As a strategic energy resource that is of great importance to the economic safety and social stability of China, petroleum has attracted wide attention from the government and the industry. Today, when the bottleneck problem is becoming increasingly conspicuous, it is imperative for Sinopec to practice its own strategies to explore and develop oil and natural gas after properly analyzing the present and future situation of the national resources.
The Present and Future Situation of Petroleum Resources in China
1. The present situation
The past 50 years have seen drastic growth in the petroleum industry in China. The output of crude oil rose from 120 thousand tons in 1949 to 167 million tons in 2002, ranking the fifth in the world. Meanwhile, the output of natural gas rose from 10 million m3 to 31.6 billion m3, ranking the 16th in the world. Today China has become a big consumer and producer of oil and natural gas.
China has oil reserves of about 106.9 billion tons in total, with 13.5billion-16 billion tons recoverable, while the gas reserves are 47.3 trillion m3, with 10 trillion-15 trillion m3 recoverable. By the end 0f 2002, the accumulated proven oil reserves reached 22.71 billion tons, with 6.395 billion tons recoverable, while the accumulated proven gas reserves reached 4.49 trillion m3, with 2.57 trillion m3 recoverable.
2. Prediction
Proven oil reserves show that China’s average exploration rate in 2002 was only 47.4%. This means great potential for further exploration. The focus regions will be the Bohai bay, Xinjiang, offshore and South China.
Rich as China is in natural gas, its exploration rate is still low. Over 80% recoverable reserves are to be discovered. The potential for further exploration is great. In the coming 20 years, gas production will keep rising at high speed. Major gas fields will be found in Ordos, Tarim, Sichuan, Qaidam, Jungar, Yinggehai and the Eastern Sea.
Comprehensive studies predict that by 2020, China’s
annual proven geological reserves of oil will be around 800 million tons, and oil output will reach 180-190 million tons in 2010 and will maintain 180-200 million tons by 2020. Meanwhile, gas output will reach 80-90 billion m3 in 2010 and 140-150 billion m3 in 2020, with about 120 billion m3 to be produced onshore and 20~30 billion m3 offshore. In the tenth “Five-Year-Plan” period (2001-2005), China’s
GDP will grow by 7.5%~8% a year, and the yearly consumption of oil products will increase by 4%. It is predicted that in 2005 China will consume 137 million tons of oil products and will process 245 million tons of crude oil, with 100 million tons imported. In 2010, when capable of processing 300 million tons of crude oil, China will have to import half of that amount. In 2020, China will be able to process 400 million tons of crude oil, and 200 million tons needs to be imported.
In the coming 20 years, the natural gas demand is predicted to grow very fast in China. The natural gas demand will reach 65 billion m3, 115 billion m3 and 250 billion m3, in 2005, 2010 and 2020, respectively, with an annual increase of 12%. In the consumption structure, natural gas will be used mainly for power generation and urban fuel. By 2020, natural gas will account for 10% or so in the total consumption of the primary energy, instead of 2.7% at present.
With the rapid growth of China’s economy, the production of natural gas will have difficulty in satisfying domestic needs, and will lead to an even sharper conflict between the demand and the supply of natural gas. It is predicted that in 2005 China will need five billion m3 of natural gas to be imported, while in 2010 and 2020, the import will reach 15 billion m3 and over 100 billion m3 respectively.
3. China’s development strategies.
To ensure the sustainable development and safe, steady supply of oil and natural gas, China’s petroleum industry must pursue strategies on the basis of resource exploration and energy conservation. First, we must focus on exploration of domestic resources. We should keep steady oil production and promote gas production so that domestic oil and gas can continue to be the basis of economic development. Second, we must have an overview of the whole globe and practice the strategy of “going abroad” to establish overseas petroleum development bases. Third, we must build our strategic oil stock, including both state and enterprise stock. Fourth, we must strongly advocate oil conservation and try to increase the efficiency of energy use. Finally, we must give high priority to the production of natural gas and quicken the construction of pipelines and other basic facilities for storage and transportation.
Sinopec’s Present Situation of Oil Exploration and Its Development Objectives and Strategies
1. Sinopec’s present situation
Sinopec is the second largest oil producer in China, and its exploration area covers 820 thousand km2 in total. Sinopec’s exploration areas are distributed in all major oil basins, covering over 20 provinces and autonomous regions. Latest investigation shows that Sinopec has 26.55 billion tons of oil reserves and 19.3 trillion m3 of gas reserves in total.
By the end of 2002, Sinopec had proven oil reserves of 5.7 billion tons and gas reserves of 703.8 billion m3 in total. In 2002, Sinopec produced 38 million tons of crude oil and 5.1 billion m3 of natural gas. At present, the average exploration rate is rather low, 21.48% for oil and 2.2% for gas. It is supposed that 20.8 billion tons of oil reserves and 18.87 trillion m3 of gas are to be discovered and the future of exploration will be bright.
