- China's largest oil fields are mature, and production has peaked, leading companies to invest in techniques to sustain oil flows at the mature fields, while also focusing on developing largely untapped reserves in the western interior provinces and offshore fields.
- After bolstering domestic oil output in 2010, China has experienced more moderate oil production growth since then. China boosted its domestic oil output by over 7% in 2010, after incremental growth in the previous two decades. Oil production in 2013 reached nearly 4.5 million bbl/d, about 50% higher than the level two decades ago.
- Approximately 81% of Chinese current crude oil production capacity is located onshore, while 19% of crude oil production is from shallow offshore reserves. New offshore production, enhanced oil recovery (EOR) of older onshore fields, and small discoveries in existing basins are the main contributors to incremental production increases. China's NOCs are investing a great deal in EOR techniques such as water injection, polymer flooding, and steam flooding, among others, to offset oil production declines from these mature, onshore fields.
- Recent E&P activity has focused on the offshore areas of Bohai Bay and the South China Sea (SCS), as well as onshore oil and natural gas fields in western and central interior provinces such as Xinjiang, Sichuan, Gansu, and Inner Mongolia.
- China invested an estimated $13 billion in oil and gas exploration in 2013 so that the country can reduce its dependence on hydrocarbon imports.
- A vast majority of China's largest oil fields, located in the northeast and north central regions of the country, represent the backbone of the country's domestic production. However, these fields are mature and prone to declining production. CNPC's Daqing Oil Field, located in the Northeast, is one of China's oldest and most prolific fields, constituting 19% of China's overall production. In 2012, Daqing produced about 800,000 bbl/d of crude oil, according to FGE's most recent estimate, and has maintained this level for the past decade after declines of more than 1 million bbl/d. Sinopec's Shengli Oil Field near the Bohai Bay produced about 550,000 bbl/d of crude oil during 2012, making it China's second-largest oil-producing field. The use of EOR in these fields has been able to slow decline rates. However, Daqing, Shengli, and other mature fields have been heavily exploited since the 1960s, and their output is expected to decline within the next decade.
- CNPC's use of various EOR techniques on the Liaohe Oil Field and Jilin fields in the Northeast, some of China's oldest onshore oil fields, has helped stem production declines in recent years. Liaohe, one of China's largest heavy oil fields, produced 200,000 bbl/d in 2012. Because CNPC began using more advanced EOR methods such as steam flooding and polymer flooding on a large scale, the company hopes to restore production to around 241,000 bbl/d by 2020. CNPC has used hydraulic fracturing and CO2 injection at the Jilin field to mitigate further declines in hydrocarbon output.
- China's interior provinces, such as the Northwest's Xinjiang Uygur Autonomous Region (including the Junggar and Tarim basins) and central Ordos basin (particularly the Changqing field), have attained strong production growth in recent years through the use of improved drilling and advanced oil extraction techniques to unlock complex geological oil reserves.
- As China constructs more storage and processing infrastructure in this region, it is heavily investing in developing the surrounding oil and gas fields.
- Total 2012 production from the Junggar and Tarim basins was estimated at 370,000 bbl/d. CNPC applied a new EOR technology to the ultra-heavy Fengcheng field in the Junggar basin in 2009 and expects production and recoverable reserves to increase in the next few years.
- Production at Changqing, China's third-largest oil field, which is located in the north central Ordos basin, grew robustly over the past several years, averaging more than 13% annual growth between 2008 and 2012 when it reached 451,000 bbl/d.
- CNPC uses water injection, steam flooding, and hydraulic fracturing to boost Changqing's production.
- Offshore E&P activities, mostly driven by CNOOC, have focused on the Bohai Bay region in the Yellow Sea, the South China Sea (particularly the Pearl River Mouth Basin), and, to a lesser extent, the East China Sea. Most of these fields are small and mature faster than China's onshore fields, which prompts CNOOC to explore deep water plays.
- The Bohai Bay Basin, located in northeastern China east of Beijing, is the oldest oilproducing offshore zone and holds the bulk of proven offshore reserves in China. CNPC initiated the first phase of the Jidong Nanpu Oil Field development in 2007, and hoped to bring 200,000 bbl/d of crude oil production on stream by 2012. However, since then, the company claimed the reserves and production levels were overstated, and further exploration and reserve additions in the field would be necessary to meet its goals.
