Oil production in China continues to fall. Development of the oil and gas industry of the People's Republic of China
China could become the world's largest oil importer this year, surpassing the United States for the first time. China's oil imports will increase from 6.68 million to 7.5 million barrels. per day, experts predict
This year, China could overtake the United States and become the world leader in oil imports. Oil imports this year will increase to 7.5 million barrels. per day from a record 6.68 million barrels. per day, predicts Zhong Fuliang, vice president of Unipec, the trading division of the Chinese oil refiner Sinopec, the largest in Asia. He expressed this assumption at the 2016 Russian-Chinese Oil and Gas Forum in Beijing, organized by the pricing agency Argus Media.
Earlier, analyst Li Li from the research company ICIS China assumed that the volume of oil purchases abroad could reach 370 million tons (7.2 million barrels per day) this year, which is more than the forecast for oil imports into the United States - 363 million tons (7.2 million barrels per day). .08 million barrels per day), Bloomberg reported.
China can achieve world leadership in oil imports not only due to the growth of foreign supplies - China's purchases of raw materials in 2015 increased by 8.8%, according to data from the General Administration of Customs of the People's Republic of China - but also due to the growth own production oil in the United States, which reduces their dependence on imports. The supply of raw materials to the United States has been consistently declining since 2005.
In February - for the first time in history - China's oil imports exceeded 8 million barrels. per day, leaving behind the United States, the world's largest consumer of hydrocarbons.
Oil in the USA and China
The cost of launching one well at the largest shale oil fields in the United States (Eagle Ford, Bakken, Marcellus and Permian) decreased by 7-22% compared to 2014
Exploration and production costs for American oil and gas companies decreased by 25-30% in 2015 compared to a ten-year high in 2012
From 100 thousand to 300 thousand barrels the US market will receive 660 wells per day after “unfreezing”
US oil production has decreased by 5.5% since last summer
The number of oil drilling rigs in the United States decreased to 372 in the week from March 21 to March 25 - the minimum since November 2009
Oil imports to China increased by 20% year-on-year in February; the volume of daily deliveries hit a record high on record
1.38 million barrels per day supplied to China by Saudi Arabia in February 2016. The record was recorded in February 2012 at 1.39 million barrels. in a day
Russia increased supplies to China in February by almost 48% compared to the previous year, to 1.03 million barrels. in a day
Up to 538 thousand barrels Iran increased oil supplies to China per day in February, 1% more than last year
26.68 million tons of Russian oil were supplied to China in 2015
Source: IHS, TIPRO, Reuters, Financial Times, Goldman Sachs, Russian Ministry of Energy
China will continue to increase oil purchases abroad to supply raw materials for its growing oil refining sector and replenish strategic reserves, Standard Chartered Bank predicted in a note dated March 24. According to the bank's forecast, oil imports to China will exceed 10 million barrels. per day by the end of 2018 - beginning of 2019. “The steady increase in oil imports into China is occurring in parallel with the growth of the Chinese oil refining sector,” noted bank analyst Priya Balchadani. “At the same time, the country is increasing its strategic reserves of petroleum products.”
China is using falling oil prices to increase its strategic reserves. Beijing is also actively investing in increasing oil refining capacity amid growing demand for petroleum products, which the country has to purchase abroad: liquefied petroleum gas, naphtha and fuel oil, the bank notes. At the same time, Beijing continued to build up emergency reserves.
The desire to accumulate oil for future use is so great that this year China may begin to form four additional strategic oil reserves, equivalent to a hundred days of imports. Reserves must be formed by 2020.
Threat to the USA
China slows down
US Federal Reserve Chairman Janet Yellen, during her speech on March 29, named the slowdown in China's economy among the main foreign economic risks. According to her, experts agree that in the coming years the growth of the Chinese economy will slow down due to a change in the economic development model of the PRC from investment to consumer and with the transition from exports to domestic consumption. It is unclear how smoothly this transition will go and how to control the possible occurrence of financial difficulties during its course. This uncertainty has been reinforced by global turbulence. financial market, which arose due to a new collapse in the Chinese stock market at the beginning of the year.
Low prices will help importers
Yellen also notes that for the United States, as the largest oil importer, low prices will boost spending and economic activity for several years. But for countries whose economies depend on oil exports, falling prices could lead to sharp spending cuts, and for energy companies, significant revenue declines and more layoffs. A further decline in oil prices could lead to adverse consequences for the global economy as a whole, she noted.
Oil refining growth
The driver of China's oil demand will be private refineries purchasing oil abroad. Previously, China issued oil import quotas to 13 private refineries with a total volume of 55 million tons, or 18% of total annual Chinese imports.
Growing demand for gasoline and jet fuel will provide significant volumes of oil refining in the world's largest automobile market, Standard Chartered expects. At the same time, Beijing increased exports of diesel fuel in the face of declining demand, which weakened due to a reduction in industrial production.
According to Standard Chartered Bank, demand for petroleum products in the country increased by 6.2%, to 9.4 million barrels. per day in 2015, and this year it will increase by another 420 thousand barrels. per day. China National Petroleum Corporation (CNPC) forecasts growth to 11.32 million barrels. per day. According to CNPC forecast, China's net oil imports in 2016 will increase by 7.3%, to 7.14 million barrels. per day.
In total, China will account for 37% of global demand for petroleum products in 2016.
Freezing will be discussed in April
Qatari Oil Minister Mohammed bin Saleh al-Sada said that 12 countries have confirmed their participation in the summit dedicated to freezing oil production levels, AP reports. These are Saudi Arabia, Russia, Kuwait, UAE, Venezuela, Nigeria, Algeria, Indonesia, Ecuador, Bahrain, Oman and Qatar itself.