Recent years have witnessed more achievements and progress in exploration. In those old oilfields in the east, Sinopec has managed balancing reserves and production, keeping the oil yield rising steadily. While in the new areas in the west, Sinopec has made great progress in both exploration and production, which predicts an encouraging future of steady increase in both reserves and production. At the same time, natural gas production has stepped into an era of quick growth.
2. Sinopec’s goal of development
Sinopec has settled its goal in petroleum exploration and development as follows: from 2001 to 2020, Sinopec will produce 5.07 billion tons more , equal to the total of the past 40 years, and 2.46 trillion m3 more of natural gas, seven times of that in the past 40 years. Sinopec will produce 40 million tons of crude oil in 2005 and 45 million tons in 2010, and will keep a steady production till after 2020. At the same time, Sinopec will make efforts to produce 10 billion m3 of natural gas in 2005, 15 billion m3 in 2010, and 20 billion m3 in 2020. Moreover, Sinopec will practice a strategy of “going abroad” to seek foreign resources. In the coming 15 years, Sinopec’s overseas share of oil will increase by 1-1.5 million tons a year and will reach 20 million tons in 2020. These encouraging objectives will entail real hard work of Sinopec’s whole staff.
3. Sinopec’s development strategies
Sinopec’s development strategies are to stabilize the eastern oilfields, speed up exploration in the western areas, develop the offshore regions, make preparations in the south and explore overseas areas. Giving high priority to more oil and gas discoveries and more quality resources, Sinopec focuses on the steady increase of oil production and the quick growth of natural gas production.
(1) To stabilize the eastern oilfields
Targeting at eastern basins, such as Bohai bay, Subei, Jianghan, Nanxiang and Songliao basin, Sinopec will try to strengthen its progressive exploration into subtle traps and deep buried hills. Stress will be placed on quick exploration into the shallow areas on Shengli Beach to increase oil reserves and raise productivity. In a word, Sinopec will spare no effort to keep a steady production of oil in the eastern areas in the period of the eleventh “Five-Year Plan” (2006-2010) by employing such advanced technology as fine reservoir description and tertiary oil recovery to enhance the recovery rate while lowering the oil decline rate and slowing down the increase in water content.
(2) To speed up exploration in the western areas
To ensure future productivity, Sinopec will try to obtain scale reserves by strengthening exploration into the periclines of Tahe and Mid-Tarim and Mid-Jungar Basin. Sinopec will take effective measures to keep steady production in present oilfields in Tahe areas by using secondary recovery techniques to slow down the decline in old wells. In Ordos Basin Sinopec will focus on raising single-well productivity and the construction of natural gas pipelines from the basin to Shandong province.
(3) To develop the offshore regions
The bottom of Bohai Sea is the extension of the oil and gas zone in Shengli Oilfield. Major achievements have been obtained from Chengdao in Shengli and the Westlake Sag in the East China Sea. From those explorations, Sinopec has gained experience in offshore oil development and has mastered the key technologies to explore, develop and gather offshore oil and gas. Sinopec will make full use of its technological advantage and onshore facilities to strengthen exploration in the areas of Bohai Sea and East China Sea for a promising future of offshore oil production.
(4) To make preparations in South China
Intensive research will be done in reservoir formation theories and corresponding exploration techniques in multi-cycle marine stacked basins in the south, which can help us to explore the deep marine layers to the south of the central orogen. In this way, Sinopec can carry out the all-round exploration pattern of
“nonmarine combined with marine” and “deep layers as well as shallow layers”. In the whole southern area, Sinopec will pursue the strategy of “obtaining reserves from mature areas, making progress in the key areas, and selecting targets in the reserved areas”.
(5) To quicken natural gas production
Sinopec is a producer, a supplier and also a major terminal user in China. Sinopec will pursue its continuous development by focusing on environmental protection and balancing the development of both energy resources and the environment. With more investment in exploration, Sinopec will try to quickly increase both the reserves and production of natural gas in its gas zones, namely Zhongyuan-Shengli, the Ordos, Sichuan, Tarim and East China Sea, so that they can serve as production bases. As to market development, Sinopec will focus on five markets: Hangzhou bay, Nanjing, Shandong, Sichuan-Chongqing and the local ones adjacent to these gas fields. The construction of pipelines, from Ordos to Shandong, from the East China Sea Gas Field to Shanghai and Zhejiang, will speed up to improve transportation capability. Supported by overseas oil and gas development, Sinopec will actively carry out the LNG project in Shandong. In a word, Sinopec is trying its best to balance exploration, production, pipeline construction and market development.
(6) To seek for more international cooperation
Believing in “cooperative production to increase reserves and strategic alliance for fast development”,
Sinopec will actively explore overseas markets, broaden international cooperation, speed up overseas exploration and increase international business. Sinopec will try to obtain overseas resources, establish overseas bases and increase Sinopec’s overseas reserves and oil shares in various ways such as risk exploration, reserves purchase, oilfield purchase, joint development and share holding. Following the “win-win” principle, Sinopec pursues close cooperation with its domestic partners in importing foreign capital, foreign technology and foreign management by risk exploration, technical services and allied research to speed up its domestic petroleum exploration and production.
