As a basic means for social and economic development, energy has attracted worldwide attention. After using firewood and coal as fuels in the 1970s, man entered an era with oil as the dominant fuel. Oil has become an important energy and chemical resource and strategic material ever since. Today, oil has accounted for 40% in the world energy consumption and has assumed a dominant position. And in China, the oil industry plays a significant role in the economy. Hence, further steady development of the oil industry is of extreme importance in China to ensure national energy safety and sustain a quick, harmonious and sound development of society and the economy.
As the oil industry is built on oil and gas resources, the key to the development of the oil industry is to find more resources by further exploration. Oil and natural gas exploration requires new ideas, new techniques of new achievements as it involves huge risks of investment but can bring great benefits if successful.
The Status and Development Strategies of China’s Oil Industry
The past few years witnessed a steady development of the oil industry in China; the crude oil production has been increased steadily. However, the rapid growth of economy requires a drastic increase in oil consumption. Since 1993, China has become a net oil importer. In 2002, China imported 69.41 million tons of crude oil, and in the first eleven months last year the import reached 81.78 million tons. It is predicted that by 2010, when the domestic processing amount of crude oil reaches 320 million tons, China’s oil import will reach 140 million tons.
Thus, it is imperative to consider how to ensure a steady supply of oil for a time long enough to support the rapidly developing economy. To achieve this goal, China should actively exploit both domestic and overseas resources and should give equal importance to resource exploration and energy conservation.
In terms of exploiting overseas resources under the circumstances of fierce international competition, we should try every effort to bring home more resources in every possible way by cooperation and trade, so as to increase the crude oil supply for the country. As to the domestic resources, we should be optimistic about the bright future of oil and natural gas discoveries and recent breakthroughs made in exploration. In particular, we should treasure the solid foundation of our oil industry. We have already built quite a few large oil and gas production bases, i.e. Daqing, Shengli, Liaohe, Xinjiang, Changqing and Sichuan. The total of our crude oil resources has risen from 120 thousand tons in 1949 to 167 million tons in 2002, and our natural gas from zero in 1949 to 31.6 billion m3 in 2002. In addition, we have by now enjoyed a mature team, particularly a team of capable experts that grows together with our oil industry. All this will be the strong basis for further development of our oil industry, which we should strengthen but never weaken. Any way only to cheer production of oil and natural gas but ignore exploration is just like fishing by draining the pond and therefore harmful to the long-term development of our oil industry. For this reason, the oil industry should be aware that for a steady increase in oil and gas production and a sustainable development of the whole industry, we should take effective measures to build on the present foundation and domestic resources, strengthen oil and gas exploration and speed up discoveries.
Buried deep underground and invisible to man before being discovered, oil and natural gas can only be explored with the guide of geological theories and can only be discovered through drilling. Due to the poor material conditions and process of recognition, we could not understand the geological conditions of certain local regions in the past, and thus were often frustrated by exploration failures. Things are different now. With rich experience gained from exploration practices and international communication, also with much improved technology, China’s oil men have a deeper and more mature understanding of geological conditions. Not only can they properly face up to local successes or failures, but they also have a general view of oil geology and exploration across the whole country. Therefore, they are clear about the promising future of our oil industry and are confident in finding more oil and natural gas. So long as we continuously update our leadership and management to meet the requirements of the further development of the oil industry and further motivate our petroleum workers, especially experts and scientists, China’s oil industry is bound to develop quickly.