- CNOOC's production in the Bohai Bay was 406,000 bbl/d in 2011, or two-thirds of the NOC's domestic oil production, according to PFC Energy. Following an oil leak at China's largest offshore crude oil field (Penglai 19-3 Oil Field) in July 2011, the government called for the field's production to cease. Production rates at Penglai 19-3 peaked at about 122,000 bbl/d prior to the shut-in. ConocoPhillips, a 49% stakeholder and operator of the field, and CNOOC resumed operations at Penglai 19-3 when they received government approval in early 2013.
- Production from the Penglai project is processed at China's largest floating production, storage, and offloading (FPSO) vessel with an offloading capacity of 190,000 bbl/d. Further development phases of Penglai are underway.
- CNOOC has discovered other sizeable oil fields in the Bohai Bay such as Penglai 9-1, which the NOC claims to be its largest find in the Bohai Bay in recent years. The company made seven oil and gas discoveries and assessed seven more finds in 2012.
- Although the South China Sea is known to be gas-rich, CNOOC has also discovered several small oil fields and is focusing on deep water discoveries. In 2011, CNOOC's total oil production in the SCS was 193,000 bbl/d. In 2010, CNOOC made significant discoveries of the Enping Trough and the Liuhua 16-2 in the eastern SCS, opening further opportunities for exploration. The NOC continues to explore and develop several fields to use EOR tactics to further produce from mature fields in the East SCS. CNOOC has held three licensing rounds since 2011 for foreign companies to joint CNOOC to explore and develop offshore blocks in the Bohai Bay, SCS, and ECS. The latest round occurred in 2013 with foreign companies and included 25 blocks, 15 of which reside in deep water areas.
- Territorial disputes in the East China Sea have to date limited large-scale development of oil and gas fields in the region, where China and Japan compete for territorial claims. The two countries have held negotiations to resolve the disputes. In June 2008, the two countries reached an agreement to develop jointly the Chunxiao/Shirakaba and Longjing/Asurao gas fields. However, in early 2009, the agreement unraveled when China asserted sovereignty over the fields. Since the agreement was signed, the countries have continued unilateral actions in attempts to develop the gas fields. Tensions escalated with territorial claims by Japan in 2012, China's installation of a production platform, and CNOOC's proposal to develop several gas fields in the contested area in 2013.
- Continued territorial disagreements by countries bordering the South China Sea, including ownership of the Spratly and Paracel Islands, have hindered efforts for joint exploration of hydrocarbon resources in the area. ASEAN members signed the Declaration of Conduct in 2002 that encourages countries to use restraint and cooperate in the South China Sea, but no regulations were established. China stakes claims to the SCS using a "nine-dash line" to determine each country's maritime borders and resources. Increasing appetites for oil and natural gas have exacerbated tensions, particularly between China and Vietnam and between China and the Philippines, as hydrocarbon development has attracted interest in deep water areas. China has increased its naval activity in the contested areas, and CNOOC's June 2012 tender for nine offshore blocks in the disputed area overlaps several fields located within Vietnam's 200-nautical mile exclusive economic zone. China's current policy is to forge JV partnerships with the other SCS countries to explore and develop untapped hydrocarbon resources in the sea. More details covering the disputes in these two regions can be found in EIA's East China Sea and South China Sea regional briefs.
- China contains several natural gas-producing regions, including the western and central parts of the country as well as offshore basins. While eager to develop older natural gas fields, China's oil companies are exploring more frontier plays such as deep water, shale gas, and gas derived from coal seams. The country's first deep water field is expected online by 2014.
- China's primary onshore natural gas-producing regions are Sichuan Province in the Southwest (Sichuan Basin); the Xinjiang and Qinghai Provinces in the Northwest (Tarim, Junggar, and Qaidam Basins); and Shanxi Province in the North (Ordos Basin). China has delved into several offshore natural gas fields located in the Bohai Basin and the Panyu complex of the Pearl River Mouth Basin (South China Sea) and also is exploring more technically challenging areas such as deep water, coalbed methane, and shale gas reserves with foreign companies.
- The Sichuan Basin is China's key natural gas-producing area in the southwestern region. The largest recent discoveries in the southwestern region are Sinopec's finds at the Yuanba and Puguang fields in Sichuan Province. Sinopec started commercial production at Puguang in 2010 and ramped up to its peak capacity of 350 Bcf in 2012. Sinopec anticipates the field will produce at this level for about two decades. The NOC anticipates Yuanba will produce 120 Bcf/y by 2016.
