OGPSS - Oil production within China

If one looks at a map of China, at first it seems to be a land that has been heavily endowed with gas and oil fields. However, with the continued rise in demand for liquid fuel, exploration and development are being aggressively pursued inside the nation, as well as offshore and abroad. Current levels of production, and those planned, still leave an increasing volume that must be imported each year to meet the national demand.

Figure 1. Exploration and Production map for PetroChina (PetroChina )

And yet, as has been noted earlier, while demand has continued to soar, overall domestic production has not changed all that much. China has three major oil production companies, PetroChina, Sinopec and CNOOC, where the last of these, the Chinese National Offshore Oil Company (discussed in an earlier post) deals – as the name suggests – with offshore deposits, and the other two are concerned with onshore production.

According to the 2012 BP Statistical Review China produced an average of 4.09 mbd in 2011, which was a 0.3% increase over that produced in 2010. As mentioned in the earlier post, CNOOC is only able to project a sustained production level this year because of the increasing production from its overseas properties in Canada and Iraq. In the first half of this year they produced some 127 million barrels of oil, close enough to 700 kbd in total, and similar to last year’s average.

Within the country the industry is split between two companies, the China National Petroleum Corporation (CNPC), which has PetroChina as its publically traded division, has some 60% of the oil production and 80% of the natural gas production. Just this year PetroChina was recognized as having passed ExxonMobil to become the largest listed oil producer in the world. With overall production of 2.43 mbd it exceeded the ExxonMobil total of 2.3 mbd in January. (Although it is suggested that PetroChina made only half the profit of its competitor).

One has also to distinguish between the production that the company is able to achieve in China, relative to that which it achieves through its acquisitions abroad. The company shows a domestic record of production that has averaged 2.42 mbd in 2011 with slight rises in production for the past two.

PetroChina domestic production through 2011. (PetroChina)

For the first half of this year the company has refined an average of 2.69 mbd which was expensive for the company given that the sales price for the resulting products are controlled in China. Additional production, to the tune of 343 kbd, comes from their foreign holdings. By 2020 the company intends that this amount (almost 10% of output) will be increased to 50% of the company production. Assuming that it can sustain domestic levels of production this anticipates that it will need to be able to find roughly 1.4 mbd of additional production from sites abroad.

PetroChina, runs, inter alia, the largest field in China, that at Daqing. After the discovery of commercial oil at Songji No. 3 well in September 1959, the field was brought into production over three years. The field was where “Iron Man” Wang Xinji gained national fame through his efforts as an oil driller with the 1205 Drilling Team to bring in the first production well. Production at the field peaked in 1976 at roughly 1 mbd with more than 14 billion barrels of oil now having been produced. Oil recovery is cited at 50%, a rate that is about 10-15% higher that the average in Chinese reservoirs. Just this week the company completed an addition to the refinery there that raises capacity to 197 kbd at that refinery of Daqing Petrochemical. Production at the field itself has now fallen, in overall average for 2011, to roughly 790 kbd, and relies on tertiary recovery using a polymer based flood in a field which has an over 80% water cut. The company believes that more than 70% of the recoverable oil now has been.

Next door to Daqing lies the Jilin Oil Province, containing some 21 oil fields. Of these the Fuyu field was first discovered with the well Fu-27 in September 1959, with full exploration in 1961 though it was not developed to full potential until 1970. CNPC, PetroChina’s parent, runs the Province, which is the seventh largest in China. Last year it produced some 148 kbdoe and this is to be raised to roughly 200 kbd by 2015. CNPC also began production in Iraq this past year, and anticipates some 59 kbd from that source.

The Changqing Oil Field is also operated by CNPC. Discovered in 1971 it reached a total of 800 kbdoe in 2011 with a year-on-year growth in production of some 7 million barrels.

Figure 3. China’s major oilfields (Energy-pedia )

Far out West in China lies the Tarim Oil Field, which has been set a goal of producing sensibly 1 mbdoe by 2020, though more recent announcements have lowered that target by 20%. Operated by PetroChina, achieving that target will move it toward the front of the fields in the country, from its current fourth place. It has a reserve estimated at 100 billion barrels of oil equivalent, and is the largest natural gas producer in China.

Shengli (Sinopec) Shengli field, which is, at around 557 kbd production in 2010 is currently the second largest producing field in China.

Sinopec anticipate that by 2020 it will produce more than half of its oil and gas from abroad and by 2015 expects that it will be close to that goal.

China Petrochemical, Sinopec’s parent, seeks to produce 50 million metric tons of crude a year overseas by 2015. Last year, foreign production was 22.9 million tons. Sinopec said it boosted first-half crude output 4.3 percent to 163.09 million barrels and overseas production jumped 82 percent to 11.13 million barrels.

If Sinopec sustains domestic production at some 895 kbd through 2020, then it will need to find nearly 1 mbd of overseas production to match that in just 3 years. In short, while China is working as hard as it can to sustain current levels of production into the future, in order to meet the growth that they anticipate they will be looking to buy (combining all three company goals) close to 2.5 mbd from overseas deposits.

The big question of course remains as to where that production will come from, and, if we are at a world plateau in overall production, at whose expense will that supply need be met.

P.S. On a continuing note, it is worth remarking that the Alyeska pipeline flowed at an average volume of 430,967 bd in July.