Some Issues That Deserve Particular Attention
1. We should believe in the promising future of China’s oil industry.
In the vast territories of China, depositional basins are suitable for oil and gas concentration. Thus, depositional basins in China have covered over five million km2. It is estimated that the total of oil reserves may reach 106.9 billion tons while the natural gas reserves may reach 47.3 trillion m3. However, proven oil reserves remain only one fifth of the total; the highest proven rate is 50% in major basins like Songliao and Bohai bay. In some basins, the proven rate remains as low as 4%. The present national situation and the low exploration rates in various basins show that China still has great potential for oil and gas discoveries. This can serve as the theoretical basis and the beginning of large-scale explorations in those depositional basins. Over the past years, our persistence in exploring the seemingly hopeless areas led to the discoveries of quite a few large oilfields, such as Changqing and Yan’an in the Ordos Basin, Tahe and Kela-2 in the Tarim Basin, and the shallow oilfields in the Bohai bay Basin. These discoveries are breakthroughs, both technically and ideologically. These discoveries prove (1) China’s oil industry does have a promising future of discoveries and great potentials of development; (2) scientific explorations will surely lead to abundant findings. When we understand these, we will become more confident in locating more petroleum, then will place more stress on exploration. Thus we will naturally regard exploration of resources as the primary task in furthering the development of the oil industry.
2. The production of crude oil in China still has great potentials for increase.
In proven reserves, we still have several billion tons of low-quality oil not produced yet. As the oil price keeps rising, the adoption of simplified ground oil gathering procedures, small-well technology and flexible management will smoothen the production of these reserves and increase the national output of crude oil.
A typical case is the development of Yan’an Oilfield in Shanxi Province. Thanks to the flexible methods of recovering the low-permeation and low-productivity oil, the annual output of crude oil in this oilfield increased from over 20,000 tons in the 1960s and 1970s to more than three million tons at present. Flexible methods were also successful in developing oilfields of low-productivity.
3. Oil exploration needs higher input, more work and more resources.
Oil exploration is a systematic project involving a lot of investment, high risks and delicate technology. For the discovery of oil and gas, a lot of geological investigation and geophysical exploration needs to be done prior to money-consuming drilling. Generally speaking, the more wells are drilled, the more oil can be found. Therefore, the continuous development of the oil industry requires adequate investment in drilling a certain number of wells every year, and the number should be increased year by year. The idea of developing the industry by cutting exploration investment and exploration amount is obviously against the law of the industry and therefore, will inevitably lead to a decline.
4. Oil exploration and production requires democratic and scientific policy.
At present, the annual national investment of oil exploration is close to the investment in two 10-year space projects. To use the investment properly, oil exploration projects should be operated like space projects. Correct leadership, considerate organization, scientific decisions are of prime importance. Oil exploration projects are different from other construction projects in that oil exploration projects are often changing, like military battles. An exploration plan should not only be made according to specific geological conditions but also be adjusted to the progress of exploration. Only in this way can it produce good results. The Daqing oil battle is a successful case. Because oil is deep underground, invisible and mysterious, the discovery of oil requires more human wisdom and creativity, more democracy, and higher motives from people, especially scientific decisions by experienced experts. The decisions cannot be fruitful unless the decision makers take into consideration expert opinions.
5. Explorations of oil and gas should go under strict scientific management.
Strict scientific management must be practiced after the exploration plan is made and carried out. Otherwise, any neglect or incorrect actions in either the pilot work of geological and geophysical exploration or the drilling of exploration wells may lead to wrong judgments, even great financial losses; and consequently we may miss the chance of discovering new oilfields. We have quite a few cases of this kind. Therefore, it is of realistic importance for us to advocate the Daqing spirit of “Honesty and Strictness” and to learn scientific management from other countries.
6. Advanced foreign management and technology should be introduced to China.
The past years has witnessed a drastic growth of the oil industry in other countries, together with a great amount of exploration equipment and rich experience in management. Improved management can produce better results with lower investment. Since the 1980s when China began its economic reforms, we have imported a lot of advanced equipment and management. However, we still lag behind. Further investigations should be made so that we can keep learning from other countries to narrow the gap. Exxon Corporation is a good example. In the mid-1980s when the oil price kept declining in the international market, Exxon adjusted its exploration management and proved the same number of oil reserves with only half of the planned investment. Another example is Unico Oil Corporation. Unico succeeded in developing the complicated gas field by adopting small-well-drilling technology in Thai Bay. In this way, the company saved a large amount of cost in drilling and speeded up the exploration and development of oil fields.
(Translated by Xu Fangfu)