- Sichuan Province also holds five high-sulfur content (sour) gas fields in the Chuandongbei basin. In 2007, CNPC awarded a 30-year PSC to Chevron to bring the technically challenging fields online. Field development has encountered several delays, and initial production has been pushed back to the second half of 2014. Chevron is building two sour natural gas processing plants with a combined production capacity of 270 Bcf/y.
- Xinjiang historically is one of China's largest and most prolific gas-producing regions, with output of 827 Bcf in 2012. The Tarim Basin in Xinjiang was the second-largest gasproducing area in China in 2012, supplying 680 Bcf/y, or 18% of China's total production. According to CNPC, the Tarim Basin's major fields Kela-2 and Dina-2 have proven gas reserves of 16.2 Tcf, although much of the basin is still underexplored. The basin's complex geological features make development costs relatively high. CNPC's two cross-country West-to-East Gas Pipelines, connecting Xinjiang to Shanghai, Beijing, and Guangdong, have greatly expanded the upstream potential of the Tarim Basin to supply markets in eastern China. Other new discoveries in the Northwest that have high gas supply potential are the Junggar Basin in Xinjiang Province and the Qaidam Basin in Qinghai Province.
- The Changqing oil and gas area in the Ordos basin is China's largest gas-producing area and houses the Sulige gas field, containing over 35 Tcf of proven gas reserves.
- Development of this region is both geologically and technically challenging, and most of the reserves are tight gas (characterized by low permeability and low pressure and usually requiring hydraulic fracturing for commercial production). Partnering with IOCs Total and Shell Oil, CNPC is effectively using advanced drilling techniques and recovery methods to retrieve natural gas from projects in the South Sulige and Changbei fields. Changqing's production rose steadily this decade to 1,022 Bcf in 2012, and constituted 27% of China's total gas output. CNPC anticipates lifting production to 1,236 Bcf/y at Changqing by 2015. Sinopec's Danuidi field, also located in the Ordos basin, has achieved high growth rates in recent years and produced 130 Bcf in 2012.
- The Songliao basin holds the Daqing oil and gas field, which produced 119 Bcf in 2012. Also, China began the process of re-injecting carbon dioxide to enhance recovery rates for the mature fields in this area. The Jilin oil field recently began using CO2 injection produced from the associated Changling gas field for enhanced recovery.
- Offshore zones have also received increasing attention for upstream natural gas developments in China, and CNOOC is the primary stakeholder of exploration rights. The NOC produced about 200 Bcf in 2011 in the shallow waters of the South China Sea (SCS). The western South China Sea accounted for about 57% of CNOOC's domestic gas production, although the NOC sees great potential for development in the eastern South China Sea. The western South China Sea is home to the Yacheng 13 1 Gas Field, China's largest offshore natural gas field and a primary source of energy for Hong Kong's power stations. The Yacheng 13-1 field produces about 125 Bcf/y of natural gas but has declined since 2007. Other fields have entered operations since 2005 and offset some declines from Yacheng. CNOOC's long-term development plans include exploration of deep water fields in the Pearl River Mouth and Qiongdongnan Basins.
- The eastern SCS is under intense exploration for gas finds. The NOC partnered with Husky Energy to develop China's first large-scale deep water gas project at Liwan, which is scheduled to begin production by 2014. CNOOC expects the Liwan gas project, which includes three fields and 4 to 6 Tcf of reserves, to produce up to 180 Bcf/y and to be one of the company's largest new sources of incremental gas production in the next few years. As development continues, other deep water fields such as Panyu 34-1 will feed into the main processing platform at Liwan. Other IOCs, namely Chevron, BG, BP, Anadarko, and Eni, signed PSCs for other deep water hydrocarbon blocks in the SCS.
Coalbed methane, coal-to-gas, and shale gas
- The coalbed methane (CBM), coal-to-gas (CTG) or synthetic natural gas (SNG), and shale gas industries in China are in early stages of development because of technical and water resource challenges, regulatory hurdles, transportation constraints, and competition with other fuels and conventional natural gas. However, China's potential wealth of these resources has spurred the government to seek foreign investors with technical expertise to exploit them.
