Overview of the petroleum industry in China
Chinese oil production 1960?2015
The impact of the
petroleum industry
has been increasing globally as the
People's Republic of China
ranks seventh for
oil production
and second in
crude oil
consumption in the world.
[1]
[2]
China became the world's largest
oil importer
in 2013.
[3]
History
[
edit
]
Early history
[
edit
]
The late Qing dynasty banned mining because of the traditional cosmological beliefs which regarded the land as a sacred legacy.
[4]
: 7
This ban was lifted during the modernization effort of the
Self-Strengthening Movement
as the Qing dynasty sought to develop a modern navy and modern industry.
[4]
: 8
In 1875, the court designated
Cizhou
(in what is now
Hebei province
) and
Taiwan
as testing grounds for oil extraction.
[4]
: 8
Qing attempts at oil exploration were hampered by corruption, low efficiency, and lack of sufficient domestic investment capacity for oil extraction and transportation.
[4]
: 8
The Qing court was also concerned about foreign investment and the perceived risk of selling the country to foreigners.
[4]
: 8
Nationalist Era
[
edit
]
In the 1930s, gasoline replaced kerosene as China's most important petroleum product.
[4]
: 10
China relied on imports through the global oil companies
Standard Oil
,
Asiatic Petroleum Company
, and
Texaco
.
[4]
: 10
Imports were stored at China's
treaty ports
and delivered elsewhere by ship, mainly via the
Yangzi
river.
[4]
: 10
In 1949, the
Yumen
Oil Field was the only domestic oil field able to support industrial production and it fell far short of China's oil needs.
[4]
: 13
After the
Nationalists
' defeat in the
Chinese Civil War
, it was peacefully transferred by the Republic of China's
National Resources Commission
(NRC) to the newly-founded
People's Republic of China
.
[4]
: 13?14
Most of the NRC's geologists and engineers remained in mainland China and worked for the PRC.
[4]
: 14
Early PRC
[
edit
]
Ensuring adequate energy supply to sustain economic growth has been a core concern of the Chinese government since 1949.
[5]
China's First
Five-Year Plan
emphasized industrial development, including nationwide geological prospecting and surveys to support that development.
[4]
: 19
These prospecting efforts were led by the Ministry of Geology and the Ministry of the Petroleum Industry.
[4]
: 19
On August 1, 1952, a division of the
People's Liberation Army
was turned into China's first petroleum army and its eight thousand soldiers became the core workforce for petroleum exploration, construction, and drilling.
[4]
: 21
Using primarily resources from the Yumen Oil Field and
Tsinghua University
, the Beijing Oil Institute was founded on October 1, 1953.
[4]
: 21
In 1956 a rail link was built to
Lanzhou
; until then, the oil was transported out by truck. A pipeline was constructed in 1957. The Yumen refinery was enlarged and modernized, and by the late 1960s it was reported that production from that area was "about two million tons".
[6]
The development and construction of Karamay oilfield strongly supported the economic construction of the People's Republic of China in the early days after the founding of the People's Republic of China. In 1958, Qinghai Petroleum Exploration Bureau, based on the discovery of Lenghu structural belt by the Geological Department, drilled a high-yield oil well with a daily output of 800 tons in Lenghu No. 5 structure, and successively proved Lenghu No. 5, No. 4 and No. 3 oil fields.
[
citation needed
]
In Sichuan, a natural gas zone was discovered from Chongqing in the east to Zigong in the west and Xushui in the south. In 1958, the Ministry of Petroleum organized a battle in central Sichuan and discovered seven oil fields, including Nanchong and Guihua.
[
citation needed
]
In 1959, large reserves were discovered in Songhua Jiang-Liao basin in northeast
China
and later several other giant oilfields were found.
[7]
The most important is the
Daqing oil field
in
Heilongjiang
that has been the backbone of Chinese oil production for many decades.
[8]
The
Shengli Oil Field
began production in 1968 and became the second largest oil field after Daqing.
[4]
: 105
Many of China's other major oil deposits were also discovered during the 1950s and 1960s, and these early PRC prospecting efforts led to an independent oil industry by the time the 1960s ended.
[4]
: 28
The first two years of the
Cultural Revolution
disrupted oil production and led to a major oil shortage in 1967.
[4]
: 159
Daqing was one of the first places to have order restored by the military, when in March 1967, the People's Liberation Army restored order there in March 1967 so that production could proceed.
[4]
: 159
Export era
[
edit
]
In the late 1960s and the early 1970s, oil prospecting increased throughout the country and new fields were discovered in central China and northern China.
[4]
: 168
Beginning in 1968 and continuing through 1978, China's crude oil production rose sharply at an annual growth rate of 20% and China became a net oil exporter.
