribute to the shrinking denominator of ROCE function. The second path to improve ROCE is by increasing its’ fixed assets, such as investments like inventories. An increase in the fixed assets turnover means a higher marginal contribution to EBIT per unit of capacity, leading to an overall increase in ROCE. A clear illustration of the nexus between operational efficiency and ROCE can be found in PetroChina's strategic digitalization of its supply chain. From 2021 to 2023, the company achieved a significant reduction in inventory turnover days, decreasing from 38 days to 29 days, representing a 23% improvement. This working capital management improvement not only optimized the liquidity of current assets but also lowered the working capital requirement by 12%. Thus, the company was able to redirect capital more effectively, and meanwhile, there was an enhancement of approximately 0.4 percentage points in ROCE as a result.

5.2.4. Strategic insights toward future

To enhance ROCE, PetroChina should adopt a dynamic approach to capital expenditure (CAPEX), and prioritizing short-cycle projects during periods of high oil prices while shifting focus to refining upgrades when prices are low. Furthermore, improving operational efficiency through better inventory and asset turnover should be integrated into senior management KPIs, directly linking these improvements to ROCE. This strategic alignment will foster more sustainable financial performance by ensuring that operational gains translate effectively into higher returns on capital employed.

6. Prospect analysis

6.1. Development capacity

PetroChina’s growth potential is supported by its strong market position and large resource base. Ongoing investments in upstream exploration, especially in unconventional resources like shale gas, are expected to boost medium-term production. To stay competitive, the company must also improve its downstream operations by advancing refining technologies and expanding chemical production, as global petrochemical demand grows. Digitalization is another key focus. PetroChina is investing in AI, data analytics, and blockchain to optimize inventory and logistics, which helps lower costs and improve efficiency. These efforts are set to enhance capital utilization and profitability, positioning the company for long-term sustainable growth.

6.2. Industry overlook

The global oil and gas sector is faced with significant disruption from the transition to renewable energy and increasing regulatory pressure, particularly in regard to carbon emissions. For PetroChina, this change represents both a challenge and an opportunity. While demand for traditional oil gradually decreases recently, the growing emphasis on cleaner energy alternatives presents enormous opportunities for PetroChina to diversify. Sovacool and Brown contend that the global shift towards renewable energy is not technologically led but also politically and economically motivated, and hence provides major opportunities for such firms as PetroChina to invest in solar, wind, and hydrogen technology [11].

Investment in alternative energy infrastructure, i.e., solar, wind, and hydrogen technologies, will not just reduce the risks that come with a volatile oil market but also place PetroChina in alignment with global sustainability initiatives. Further, efforts like carbon capture and storage (CCS) can place it well in a low-carbon economy, but these require hefty capital and technological investment. Jotzo and Löschel focus on the point that while CCS technologies are pivotal to achieving considerable greenhouse gas reduction, they have high upfront investments in terms of both finance and advanced technology and thus make them a sophisticated yet rewarding long-run strategy for energy companies [12].

The firm should also deal with market volatility, geopolitical risks, and volatile oil prices. With the volatile nature of global energy demand, PetroChina must demonstrate flexibility in capital management and operating efficiency to ride out market volatility and achieve long-term sustainable growth.

7. Conclusion

In general, the future course of PetroChina will hinge on how it manages to trade off short-term fiscal gains for long-term strategic direction in an evolving energy landscape. As well placed as the company is to continue its dominance in the conventional oil and gas space, its capacity to lead in innovation and diversification into green energy technologies will prove critical in sustaining its competitive edge in a post-carbon world economy. The intricate relationship between global market trends and the strategic reactions of PetroChina will eventually influence its capacity to flourish in the face of both industry challenges and emerging opportunities.