According to al-Sada, Doha is still awaiting official confirmation from other countries that have indicated their intention to join the discussion.
A meeting of oil exporters to limit production levels will be held in Qatar on April 17.
Informed sources from Reuters and Bloomberg also reported Iran's desire to attend the summit, while clarifying that representatives of the Islamic Republic are not planning to participate in the negotiations on freezing production.
The increase in oil imports and oil refining capacity will be facilitated by the pricing policy implemented by Beijing. Last year, the National Development and Reform Commission of China decided not to lower the price of gasoline and diesel fuel , if the oil price is below $40 per barrel.
“China’s demand for oil will continue to be stimulated by private refineries purchasing imported volumes, as well as the desire to increase strategic reserves in the face of low prices,” Bloomberg quotes Li Li as saying. “At the same time, the US dependence on oil imports will gradually decrease against the backdrop of increasing domestic production.”
Many people know that China is the country that introduced gunpowder, earthenware, compass, silk and paper to the world. Now this information has become something commonplace and not surprising. But these inventions are not everything. If we talk about the oil and gas industry, then here too China had advanced technologies.
How they did it in China
In ancient times, even before our era, China had already mastered oil and gas production by drilling wells. The invention of the percussion-rope drilling method belongs to the Chinese builder Li Bing, who erected a dam on the Minjian River in 250 BC. Initially, this was how a brine solution was obtained, and later they began to use it to extract oil and gas from the depths.
To obtain oil, a well was first dug. A wooden pipe was inserted into it, covered with stones on top - one or more, but so that a small hole remained. Next, a metal weight weighing about two hundred kilograms (the so-called “baba”) was lowered into the pipe. The weight was attached to a rope made of reed and served as a drill. By the force of people or animals, he was lifted and dropped into the well again, destroying the rock with the force of the impact. From time to time, the “baba” was pulled out, the contents of the well were scooped out, and the accumulations of water were pumped out with a kind of pump from a bamboo pipe with a valve. Using this method, the Chinese drilled a well about 60 cm per day. Deep wells have been developed for more than one year.
Concerning natural gas, then the Chinese nation is considered the first to open the wide possibilities of its use to the world. Already in the 2nd century BC. Gas production by drilling was carried out systematically. The Chinese have invented the world's first bamboo pipeline to transport gas from the fields. And, what’s even more amazing, they learned to control its combustion. For this purpose, a complex structure was invented from wooden cone-shaped chambers. The largest of them was dug into the ground to a depth of three meters - gas was supplied into it from a well. Pipes ran from the large chamber to several smaller chambers installed above the ground. Holes were made in small chambers to supply air and mix it with gas. Thus, workers could constantly adjust the composition of the gas-air mixture and avoid explosions. Excess gas was directed into pipes that looked upward.
It is known that in ancient times gas production was carried out in the provinces of Sichuan, Shaanxi and Yunnan. Needless to say, the Chinese people put a lot of effort into protecting their technology. Indeed, in all other parts of the world, oil was still extracted using primitive methods - collecting, manually digging wells and pits. And natural gas was considered something otherworldly or divine and was mainly an object of worship and awe for people.
Areas of application
During the Song Dynasty (960 to 1270 AD), oil was used in portable bamboo pipes that were used as torches at night. Although oil was used to illuminate homes in China, it was not widely used, perhaps because of its unpleasant odor. However, the Chinese used clay pots with reed wicks impregnated with oil.
The great Chinese scientist Shen Kuo called oil " stone oil“and noted that its reserves in the country are huge and this can have an impact on the whole world. The prediction turned out to be as accurate as possible. In 1080–1081 Shen Kuo used the soot produced by burning oil to make ink for painting and calligraphy. His method became a replacement for the production of carcasses from burning pine resin.
The Chinese used oil as a lubricant, in tanning and medicine to treat skin diseases.
In 347 AD. Chinese geographer Zhang Qu mentioned in his notes that there is a “fire well” at the confluence of the Huojin and Bupu rivers. This is what he called the place where natural gas comes to the surface. According to him, residents of this area bring firebrands here from their fireplaces and get fire by bringing them to the well. To maintain light, people use bamboo pipes; with their help, gas can be transferred from one place to another over a fairly long distance - a day's journey from the well.
Gas was also used to heat boilers in which salt extracted from wells was evaporated.
A reference book from the Qing Dynasty (1644-1912) states that to obtain light and heat, one must make a hole in a leather container filled with gas and set it on fire.
War and “Chinese Greek fire”
Oil, due to its flammable properties, has been used by many peoples not only for peaceful purposes. Thus, “Greek fire,” according to many scientists, included oil, sulfur, bitumen and other flammable substances. The Greeks and Byzantines successfully used it in battles and won, even if the enemy had a numerical superiority. In Byzantium, the composition of “Greek fire” was a state secret, and continued to be used even when gunpowder replaced incendiary mixtures.
The Chinese became acquainted with “Greek fire” relatively late - around 300 BC, but were able to successfully use it in warfare. They combined the petroleum-based flammable composition with another of their inventions - the “fire pipe”, which could spew out a continuous stream of fire. This ancient device had two inlet valves - air was sucked in from one side of the pipe and pushed out on the other. The recipe was kept strictly secret, only that the list of ingredients included, among others, oil and sulfur.
In the 10th century, “fire spears” were invented in China - pipes made of bamboo (or iron), which were filled with a flammable mixture and tied to spears. Such a spear could burn for 5 minutes and was considered a very formidable weapon. In the 14th century, mobile flamethrower batteries on wheels were already used, and, according to one of the Chinese authors of military manuals, one such battery was worth a dozen brave soldiers. At that time, in China, gunpowder began to gradually replace oil in military affairs, and flamethrower batteries were later replaced by cannons.