[4]
: 168
Following the outbreak of the 1973
Arab-Israeli War
, oil prices rose dramatically globally.
[4]
: 172
Among the industrialized country,
Japan
was hit hardest by the resulting
oil crisis
because its petroleum needs were filled completely by imports.
[4]
: 172
It bought large amounts of Chinese oil.
[4]
: 172
China had also obtained commodity-backed loans from Japan to develop the Daqing oil field, and China repaid the loans with oil.
[9]
: 98
Beginning in 1979 (and running through 1997), the
Japan Bank for International Cooperation
provided China with resource loans for several oil and coal development projects.
[10]
: 62
These loans totaled $140 billion.
[10]
: 62
Import dependence
[
edit
]
By 1993, internal demand for oil exceeded domestic production, and China became a net oil importer.
[11]
China became dependent on imported oil for the first time in its history in 1993 due to demand rising faster than domestic production.
[5]
In 2002, annual crude petroleum production was 1,298,000,000 barrels, and annual crude petroleum consumption was 1,670,000,000 barrels.
In 2006, it imported 145 million tons of crude oil, accounting for 47% of its total oil consumption.
[12]
[13]
By 2008, much of China's oil imports derived largely from
Southeast Asia
, but its growing demand forced it to import oil from all over the globe.
In 2013 the pace of China's economic growth exceeded the domestic oil capacity and floods damaged the nation's oil fields in the middle of the year. Consequently, China imported oil to compensate for the supply reduction and surpassed the US in September 2013 to become the world's largest importer of oil.
[2]
Oil prices rose in early trade on February 6, 2023, after declining 8% in the week prior to January 31, 2023. Brent crude futures rose 0.2% to $80.10 a barrel and WTI crude futures increased 0.2% to $73.54 a barrel. The IEA predicts China will drive half of global oil demand growth this year and may prompt OPEC+ to reassess its output cuts. Russian product price caps took effect on February 5, 2023, but are expected to have minimal impact on overall supplies.
[14]
Domestic production
[
edit
]
Chinese oil reserves as of 2009
A big role is played in China's oil endowment by its state owned oil companies, mainly
China National Offshore Oil Corporation
,
China National Petroleum Corporation
,
China National Refinery Corp
, and
Sinopec
.
Province started producing in 1960, and by 1963 was producing nearly 2.3 million tons of oil. Production from Daqing declined, but in 1965,
oil fields
in Shengli,
Shandong
, Dagang, and
Tianjin
yielded enough oil to nearly eliminate the need of importing
crude oil
. In 2002, annual crude petroleum production was 1,298,000,000 barrels, and annual crude petroleum consumption was 1,670,000,000 barrels.
[12]
In 2005 China began to take drastic measures with its internal oil reserve programs as domestic oil production in China supplied only two-thirds of its needs and the estimated consumption requirement by 2020 was about 600 million tons of crude oil.
[
citation needed
]
Oil well in
Qaidam Basin
,
Qinghai Province
Oil drilling platforms
[
edit
]
Haiyang Shiyou 981 in contested waters
The largest oil field in the
South China Sea
, the Liuhua 11-1 field ? located 210 km southeast of
Hong Kong
in the
Pearl River Mouth Basin
offshore south China, was discovered by
Amoco
(now
BP
) in January 1987 in
typhoon alley
.
[15]
: 151
Water depth, the presence of
heavy oil
and a "very strong bottom-water drive" were among the technical challenges that had to be resolved before the oil could be extracted.
[15]
Amoco and Nanhai East engineering teams experimented with offshore drilling techniques, floating production, storage and off-loading system (
FPSO
) that would have drilling and production support.
[16]
By 2008, the FPSO had equipment capable of handling 65,000 bbl of oil and 300,000 bbl of total fluids per day and it would be loaded and shipped by shuttle tankers.
[16]
In 2010, oil blocks in
Wushi oil field
(off
Zhanjiang
, near
Hainan
) began to be auctioned to foreign companies, with CNOOC having the option to increase its stake to 51% whenever required.
[17]
China's $1 billion oil drilling rig, the
Haiyang Shiyou 981
? owned and operated by the
China National Offshore Oil Corporation
? in the
South China Sea
,
Ocean Oil 981
? began its first drilling operations in 2012.
[18]
[19]
It led to
protests
and hence had to be shifted back.
[20]
Foreign production
[
edit
]
This shift to dependence on foreign oil has changed the exploration and acquisition policies of China. China's oil need overwhelmed its internal capabilities.