OGPSS - China's offshore oil

The recent post on Chinese claims to territory in the China Sea, mentioned the rush to plant flags on different islands in the South China Sea portion, as a sign of the ongoing nature of the disputes that continue to develop in the region. That status has continued with protests this last weekend in China over Japanese flag-waving over an island in the East China Sea. The islands are called Diaoyu or Senkaku, depending on whether the report is Chinese or Japanese.

Figure 1. Location of the Senkaku/Diaoyu Islands in the East China Sea (Google Earth). The yellow patch shows the rough location of the Shirakaba/Chunxiao gas field. The Japanese claim runs through the center of the field, China says the boundary is to the East of the field (half way between the disputed islands and Okinawa).

CNOOC, the China National Offshore Oil Corporation, and the company designated to handle their offshore deals, has been producing oil and natural gas from the field since at least March of 2011. Back then:

"China has complete sovereignty over the Chunxiao oil and gas field and administrative authority," Chinese Foreign Ministry spokeswoman Jiang Yu told reporters at a regular news briefing.”

The gas field is 7 minutes flying time for the new Chinese air base at Shuimen.

CNOOC has just released their Mid-year Review noting that they are on track to produce between 330 and 340 million barrels of oil equivalent (mboe) this year. They have 10 new discoveries and 18 successful appraisal wells, and have signed an agreement to co-operatively develop coalbed methane onshore in China. (Their realized gas price is $5.90/kcf up from $4.92 over the same period last year.) However they are running about 4.6% down in production y-o-y, which they blame partly on the production outage at the Penglai 19-3 oilfield, in Bohai Bay, due to the oil spill last year. The shut-down reduced overall company production by 40,000 bd, from a field which has been producing at some 160 kbd.The field, the largest offshore discovery in China is run in partnership with ConocoPhillips, came on line in 2002 and was the site of another small spill this June. Production at Penglai 19-3 was restarted in March, with the intention of ramping up to close to the original flow volumes.

The review notes that of the three appraisal wells drilled in Bohai Bay , Penglai 9-1 was the largest oilfield in recent discoveries in the Bay, and it tied in with the discovery of oil at Penglai 15-2 which is some 8 km south. When included with a third successful appraisal in the Bay (Qinhuangdao 29-2) they have collectively expanded the reserves in the Bay area. CNOOC also note new discoveries further north in the Bay at Luda, which originally came on stream at 11 kbd in 2009.

The second largest oilfield in China, the Shengli field, lies just to the West of Bohai Bay but the onshore fields will be covered in more detail in a later post.

CNOOC is also producing oil from the Xijiang oil field in the East South China Sea. This field started production in 2008, when it was projected to produce 40 kbd from fifteen wells.

(Note this should not be confused with the Xinjiang Oil Province in northern Xinjiang Uygur Autonomous Region, which is a heavy oil deposit which the Chinese are developing using a SAGD technique.)

However, oil fields off the China coast have been in development sufficiently long that some are now depleting. The Lufeng 22 field some 150 miles south-east of Hong Kong has been officially shut down in June 2009. It had 5 long horizontal wells, which ran up to 2 km in the lateral.

Thus when one compares production from the different CNOOC sources in the first half of this year, relative to last year, the increasing role that overseas investments will be called up to maintain overall production levels becomes more evident. Those investments are in the Long Lake Oil Sands in Canada which they acquired with Nexen, and the Missan Oilfield in Iraq. It should be noted, however, that this is still up considerably from the 469,407 bd that the company averaged in 2007. However the 450 kbd anticipated from Iraq is sure to help more.

Figure 2. Comparative production from the various CNOOC operations, 2012 v 2011. (CNOOC Midyear Review)

When one realizes that about 25% of the oil comes from the South China Sea, this tends to draw a little emphasis to the ongoing disputes in that region. There are four projects scheduled for production in the region this year, they are Weizhou and Yacheng in the Western South China Sea, and Panyu and Liuhua in the Eastern. Added to these are the discoveries at Enping in the Eastern South China Sea, and Dongfang in the Western.

Figure 3. CNOOC fields scheduled for production in the South China Sea (CNOOC Midyear Review).

Weizhou is actually an old sandstone reservoir that has been in production for quite some time, but CNOOC now has an interest in some of the fields that are still being developed in the region, which lies in the Beibu Gulf. The reservoir has a relatively low permeability such that various different EOR techniques are being considered for the region. The new developments this year should add around 20,000 bd to production in the Beibu Gulf region.

Yacheng is a gas field that has just started production. It is anticipated to reach peak production of around 1 mcm/day next year.

Panyu is a field that CNOOC acquired from Devon Energy and ConocoPhillips has an interest as the operations move into an expanded Phase II, over the 11 kbd which has been achieved prior. Two new drilling and production platforms are being fielded. Weather in the region is considered a problem.

Liuhua, while one of the largest discoveries in the South China Sea, has a relatively heavy oil, with about a billion barrels in reserve, found in a carbonate reservoir. It was originally discovered in 1987, and was first developed in 1993. It was successfully restarted in 2007, with 25 wells producing some 23 kbd of oil, after being closed due to damage from typhoon Chanchu. The new development is Liuhua-4, which has low reservoir pressure, and so will require the use of electric submersible pumps.