One can only guess how the oil and gas industry in China might have developed if not for the Manchu conquest that began in 1644. Many industries in the war-torn country have deteriorated and technology has been forgotten. China found itself isolated from the outside world, and feudal relations took root in it for almost three centuries. Only by the middle of the 19th century the beginnings of capitalism began to appear here again.
Will China stop producing oil in five years, and Russia in nineteen, as the Crown Prince of Saudi Arabia said in his interview with Bloomberg on October 5? Mohammed bin Salman Al Daoud?
This is, to say the least, a very controversial prediction. China, contrary to this forecast, has a real opportunity to sharply increase production and significantly reduce oil imports, and Russia’s position in the market will depend on how efficiently the country’s industry can adapt to the new environment.
The Chinese market is extremely important for oil exporters. A reduction in China's oil imports due to an increase in its own production will put enormous pressure on the industry.
Unlike Russia, China does not export oil. Getting yours 3.5 million barrels of oil per day, it imports about 9 million barrels. This gap is growing. The supergiant fields of Daqing and Shengli, which once provided the lion's share of the country's production, are depleted. The development of the enormous oil resources of the Dzhungar and Tarim basins requires innovative technologies production of high-viscosity and heavy oils and natural bitumen, which China does not yet possess. The same applies to shale oil and gas resources, the world's largest reserves of brown and bituminous coals. These technologies, however, already exist and can be applied in the fields of China today.
For oil exporting countries, among which the largest are Russia and Saudi Arabia, consumption markets are important. Europe imports order 19 million barrels per day. The United States, despite growing shale oil production at a record pace, still imports about 10 million barrels. India, Turkey and a number of other economies with growing oil and gas consumption do not develop their own hydrocarbon resources, but import them from outside. Globally, hydrocarbon consumption exceeds 100 million barrels. At the same time, a significant share of this consumption can be covered by importing countries through the production of their own oil and gas resources, which is possible with the availability of appropriate technologies.
In a number of countries, the trend of replacing hydrocarbons as energy sources with renewable resources is increasing. However, as Prince Mohammed bin Salman rightly noted in his interview, the pace of this substitution is still insignificant and does not cover the growing needs for hydrocarbons. At the same time, the growth of the petrochemical products market can significantly increase the needs of oil production. That is, the world’s needs for hydrocarbons will not decrease in the future, but there is no need to fear an oil shortage, the crown prince assures. Saudi Aramco will reliably provide the world with oil supplies despite (MBS) a decrease in production in a number of countries. An important reassurance ahead of Saudi Aramco's planned IPO.
In this regard strategic decision last year, designed to protect national and corporate interests, was the agreement between Saudi Aramco and TOTAL on the construction of a giant petrochemical complex on the Arabian Peninsula.
In Kazakhstan, this strategy is still under discussion. It would seem that the problem of the resource base for the future refinery has been resolved and the technical obstacles to the implementation of this strategy have been removed, but there is no solution yet. Kazakhstan has no right to allow itself to become a fly between two camels, that is, to become dependent on the competition of the main players in the tightening oil export market. Yes and creation 5-8 thousand new jobs in the socially tense Mangistau region, this measure is not at all superfluous.
The crown prince’s logic lacks a very important argument, namely: technologies for highly efficient production of hard-to-recover hydrocarbons, including residual oil reserves of depleted fields, deposits of high-viscosity oils and natural bitumen, fields with a shortage of natural energy, etc., have already begun their entry into the industry and into within a relatively short time will become the prevailing factor influencing the oil production market. This is bad news for His Highness, and not only for him, since oil imports will progressively decrease, and competition for oil consumers among exporters will sharply intensify, and accordingly, the price will fall. Those who cannot withstand this competition will be dropped from the list of oil producers. Those who are able to respond in a timely manner to the turn of the oil production industry towards highly efficient and economical oil production technologies will be able to adapt to the new realities of the oil market. The key word in the process will be competitiveness.
The fact that China has already entered this race is evidenced by the fact that PetroChina (CNPC) announced the spin-off $22 billion for the development of oil production technologies in the Dzhungar and Tarim basins. SINOPEC is actively searching for breakthrough technologies, CNOOC and others will certainly not be left behind. So China will most likely retain its presence in the list of oil producers and even displace exporters. As for Russia and Saudi Arabia, we'll see.
The next few years will show who will survive and who will not. Time has passed.
Alex Barak, Director of Galex Energy Corporation (Houston,USA)
Despite the fact that China is one of the fastest growing economies in the world, its energy consumption structure is very different from that typical developed countries. The share of oil and gas in the country's energy balance is only 25%; The average per capita consumption of commercial fuels in China reaches less than 1 ton of standard fuel per year, while the world average is 2 tons.
China's own fuel resources are already insufficient for the needs of its developing industry. Since 1993, China has become a net importer of oil, which meant a fundamental change in the energy market throughout the Asia-Pacific region. It is clear that in the future, the volume of development of the oil and gas industry sector in China is unlikely to meet the internal needs of the economy, and in the near future the country will be forced to import oil and natural gas in ever-increasing quantities.
Until recently, information about oil reserves in the PRC was classified as a state secret. In addition, proven reserves differ significantly from explored and potential reserves. In many documentary sources of information varying degrees the probability of reserves is not taken into account; As old oil fields were depleted and new oil fields were discovered, estimates often changed. For example, in the press of the People's Republic of China during the years of the Cultural Revolution (1966-1969) and at the end of the 1970s (in order to attract foreign companies for exploration), potential reserves were clearly overestimated. Even now, the total data on reserves at individual fields and the general data for the country do not coincide.
