China’s top oil and gas companies are getting outsized profits from drilling fossil fuels, but it’s a different story when it comes to processing their haul and selling it.

Stronger international crude prices and rising output drove big gains in net income at PetroChina Co. and Cnooc Ltd. this week, as well as brightening earnings at Sinopec, a firm that relies more heavily on its downstream operations for profit. It shows that the big three are reaping the rewards of Beijing’s insistence they cut the nation’s import bill by producing more of their own oil and gas.

Where they’re losing out is in refining and marketing their fuels, as well as the business of turning oil into chemicals. For that, blame China’s slowing economy and its effort to decarbonize — factors that could ultimately undercut their main profit driver of higher crude prices.

Cnooc, the last of the three to report first-half earnings and the company most dependent on drilling, said on Wednesday that net income rose 25% to almost 80 billion yuan ($11 billion). It followed record profits at PetroChina of nearly 90 billion yuan, a 4% rise from last year. Sinopec eked out a more modest increase of less than 2%.

Both PetroChina and Sinopec laid out a more challenging picture for their refining units, which recorded drops in operating profit of around 40% in the first half. 

Oil refiners are struggling with too much capacity relative to demand. Accumulated losses over the year worsened to nearly 19 billion yuan in July, according to the statistics bureau, making it the worst-performing sector in China’s industrial economy. 

Still, both PetroChina and Sinopec told investors they expect conditions to get better as the economy improves. At a briefing in Hong Kong on Wednesday, PetroChina Vice President Li Ruxin cited capacity restrictions imposed by the government, and expected changes to fuel pricing and consumption taxes that will benefit wholesalers, for a more bullish outlook in the second half.

But the sector faces profound challenges. Both firms highlighted weakness in the market for diesel, the fuel that runs so much of China’s construction activity. That’s where the economy’s funk is at its worst because of the protracted crisis in the property market.

Gasoline, which makes up about a quarter of China’s oil consumption, is facing its own problems due to the rapid adoption of electric vehicles and the popularity of high-speed rail. For petrochemicals, capacity expansions in the teeth of a slowing economy have created a glut that’ll persist for many months.  

Biggest Importer  

Oil markets have gotten used to consumption growing in the world’s biggest importer as its GDP expands. But the economy’s rockier footing and Beijing’s pivot away from fossil fuels could put that thesis to the test. 

Goldman Sachs Group Inc. thinks Brent crude, which last traded around $80 a barrel, is likely to average $77 next year, according to a note this week. But the bank also flagged the risk that prices could sink to $60 a barrel by late 2025 if Chinese demand stays flat. 

That would probably hurt Cnooc most because of the relatively straight translation between prices and profits at China’s biggest offshore driller. PetroChina, meanwhile, is cushioned by its position as the nation’s dominant supplier of cleaner-burning natural gas, which drove profits to record levels last year.

The companies are also preparing for a life after petroleum, even if that future might be decades away. PetroChina this week acquired a power trading and generating unit from its parent company that could accelerate its addition of renewable assets. 

Cnooc has dipped its toes into offshore wind power, while Sinopec is the national champion for green hydrogen, a fuel that could be pivotal to cutting emissions in some of the harder-to-decarbonize corners of Chinese industry like steel and cement.