China's plans for its growing offshore oil and gas

Wang Ming Wu
Contributing Editor - Shanghai

In September, China's cumulative offshore crude oil production exceeded 10 million tons for the first time. The yearly production will amount to 13 million tons of oil and 3 billion cu meters of natural gas, that is, 16 million tons of oil equivalent.

China National Offshore Oil Corporation's newly appointed second CEO, Zhong Yi Ming, a highly respected leader on China's offshore oil front for nearly 30 years, said the 12-million-ton target for offshore oil production by 1997 was established in 1991 in a report on offshore oil activity made to Premier Li Peng, but the target has been hit a year ahead of time. Fourteen years ago, China's offshore crude oil production was merely 100,000 tons/yr. China hits 13 million tons of yearly output through 14-year efforts, compared with 20-25 years taken by the USA and FSU. Such growth of production, taking five steps forward in five years with an increase at a rate of 1-2 million tons/yr, has achieved remarkable benefits and is rare in the world.

Cumulative offshore oil taxes of ?4.13 billion have paid to the government, 3.2 times the its investment over the 14-year period; total assets have increased from ?2.83 billion to ?27.9 billion, a 8.9-fold increase; productivity has risen from over 110,000 b/d to 170,000b/d; and 19 oil and gas fields have been completed and have gone onstream without deficit.

Several things account for the rapid and highly effective development of China's offshore oil industry:

* A reformed and open policy that established five strategies:

* To uphold and develop external cooperation

* To uphold and grow exploration and development on our own

* To construct a major gas area in the western Nanhai (South China) Sea

* To initiate a new open situation in the Donghai (East China) Sea

* To open up new domains of refining and petrochemical industry.

Each strategy has advanced steadily through progressive, ever-deepening supplementation and external cooperation. Up to this time, CNOOC has signed 119 oil contracts and agreements with over 60 foreign firms; foreign capital of over $5 billion has been invested directly; cumulative seismic of over 650,000 line-km have been shot; over 400 test wells have been drilled; over 90 oil-and-gas-bearing structures have been discovered, with geological reserves of 1.25 billion tons of oil and 235 billion cu meters of natural gas.

* A totally new mechanism has been formed.

* A policy has been implemented to make use of strategic personnel. Total staff and workers have been reduced from 300,000 in 1982 to about 280,000, while annual crude output has been boosted by a hundred-fold.

CNOOC's development target during the current plan period is:

* Newly increased developable oil reserves of 300 million tons and 300 billion cu meters of natural gas

* Annual production of 10 million tons of crude oil to be maintained over the next 15 years

* Production capacity of natural gas to reach 8-10 billion cu meters by the end of this century and 15-20 billion cu meters in 2010

* Determination of the target of an integrative up-and downstream and construction of a large-scale fertilizer base, petrochemical plants, and long-range flowlines through which to carry natural gas and import LNG for power generation and city use as soon as possible

* Overseas development strategy to be strengthened to serve China's socialist construction using foreign oil and gas resources

* Ten-odd oil and gas fields (blocks) will be developed and go onstream, 54 million tons of crude oil and 26 billion cu meters of natural gas in total are planned to be produced during the 1996-2000 period. The

The Shengli Field

As of 21 August, Shengli Field, China's second largest oil field, has cumulatively produced 600 million tons of crude oil, accounting for one-fourth of the country's total. By the end of 1995, 66 different types oil and gas fields were discovered in the north of Shendong province, of which 56 were put into development, with stable yields of 30 million tons of crude oil for nine consecutive years. At present, annual production capacity is 28.50 million tons. Shengli has reached cumulative industrial output value of *161.1 billion and total marketing income of *128.3 billion. It has paid profits and taxes of *14.4 billion to the government. Total field assets have reached *36.5 billion, becoming a famous supergiant, state-owned enterprise.

The third stage

"CNOOC sets out to widen the downstream on the premise that exploration and development have continuously yielded gains, advancing the third stage of CNOOC development," said Wang Yan, CEO of CNOOC, in an recent interview with a correspondent of China Offshore Oil Press. He termed the period from 2 Feb 1982, the day of the founding of CNOOC, to 1987 as the first stage, during which external cooperations, importing foreign funds and technologies to develop China's offshore oil and gas resources and strengthen CNOOC's hand were set off, and from that time to this as the second stage of foreign operation and wholly owned exploration/development occurring simultaneously.

Referred to the third development stage, he said, CNOOC has steadily improved productivity and accumulated funds since reform, allowing orientation to a market-driven economy. "Neither spending a cent on dealing in real estate nor on speculating in foreign exchange or on scalping cars, or rather very punctiliously investing all of our funds in offshore exploration and development to expand reproduction. It is understood that the state needs energy, thus our task is to find more oil and gas fields. Now, we are able to provide ?1000 million for exploring, for which poor risk to be born." CEO Wang Yan said about the first downstream project, Hainan chemical fertilizer base, which was decided by Premier Li Peng personally when a report was made to him on the program of the 9th Five-Year Plan in April 1995. Premier Li Peng called for all natural gas discovered offshore to be used for chemical fertilizer instead of selling to the Pearl River Delta for a favorable price in terms of the original program. Premier Li said, the state is based on agriculture, which greatly need chemical fertilizer, thus this should be done first. "We made an immediate study and proved the premier's understanding - the beneficial effects of upstream-downstream integration are obvious."

Premier Li went to Hainan to help select the first large downstream project location personally. A total investment fund of $2000 million in up-and downstream integration has arrived on location getting a good start for the third development stage.

The second large-scale petrochemical project is a joint venture with Shell in Huizhou with an annual capacity of 8 million tons of refined oil and 450,000 tons of ethylene. It's a state project with a static investment fund of $5.6 billion, and its feasibility study has been completed, examined, and approved by the State Planning Commission.

The third large project is the importation of LNG. There is a great need for petroleum gas in the southern provinces of China. CNOOC was told by the State Planning Commission to take the lead in making a feasibility study, in which Zhejiang, Guangdong, and Fujian Provinces are selected to take part. The import of natural gas is a long chain from foreign gas fields to users via a compressing plant, shipping LNG in low temperature compressed form, terminal berthing in China, unloading the gas into underground storage, and then pipeline transmission of the gas to the end user. The user may be a power plant or a city. We are able to handle the sectors from gas storage berthing in China, and the transport vessel and the LNG plant, with a considerable amount of investment fund.

The fourth large project is construction of LPG facilities, which have just started in East China and Guangdong to solve the need for heating and cooking fuels. Large-scale storage have been built in Jiangsu's Zhenjiang, Guangdong's Yangjiang,

Wang Yan said these four big projects require a 30% self-raised investment fund. "We act according to our capability. China's offshore oil will do things and constructions around-these projects during the current plan period, and beneficial results will be appeared during the next plan period."