China's proven oil reserves in 1999 were estimated at 3.2 billion tons, representing approximately 2.4% of world reserves. Reliable oil reserves on land, according to Chinese data, are estimated at 5.3 billion tons and 4 billion tons on the shelf.
Potential oil reserves have increased over 30 years (from 1966 to 1996) by 5 times, from 6 to 30 billion tons. The assessment of oil reserves in the country is also influenced by their linkage to two indicators (the share of world reserves, estimated at 2.3- 2.4%, and the so-called R/P Ratio, i.e. the ratio of reserves to production, adopted for China in 20 years).
Table 1
Oil production in China by year (million tons)
| 1949 - 0,12 | 1973 - 50,0 | 1986 - 131,0 | 1997 - 158,0 |
| 1957 - 1,40 | 1975 - 70,0 | 1987 - 134,0 | 1998 - 157-160 |
| 1958 - 2,25 | 1978 - 104,0 | 1988 - 137,0 | 1999 - 159-160 |
| 1962 - 5,75 | 1979 - 106,15 | 1990 - 139,0 | 2000 - 162 (estimate) |
| 1968 - 10,0 | 1980 - 105,95 | 1991 - 137,0 | 2005 - 170 (forecast) |
| 1970 - 20,0 | 1984 - 114,6 | 1995 - 140,3 | 2010 - 185 (forecast) |
| 1971 - 38,0 | 1985 - 124,9 | 1996 - 155,6 |
Sources:
As can be seen from the table, for last years The growth rate of oil production has decreased due to the depletion of old fields. In the mid-1990s, China's period of oil self-sufficiency ended.
table 2
Oil production and consumption by year (million barrels/day, on average)
Source:
Table 3
Oil consumption in China by year (million tons)
Source:
Table 4
Forecast of oil consumption deficit in China by year (million tons)
| 2000 | 2005 | 2010 | |
| Demand | 195 | 220 | 265 |
| Shortage | 33 | 50 | 80 |
Source:
Currently, China produces about 160 million tons of oil per year and consumes 200 million tons. In 2000, oil imports amounted to about 60 million tons, mainly from Oman. Since it is difficult to accurately predict at what pace China's economy will develop, experts' assumptions regarding future imports differ: for example, some claim that in 2010 it could amount to 70-90 million tons, while other publications give a figure of 120 million tons already in 2005.
At the same time, despite the shortage of oil, some of it was previously exported, mainly to Japan, and also (in small quantities) to the DPRK and Vietnam. However, oil export volumes have been steadily declining since the 1980s: if in 1986 China exported 28.4 million tons of oil, then in 1999 it was only 8.3 million tons, while in 2000 exports stopped altogether.
The total length of oil pipelines in the country in 1997 was 9.3 thousand km. Noteworthy is the largest energy pipeline from the city of Golmud (Tsaidam field) to Tibet to Lhasa with a length of 1080 km.
Oil fields
The largest group of oil fields, collectively called Daqing, is located in Northeast China in the basin of the Songhuajiang and Liaohe rivers (the so-called Songliao basin). The field, discovered in 1959, includes the Daqing, Daqing-E, Shengping, Songpantong, Changwo, Changcunlin, Xinchekou, Gaoxi, Putaohua-Abobaota oil fields. Oil reserves in Daqing were estimated at 800-1000 million tons, but recoverable reserves are declining every year.
Table 5
Oil production at the Daqing field by year (million tons)
| 1975 | 11,1 | 1984 | 53,56 |
| 1978 | 50,37 | 1985 | 55,59 |
| 1979 | 50,75 | 1986 | 55,50 |
| 1980 | 51,5 | 1987 | 55,55 |
| 1981 | 51,75 | 1993 | 56,0 |
| 1982 | 51,94 | 1994 | 56,0 |
| 1983 | 52,63 | 1999 | 50,0 |
Sources:
Adjacent to the Daqing field is the Liaohe field, which produced up to 10 million tons of crude oil per year in 1986-1987, and the Fuyu field with production of 1-2 million tons. An export oil pipeline was laid from Daqing to the ports of Dalian and Qingdao, as well as to Beijing,
Anshan and to the Dagang field - the largest in Northern China (Banqiao, Tianjiahe, Gandong, Wansyuzhuang, Ganxi, Zhouqingzhuang fields; in the late 1980s - early 1990s, this field produced 3-3.5 million tons of oil per year).
In Eastern China, the most famous is the group of deposits under the general name Shengli: Jingqiu, Yihezhuang, Chengdong, Yangsanmu, Hekou Gudao, Gudong, Yunandongxin, Chun Haozhen, Shento, Hajia, Shandian. In 1990, oil production here reached 33 million tons. Oil pipelines were laid from the field to Xi'an and Zhengzhou.
Table 6
Oil production at the Shengli field by year (million tons)
| 1975 | 3,2 | 1986 | 29,5 |
| 1978 | 19,5 | 1987 | 31,6 |
| 1983 | 18,4 | 1990 | 33,0 |
| 1984 | 23,02 | 1999 | 30,0 |
| 1985 | 27,03 |
Source:
In Hebei Province in Eastern China there is the Jingzhong field, where oil production amounted to 5 million tons in 1990. Thus, approximately 40 million tons of oil are produced in Eastern China per year.
In southwestern China, approximately 2.2 million tons of oil per year are produced in fields in Sichuan province north of Chongqing (Yingshan, Nanchong, Panlanchen). By the way, in Sichuan province oil was extracted as early as 600 BC using bamboo tubes from shallow wells. In 1996, construction of the Chengdu-Lanzhou oil pipeline began.
In Southern China, about 2 million tons of oil per year are produced onshore in Guangdong province at the Sanshui field.