- Most of China's CBM volumes are from basins in the North and Northeast, the Sichuan basin in the Southwest, and the Junggar and Tarim basins in the West. FGE reported that CBM production in 2012 was 441 Bcf from both surface wells and coal mines, and China targets about 700 Bcf of output by the end of 2015, according to the IEA. China also intends to increase the utilization rates from less than 40% to over 60% by the end of 2015, reducing the significant production waste. Although CBM production is increasing, company developers face regulatory hurdles, technical challenges, a lack of pipeline infrastructure from coal mining areas to gas markets, and high development costs. At times, there are conflicting interests between governing bodies when dealing with mineral and land rights. The local governments hold rights to coal mines, whereas the central government has rights to natural gas and CBM. China's State Council issued a policy guideline in September 2013 encouraging investment in CBM exploration and development and more pipeline infrastructure through financial incentives and tax breaks to producers and reform of local price controls.
- China's first commercial CBM pipeline became operational in late 2009, linking the Qinshui Basin with the West-to-East pipeline. Two additional long-distance pipelines have become operational, and several more are under construction. China also uses many small liquefaction plants and trucks to transport CBM to demand centers.
- China is rapidly approving CTG projects as China encounters higher natural gas demand alongside supply shortfalls and as coal remains an abundant resource,. China is set to produce gas from its first CTG plant at the beginning of 2014. The Datang plant located in the northern province of Inner Mongolia is one of four CTG projects coming online to supply Beijing with more natural gas by 2015. These plants are slated to fulfill China's targeted CTG production of 530 Bcf by the end of 2015.
- Sinopec recently began construction of China's largest CTG project that will be located in the northwestern Xinjiang province and has a design capacity of 1,058 Bcf/y. The plant is scheduled to come online in 2017 and connect with pipelines carrying the natural gas towards eastern China. So far, the NDRC has approved 12 large-scale CTG projects with a total capacity of 2,800 Bcf/y that is scheduled to come online by 2017. Many more facilities are in the planning phases, but CTG projects face high capital costs required to develop the attendant infrastructure, require scarce water resources, and produce high levels of emissions. These factors could affect the potential construction of many of these projects.
- Most of China's proven shale gas resources reside in the Sichuan and Tarim basins in the southern and western regions and in the northern and northeastern basins. EIA estimates from its most recent report on shale oil and gas resources that China's technically recoverable shale gas reserves are 1,115 Tcf, the largest shale gas reserves in the world.
- Resource estimates of other sources are lower, and China's Ministry of Land and Resources (MLR) reported total shale gas technical reserves were 883 Tcf in 2012. Shale gas production in 2012 was only 1.8 Bcf from test drilling in the Sichuan basin, falling far short of the Ministry of Land Resources' goal to produce 230 Bcf of shale gas by the end of 2015 and at least 2,100 Bcf by 2020. CNPC and Sinopec own almost 80% of China's shale gas resources, according to FGE, and together targeted shale gas production at around 95 Bcf in 2015. However, Sinopec's recent success in developing its Fuling gas field resulted in the company to doubling its shale gas output goal, making the government's overall shale gas targets more feasible.
- China's NOCs are in discussion with several IOCs for partnering on potential shale gas projects in order to gain necessary technical skills and investment for developing these geologically challenging resources. CNPC and Shell signed the first PSC for the FushunYonghchuan block of shale gas in the Sichuan Basin in March 2012. Shell also has partnered with Sinopec and CNOOC on two other shale gas plays. After investing $950 million between 2011 and 2013 on shale gas exploration in China, Shell plans to spend another $1 billion each year for the next five years to develop these resources. Sinopec is working with Chevron and ConocoPhillips to explore shale gas resources in the Qiannan and Sichuan basins, respectively. On the reverse side, Chinese NOCs have been actively investing in shale oil and gas plays in North America to gain technical expertise in this arena.
- China held its first shale gas licensing round in 2011 for four blocks in the Sichuan Basin and awarded the tenders to two Chinese companies, including Sinopec and Henan Coal. Tendering is available not only to NOCs but also to private and local companies, and foreign investors may participate indirectly if they hold a PSC contract with a participating Chinese firm. The State Council released shale gas from the jurisdiction of the NOCs, allowing the MLR to open a larger second bidding round in mid-2012. The MLR awarded 19 blocks to 16 domestic companies, mostly to coal producers, power companies, and local energy firms. Since these companies have limited shale gas experience and the capital required for such projects, they may partner with China's larger state-owned companies or foreign companies.