China National Offshore Oil Corp
,
China National Petroleum Corp
, and Sinopec have largely invested in exploration and development in countries that had oil fields but do not have funds or technology to develop them. In 2004 CNOOC signed a deal to extract a million barrels of oil a day in
Indonesia
as well as other projects with Australia.
[21]
In addition, an oil reserve that would theoretically fill with 30 days worth of oil has begun construction in
China
. However, their oil policy on the world oil market was not completely clear as to how they would deal with the situation as a whole.
[
citation needed
]
The Chinese government is taking diplomatic action to improve their relationship with
ASEAN
states. According to a 2008 report, the Chinese government had to take extra strides to secure good relationships with its neighbors.
Malaysia
is a neighbor state that was often seen as in contention with China because of political differences. Yet, the relationship with Malaysia was symbiotic because of their large supply of
oil
and their need for security assurances from China. In 2008 Malaysia was the number one producer of
petroleum
in the South China Sea, and they account for over one half of the production in the region.
[22]
Foreign acquisitions
[
edit
]
By 2008, China owned less than 1 percent of the oil company
BP
, worth about $1.97 billion.
[23]
Trade encouragement
[
edit
]
The National Assembly of Pakistan has passed the Trade Dispute Resolution Bill, 2022 to help enhance the trust of foreign buyers in the country and provide a mechanism for exporters to file claims and complaints against their foreign clients. The bill aims to improve contract enforcement and Pakistan's ranking on the World Bank's Ease of Doing Business Index by establishing a comprehensive system for resolving disputes related to exports and imports, including e-commerce.
[24]
Energy security
[
edit
]
Strategic Petroleum Reserve
[
edit
]
China has one of the world's largest strategic oil reserves.
Global strategic petroleum reserves
(GSPR) refer to stockpiles of
crude oil
held by countries (and private industry) for
national security
during an
energy crisis
.
By 2004 China was investing in its first national oil reserve base to avoid foreign dependence. There are three different provinces in which they are focusing. The first
Zhoushan
,
Zhejiang
Province, was built by Sinopec, China's largest oil refining company. The storage space is 5.2 million cubic meters says the
National Development and Reform Commission
.
[25]
Zhejiang was originally a commercial oil transfer base. Its coastal position makes it convenient for movement purposes, although it is at the same time vulnerable to offshore violence. The next reserve of interest In Huangdao or
Qingdao
,
Shandong
Province and the final
Dalian
,
Liaoning
Province. All of these reserves are coastal and with their creation comes vulnerability to possible coastal attacks. In 2007, United Press International journalist questioned
energy security
, as all three of the stock oil bases were within range of
Taiwanese
cruise missile attacks.
[26]
According to a 2007 article by state-owned
China News Service
, at that time China's expanded reserve would include both mandated commercial reserves and a state-controlled reserves and would be implemented in three stages to be completed by 2011.
[27]
The state-controlled reserves phase one consisted of a 101,900,000 barrels (16,200,000 m
3
) reserve to be completed by the end of 2008. The second phase of the government-controlled reserves with an additional 170,000,000 barrels (27,000,000 m
3
) was to be completed by 2011.
[28]
In 2009
Zhang Guobao
, head of the
National Energy Administration
, announced the third phase that would expand reserves by 204,000,000 barrels (32,400,000 m
3
) with the goal of increasing China's SPR to 90 days of supply by 2020.
[29]
The planned state reserves of 475,900,000 barrels (75,660,000 m
3
) together with the planned enterprise reserves of 209,440,000 barrels (33,298,000 m
3
) will provide around 90 days of consumption or a total of 684,340,000 barrels (108,801,000 m
3
).
[30]
Along with an emphasis on defensive oil stocks, there is a significant push to create an offensive oil acquisition program. In March 2018, as part of a bid to establish its position as an economic superpower, China introduced a new oil
benchmark
.
[31]
Transportation
[
edit
]
In 2004, China had to import 100 million tons of crude oil to supply its energy demand, more than half of which came from the
Middle East
. China is attempting to secure its future oil share and establish deals with other countries.
Chinese Communist Party general secretary
Hu Jintao
has proposed to build a pipeline from
Russian
oil fields to support China's markets as well as other billion-dollar arrangements with Russia,
Central Asia
, and
Burma
, and diversify its energy sector by seeking imports from other regions of the world and by starting alternative energy programs such as
nuclear
.
[23]
In 2009 China completed its first critical oil pipeline, the
Atyrau-Alashankou oil pipeline
(Kazakhstan?China oil pipeline) in Central Asia,
[32]
[33]
: 2?3
as part of a larger overall trade expansion with the Central Asian region which represented a trade volume of over $US $50 billion by 2013, up from $1 billion in 2000.
[33]
: 1
See also
[
edit
]
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[
edit
]
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.
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