In recent years, great hopes in China have been placed on the oil fields of the northwestern part of the Xinjiang Uyghur region. autonomous region(Dzungaria, Karamay, Tarim, Turfan-Khami, Qinghai, Yumen), where 30% of the total reserves in the country are concentrated. In 1997, 16.4 million tons of crude oil were produced throughout the region, and in 2001, production is projected to increase to 23 million tons. The most significant fields are in the Tarim Basin, with proven reserves of 600 million tons and potential reserves of 18.8 billion tons. In the northern part of the depression there are the Kan, Tamarik, Ichkelik, Duntsulitage, Dongchetan, Bostan, Yakela, Tugalmin, Tergen, Akekum, Santamu, Qunke, Lunnan deposits. In the southern part of the depression there is a group of Tazhong fields (Tazhong-1, Tazhong-4, Tazhong-6, Tazhong-10), connected to the northern Lunnan field by a 315 km pipeline. In addition, oil fields have been discovered in the westernmost part of Tarim on the border with Tajikistan and Kyrgyzstan (Karato, Bashatopu). Oil production in the Tarim Basin in 1996 amounted to 3.5 million tons, in 1999 - 4.7 million tons, in 2000 it should increase to 5 million tons, and by 2010 - to 14 million tons.
In Dzungaria, between the Altai and Tien Shan mountain systems, there is an old Karamay oil field, explored back in 1897. The potential reserves of this field are estimated at 1.5 billion tons (Karamay, Dushanzi, Shixi, Mabei, Urho, Xiangzijie). There are pipelines Karamay-Urumqi and Karamay-Shanshan. Oil production at the field does not exceed 5 million tons.
The fields of the Tsaidam Depression (Lenghu-3, Lenghu-4, Lenghu-5) produced 3.5 million tons of oil in 1990. Production is currently estimated at 1.5-2 million tons. The Lenghu-Lanzhou oil pipeline has been built.
Currently, more than 90% of the country's oil is produced on land, but since 1969, test oil began to be extracted on the shelves of the East China, Yellow and South China Seas and the Bohai Gulf. Oil fields have also been discovered on the shelf of the island. Hainan (Wenchang, Lintou, Ledong). Potential oil reserves on the shelf of the South China Sea (which is claimed, however, according to at least 12 countries in the region) are estimated at 10-16 billion tons. In the South China Sea region, 150-200 million tons of oil per year are currently produced (all countries in the region). Of this volume, 4.5 million tons of oil were produced on the entire Chinese shelf in 1993, about 15 million tons in 1996, and 16.2 million tons in 1997.
In 1994, China produced 6.47 million tons of crude oil on the shelf of the South China Sea, in 1996 - 11.8 million tons. Currently, production has increased to 14-15 million tons, however, according to experts, the development of shelf fields yielded generally disappointing results. Initial estimates of oil reserves in the Chinese offshore sector (up to 1.7 billion tons) turned out to be clearly overestimated in order to attract foreign investors.
Large oil reserves (300 million tons) have been explored in the Bohai Bay (the so-called Bozhong complex). The oil fields here are divided into blocks, developed since 1979 by foreign companies (Chevron, Kerr McGee, Texaco, Agip, Samedan, Apache, Esso China Upstream, Wood Mackenzie, Phillips Petroleum International Corporation Asia together with the Chinese company CNODC). In 2000, oil production in the Bohai Gulf amounted to 4 million tons.
As for crude oil refining, the total capacity of China's oil refineries amounted to 4.3 million barrels per day in 1999. The factories are located in the main cities of the country, as well as on the sites of the largest deposits. However, the share of imports in raw materials for refineries is constantly increasing: Chinese oil has an increased sulfur content, and this makes it more profitable production petroleum products based on light Middle Eastern oil. Currently, the largest oil refinery in China is being built in Danzhou, Hainan Province, the cost of the first stage is $2.2 billion.
Oil producing companies
Mining in China is vertically integrated and tightly controlled by the state. In 1998, the oil and gas industry was reformed and two of the then four state-owned companies were merged. Currently, oil and gas production in China is carried out by:
China National Petroleum Co., CNPC. In 1998, CNPC's assets amounted to $57.8 billion; the company controls 70% of proven oil reserves in the north, northeast and west of the country. Production volume 107 million tons per year (1998). In 1999, PetroChina Company Ltd was established, to which CNPC transferred most of its domestic assets, retaining overseas business and pipeline management;
China National Offshore Oil Corp. (CNOOC) with a capital of 1.8 billion. Branches: China National oil and gas exploration and development Corporation (CNODC), China offshore oil Nanhai East (CONHE);
Chinese Petrochemical Corp., Sinopec. Assets - $46 billion, processes 36 million tons of oil annually.
In 2000, shares in China's oil and gas industry were distributed among these three companies as follows:
Table 7
| Oil production | Gas production | Oil refining | |
| CNPC | 67% | 68% | 45% |
| CNOOC | 10% | 17% | - |
| Sinopec | 23% | 15% | 55% |
Source:
There are also separate companies created for specialized purposes:
- China Petroleum Engineering and Construction Corp (CPECC) (construction of oil sector infrastructure, participation in the construction of oil refining enterprises);
- Chinese Petroleum and Gas Bureaus (CPB), which are engaged in the construction of gas and oil pipelines;
- In 1997, China National Star Petroleum Co was formed (oil production in the southern provinces of the PRC);
- Shanghai Petrochemical (oil refining in Northeast China), sales of $1.6 billion;
- Zhenhai Referring & Chem. (oil refining in Southeast China), sales amount 1.3 billion dollars;
- In Hong Kong (Hong Kong), the Japanese company Tokyo Electric Power Company has a monopoly on the supply of oil, as well as the processing and storage of petroleum products.