(7) To guarantee the steady development of the oil industry through technological progress
In exploration, priority will be given to virgin areas, nonmarine subtle traps and those new zones, new layers and new structures in the old eastern oilfields. First of all, the rules of oil and gas concentration will be studied; the key exploration target areas will be evaluated; corresponding technology will be developed in such western areas as Tarim and Jungar, in gas prospects like Sichuan-Chongqing and Ordos, and in such virgin areas as the southern marine facies, the Qinling-Dabie orogenic belt, the southern part of North China, and the East China Sea. Second, exploration theories and techniques involving subtle traps in Jiyang depression will be improved and basic research will be done for other basins in the eastern areas. Finally, Sinopec will provide both theoretical and technical support for further exploration in Sinopec’s old oilfields, like Shengli, Zhongyuan and Henan, by doing further research in the hydrocarbon and reservoir formation conditions in deep layers and the reservoir patterns in buried hills. Research will also be done in the prospect of oil resources in Pre-Tertiary of Bohai Bay Basin.
In terms of production, EOR technology will be developed to deal with high-water-rate fields, difficult reserves and complicated reservoirs. First EOR techniques for high-water-rate oilfields will be used to solve the problem of the unclear relationship between water injection and oil production and of quickened decline in Pucheng Oilfield of Zhongyuan. More intensified research will be done to develop EOR techniques in high-water-rate blocks through foam compound drive and temperature-resisting and salinity-tolerating polymer drive. Second, Sinopec will try to develop comprehensive technology to deal with low-permeability reservoirs, reservoirs with unusually high temperature and pressure and heavy oil reservoirs as well as with horizontal well fracturing. Finally, research will also be done in techniques to develop complicated reservoirs, such as those in the carbonate rock fractures and pores, in the eastern buried hills and in the igneous rocks, as well as those condensate reservoirs and volatile ones.
As an energy power involving integrated business in oil exploration, production, refining, processing and finished products, Sinopec has been struggling for its sustainable development. In the new century, Sinopec will standardize its management fit for its new system by furthering internal reforms and transforming business patterns. Sinopec will establish an integrated operation platform by restructuring and upgrading internal management, making full use of information networks and optimizing resource allocation. Regarding technical progress as the first productivity, Sinopec will make favorable policies for the training of its experts and technicians to improve their general qualities as soon as possible. Sinopec will continue to develop its enterprise culture characterized by hard work, innovation and efficiency, so that it can rank a world energy and chemical power.
Policy Proposals
For further development of China’s oil industry to guarantee the supply of reliable energy to a well-off society, the following policy suggestions are proposed with reference to the status quo.
(1) Quicken legislation, perfect related laws and regulations
The Petroleum Law and related regulations should be made and practiced as soon as possible so that oil exploration, production, processing, storage, transportation and consumption can be carried out under a legal system. Safe production of oilfields and pipeline enterprises should be ensured. Illegal oil production, processing and selling activities must be prohibited. Minor oil refineries and chemical factories that waste quite a lot of oil and gas resources on the one hand while polluting the environment on the other, must be closed down. All this is necessary to a sound external environment for the oil industry and the rational employment of the oil resources.
Mineral management should be practiced in order to set up a new system of fair competition for operation-right registration and withdrawal. The present regulations for onshore and offshore oil international cooperation should be combined so that all the domestic oil companies can enjoy equal rights to explore and produce both onshore and offshore oil resources.
(2) Favorable policies in finance, investment, and taxation to support the oil industry.
Investment from oil companies in risk exploration in virgin zones and difficult areas such as deep seas, mountains and deserts should be motivated. Oil companies should be encouraged to broaden their capital-raising channels like issuing shares and securities. The VAT now imposed on oil companies should be transferred from oil producers to consumers. Taxes involving the development of difficult reserves and tail resources in old oilfields should be reduced or simply exempted. A zero-tariff policy now applied to crude import should be extended to the import of naphtha and natural gas by petrochemical companies. The VAT on LNG import should be returned after collection.
(3) A more complete supervising system.
The management mechanism of the petroleum industry should be further reformed with reference to foreign practices combined with the domestic situation. A more complete system of governmental supervision and regulation should be established to encourage regular competitions and protect the legal rights and benefits of petroleum producers and consumers. Closer supervision and monitoring should be applied to the practice of laws, statutes and policies.
(4) Encouraging the exploration and production of overseas oil and natural gas by practicing the strategy of “going abroad”.
The regulations for management of investment in foreign resources should be revised and improved by simplifying the examination procedures for overseas oil projects, deregulating the power of approving such projects and giving support to foreign currency loans. The oil shares obtained from overseas projects should be treated the same as the domestic oil by exempting the VAT in the process of import, canceling the import quotas and import license, and simplifying the import procedures. State fund for overseas oil exploration and production should be established to support the corresponding work.
(Translated by Xu Fangfu)