The PRC has adopted fairly clear rules and regulations regarding the development of oil resources. It should be noted in this regard:
- Temporary Rules for Regulating the Registration of Oil and Natural Gas Exploration and Production Data (adopted by the State Council of the People's Republic of China in 1987);
- Resolution on payment for the use of the oil shelf territory during the development of oil resources (1968);
- Regulations on the protection of oil and gas pipelines (1969);
- Decree on compensation for damage during seismic exploration of oil deposits (1989);
- Temporary resolution on payment of fees for the use of fields in the development of continental oil resources through cooperation between Chinese and foreign enterprises (1990);
- Regulations of the People's Republic of China on cooperation with foreigners in the development of onshore oil resources (1993).
The presence of a fairly well-developed legal framework allows foreign companies to operate successfully in China. By the beginning of 1998, more than 130 contracts had been signed with 67 foreign companies from 18 countries for the exploration and exploitation of oil fields on the shelf of the South China Sea. Together they invested about $3 billion. Thus, a consortium of three companies (China Offshore Oil Nanhai East (CONHE) - 51% of shares, Amoco Orient Pertoleum - 24.5%, Kerr McGee China Pertoleum - 24.5%) invested $650 million in the Luhua project - a field of 120 miles southwest of Hong Kong in the delta. Zhemchuzhny, whose reserves are estimated at 160 million tons of oil. In 1990, the CACT group was formed (China National Offshore Oil Corporation - 51%, Agip China BV, Chevron Overseas pertoleum Inc. - 49%) with the participation of Texaco China B.V., which continues exploration of another field - Huizhou in the delta of the river. Zhemchuzhny, with an expected production level of 5-6 million tons per year.
The country has a program for the construction of large tanks for storing petroleum products with a total volume of 2171 thousand m?, including in Shenzhen, Qingdao, on the island. Hainan (Linggao), Shanghai (Pudong), Chengdu (Sichuan). Foreign companies are taking part in the construction - Agip, Feoso, Marubeni, Shell, Saudi Aramco, Sangyong, Mitsui. Santa Fe (USA), Occidental Petroleum, JHN oil operation Co, Exxon Corp. are also participating in the exploration of new fields.
International projects
As mentioned above, China currently imports 50% of its crude oil from Oman, with which it has entered into a number of long-term agreements. However, China cannot be satisfied with such dependence on one supplier, so options for long-term agreements for the supply of oil and gas from Saudi Arabia, Iraq, Peru, Kuwait, the UAE, Brunei, Indonesia, and Malaysia are now being explored. China is seeking the right to participate in the development of oil and gas fields in Papua New Guinea, Sudan, Thailand, and Venezuela; in Sudan, Iraq and Peru, rights were acquired to conduct prospecting and exploration work at a number of deposits.
In accordance with the General Agreement between the Ministry of Energy and natural resources The Republic of Kazakhstan and the China National Petroleum Corporation (CNPC) began developing a feasibility study (feasibility study) for the construction of a Kazakh-Chinese oil pipeline. The Kazakh part of the Aktau-Kumkol pipeline will be 1200 km, the Chinese part - 1800 km (through the territory of the XUAR). From the Xinjiang oil fields, the Chinese pipeline system continues to the city of Shanshan. If the oil pipeline load is at least 20 million tons of oil per year, the pipeline can be extended to Lanzhou, from where there is already a main oil pipeline to Eastern China. The total length of the Aktau-Kumkol oil pipeline will thus be about 3,000 km at a cost of 2.4-2.7 billion dollars and a guaranteed throughput capacity of 20 million tons per year (maximum - 40 million tons).
Construction is divided into three stages based on distance and required investments:
1. Kenkiyak-Kumkol - 785 km, 785 million dollars.
2. Atasu - Alashankou (PRC) - 1100 km, 1.3 billion dollars.
3. Atyrau-Kenkiyak (410 km, $359 million) and Kumkol-Karakoin (199 km, $131 million).
In 1997, a framework agreement of intent was concluded, but in 1999 all work on the feasibility study was suspended.
The obvious advantages of the project include the absence of the risk of transit countries. Between 1996 and 1998, China, represented by CNPC, acquired for $4 billion a 60% stake in Aktobemunaigas JSC (AMG), which owns the Uzen field on the Mangyshlak Peninsula. At the same time, experts point out the obvious shortcomings of the project: the large length, the lack of a developed internal network connecting the XUAR and the eastern regions of China, the danger of a lack of oil, since the pipeline can become profitable if it pumps at least 20 million tons per year. In addition, large estimated oil reserves in the fields of the Tarim Basin have not yet been confirmed in the XUAR itself. Kazakh oil will never be cheaper than Middle Eastern oil, and can be viewed primarily from the point of view of the political need to diversify sources of hydrocarbons.
Observers emphasize that the Chinese side still considers the project as a whole ineffective, and Kazakhstan is forced to reckon with this conclusion.
The negative experience of cooperation between Kazakhstan and China should also be taken into account. Every year, since 1997, Aktobemunaigas has exported about 2 million tons of oil to China via Russia, supplying it via a direct pipeline to the Orsk oil refinery. Special orders of the Russian government exempted this oil from customs duties as transit oil. However, in January 2001, the period of export benefits for AMG JSC expired, but the agreements and the export license were not reissued by CNPC. As a result, the Orsk Oil Refinery refused to accept Kazakh oil, dozens of oil wells stopped, gas produced as a by-product during oil extraction stopped flowing into the homes of Aktobe residents, and the operation of the Aktobe Thermal Power Plant was under threat. Only with great difficulty did CNPC manage to reach an agreement with the owner of the Orsk Oil Refinery, the Tyumen Oil Company. In addition, the Kazakh side noted that CNPC did not fulfill the obligation it assumed when purchasing AMG shares to build a pipeline from Kazakhstan to Western China (oil is still delivered there by rail) and does not maintain the investment schedule stipulated by the agreement: in 1999 it was only 59% completed.
It is also worth noting the participation of the Chinese corporation CNPC in two joint projects with the Turkmen state company Turkmenneft to develop the Gumdag oil field, as well as fields on the Caspian Sea shelf.
Russian project
The prospects for importing oil from Russia seem quite obvious for China, thanks to its territorial proximity and the developed pipeline network existing in Russia, which could well be continued for export to China. However, there is still not a single completed Russian-Chinese oil project. So far, only the oil pipeline project from the fields of the Krasnoyarsk Territory to China is in the final approval stage. It was expected that the agreement would be signed in July 2000 during the visit of Russian President V. Putin to the PRC, but this did not happen.
CNPC concluded an agreement on drawing up a feasibility study for the project with YUKOS in February 1999.
In December 1999, a memorandum was signed on the construction of an oil pipeline from Angarsk to China. The cost of the project was estimated at $1.7 billion, the pipe's throughput was 30 million tons per year for 25 years (production becomes unprofitable when loading less than 20 million tons per year). The feasibility study was planned to be completed in 2000, but the Russian side was then unable to provide guarantees of a sufficient amount of oil. Initially, it was assumed that the bulk of it would come from Western Siberia, but most of the deposits there had already entered a period of decline in production, and it turned out to be impossible to guarantee the necessary supplies. Then it was decided to refocus on the Yurubcheno-Tokhomskaya zone (YUTZ) of Eastern Siberia, the recoverable reserves of which are estimated at 900-1100 million tons - this is the largest undeveloped oil and gas field in Eastern Siberia. The Yurubchensky area, where work is expected to be carried out, contains about 300 million tons of recoverable oil reserves and is the most studied part of the YuTZ.
A definite advantage of the project is the possibility of using the existing Tyumen-Omsk-Krasnoyarsk-Irkutsk oil pipeline, to which, however, branches have yet to be created. The license for geological exploration and development of the Verkhnechonskoye, Yurubcheno-Tokhomskoye and Sobinskoye YuTZ fields belongs to the East Siberian Oil Company (VSNK), where NK YUKOS owns 68% of the shares.
However, the large Kuyumbinskoye field in the same zone is being developed by Slavneft. The latter circumstance created significant difficulties for the project, since the two companies could not agree on key issues. Only by September 2000 did Yukos manage to acquire additional rights for the development of fields, which allowed him to achieve parity with Slavneft and begin to coordinate interests. At the same time, YUKOS intensified work on the Tersko-Kama section of the Yurubcheno-Takhomskaya zone.
Another difficulty lay in the fact that, although back in May 1999 The State Duma decided to develop the Yurubchenskoye field under the terms of a PSA, the “Agreement” on production sharing at the field was never prepared, and the tax regime of the project, therefore, has not yet been determined. As for the Kuyumbinskoye field, it has so far only been recommended by the Government of the Russian Federation to the State Duma for consideration for its transfer to the PSA regime.
At the moment, two possible routes for the pipeline are being considered: through Mongolia and bypassing it. For Russian companies, the economically more profitable route through Mongolia to Beijing is preferable, for CNPC - bypassing Mongolia from Angarsk to Harbin, to the Daqing field, then along existing oil pipelines to the ports
Dalian, Qingdao and others.
The estimated tariff for pumping oil along the route will be $30 per ton, while transporting oil from Oman costs China $10 per ton.
It is important that in China, a country with a planned economy, the directives for the 10th Five-Year Plan (2001-2006) do not provide for the construction of either Kazakh or Siberian oil pipelines. Thus, the project is obviously not one that will be implemented in the next few years.
Reasons for today's failures
There is no doubt about the prospects of the Chinese market fuel cells, however, the future of Russia on it, despite the colossal reserves of raw materials, seems very uncertain. The essence of the problems facing Russia in this area, in our opinion, can be reduced to several points.
1. Unprofitability
Russian oil is not cheap, and existing export payments and excise taxes, combined with the high cost of transportation, make it too expensive for China. For the year 2000 alone, export rates customs duties for Russian oil increased from 15 to 32 euros per 1 ton, and there is no doubt that they will rise further, especially considering that Russia is expected to make large-scale payments on external debts, the funds for which are traditionally withdrawn from petrodollars.
2. Imperfection of legislation
Russian legislation in the field of field development has not yet been finalized; Thus, there is no completed regulatory framework for PSA, contradictions between the Law on PSA and Tax Code. If we take into account some dissatisfaction of the regional and federal authorities with the first experiments in developing oil fields under the PSA scheme, then the future prospects for the PSA in Russia become not obvious. All this does not allow raising the funds necessary for the development of new fields and the construction of pipelines.
In addition, other changes in legislation should be expected in the near future. Thus, a reform of the rules for accessing exporters to main oil and gas pipelines began, for which a special commission of the Government of the Russian Federation was created. As a result, planning oil imports from Russia has become much more difficult for foreign partners. It must be taken into account that China is a state with a planned economy and a powerful bureaucratic system, for which any changes in the legislation of a partner country, even in a more favorable direction for itself, is a reason to completely curtail contacts and wait until
everything will “settle down.”
3. Lack of government guarantees
China traditionally prefers to work in conditions where cooperation at all stages, starting from preliminary negotiations, is supported by reliable government guarantees. In addition, it is expected that the positions of the companies with which negotiations are being conducted and the state will be agreed upon, which is not expected in Russia. In those cases when several Russian companies simultaneously come up with different, not mutually agreed upon
proposals, citing the support of the Russian state, one can reasonably expect the Chinese side to refuse to perceive these proposals as real.
4. Lack of understanding of the specifics of relationships
The case of Aktobemunaigas (and comments on it in the Russian and Kazakh press) is interesting because it demonstrates a lack of understanding in our business world (meaning both Russia and the CIS countries) of the specifics of the relationship between Chinese business and the Chinese state. Therefore, our corporations have the same groups working with China that negotiate with Western oil companies, which leads to numerous mistakes.
The failure of the Chinese to fulfill their obligations is the norm for business in cases where the desire to “get cheaper, give more, and not bear the costs of previous obligations” is not balanced by the bureaucracy. This is where, for example, the myth of poor quality Chinese goods. You need to understand that in the Chinese state, business always stands slightly below the state apparatus. This point and other features of Chinese thinking require Russian companies to create permanent groups to work specifically with China (and in China), and not the usual idea for Russians that everything or almost everything can be thought out and prepared directly in Russia. Doing business with the Chinese oil and gas sector cannot be done according to the Russian or European model.
LITERATURE:
1. BP Amoco Statistical Review of World Energy. 1994.
2. Energy in Japan. 1989, #5.
4. OPEC Petroleum (general review). 1997-1998.
5. OPEC Petroleum. 1993, #2.
6. Petroleum Economist (review). 1997-1999.
7. Petroleum Economist. 1995, #9.
8. Ibid. 1996, no. 1.
9. Ibid. 1996, no. 2.
10. Ibid. 1997, no. 2.
14. State Petroleum and Chemical Administration (China). 1999.
15. Wood Mackenzie Statistical Review.
21. Institute of Internal Affairs of the Russian Academy of Sciences, express information. 1996, no. 5.
23. International life. 1999, no. 10.
24. Oil and gas vertical. 1999, no. 2-3.
25. Ibid. 2000, no. 2.
26. Oil of Russia. 2000, no. 2.
29. Expert. 2000, No. 13.
30. China in the 21st century. Abstracts of reports // IFES RAS. M., 2000.
31. Oil and gas vertical. 2000, no. 11.
32. Expert, 2000, No. 45.
33. Oil and gas vertical. 2000, no. 7-8.
34. Nezavisimaya Gazeta, 02/27/2001.
35. Financial and economic bulletin of the oil and gas industry. 2000, no. 4.
36. Oil and gas vertical. 2000, no. 12.
Georgy Dmitrievich BESSARABOV - Leading Researcher at the Department of Asian and Asia-Pacific Problems of the Russian Institute for Strategic Studies
Alexander Dmitrievich SOBYANIN- Deputy Editor-in-Chief of the analytical magazine "Profi"
Photo by Reuters
China is one of the top five leading oil producers. However, deposits are being depleted, and the costs of operating wells and transporting fuel from Xinjiang to coastal provinces are rising. Therefore, state corporations are cutting production. But they are responsible not to private investors, but to the government, which will not allow masses of workers to be fired. Unprofitable fields will continue to be exploited. According to experts, China's demand for imports of “black gold” will also grow.
Some analysts believe that oil production in China has reached its peak. Major corporations are coming to the conclusion that it makes more sense to leave more oil in the ground than to develop it, writes the Wall Street Journal. In support, the newspaper cites production data released by these corporations.
China Petroleum & Chemical Corp., better known as Sinopec, said its crude oil production fell nearly 5% last year. Rival state-owned giant PetroChina Co said production fell 1.5% in the first three quarters of 2015. Together, Sinopec and PetroChina account for approximately 75% of China's oil production. Cnooc Ltd. is the third largest Chinese company in terms of production. It produces oil mainly offshore. The firm said it expects production to decline by 5% this year.
Peter Lee, energy analyst in the groupFitch,comments: “In China they know that there are large resources underground, but it is cheaper to import.”
IN recent months markets focused on the contradictions between the US, Russia and OPEC members. Brokers are waiting for a major manufacturer to start cutting production to raise prices. But so far the production reduction has been minimal. However, analysts predict that production in China this year will decline by 100 thousand to 200 thousand barrels. in a day. In 2015, it reached a record high of 4.3 million barrels. in a day. According to Nelson Wang, an oil specialist at a brokerage firmCLSA in Hong Kong, production cuts in China will reduce the global market oversupply.
In a conversation with NG partner of RusEnergy company Mikhail Krutikhin noted that in " western regions China has oil refining capacity. But supplies there began to run out. They have been in production for a long time. Therefore, oil has to be imported, including from neighboring Kazakhstan. There is even an oil pipeline there that can be used to get oil from Russia. Now it is not used; Kazakhstan occupies this capacity.” And in eastern China, oil is obtained from several sources at once, but not from Central Asia. This is our own production, oil by sea and from Russia under a contract with Rosneft.
Regarding the prospects for Chinese imports, Krutikhin said: “Recently it has become obvious that the statistics of Chinese government agencies cannot be trusted. It is unknown whether China's GDP is growing or has stopped growing. Therefore, it is difficult to assess the growth of oil imports. We can assume that there will be growth, but not as much as previously expected.” According to the expert, China has filled its strategic storage facilities, but has not yet begun building the second phase of storage facilities. Therefore, for now he does not need much oil.
Some of the most expensive fields have marginal production costs of about $40 per barrel. This is higher than $30 per barrel, at which oil was sold in recent weeks. It is becoming unprofitable for Chinese companies to continue production. However, reducing production in China will not be enough to achieve equilibrium in world markets. Supply is likely to exceed demand by about 1.5 million barrels. in the first half of this year, the International Energy Agency predicts.