Chapter 2

Developmental Features of the Chinese

Petroleum Industry in Recent Years

Chinas oil industry has developed for more than 60 years since the establishment
of China in 1949, creating many achievements in exploration, development and
production to meet the increasing needs for oil. What is the current situation of the
Chinese oil industry? The next section analysis that.

2.1
2.1.1

Exploration and Development of Petroleum in China

The Progress of Exploration and Development

In 1998, the Chinese government decided to restructure the petroleum and

petrochemical industry in accordance with the principles of upstream and downstream integration. CNPC and Sinopec were officially established. Later,
PetroChina Company Limited merged with CNPC, China Petroleum & Chemical
Corporation attached to Sinopec, and CNOOC Limited merged with CNOOC, were
founded successively. That same year, China pursued a decade-long program of
intensive petroleum exploration. During this period, four exploration fields including eastern, western, marine and overseas regions were launched (Li 2009).
Numerous exploration accomplishments were achieved with this new policy. Oil
reserves and output steadily increased on the basis of this high level effort, despite
even greater difficulty in exploration. In the eastern area, constantly increasing
research on oil and gas geology and accumulation, and continuous improvement of
techniques and methods for exploration, made the oil exploration more effective.
Proven oil geological reserves increased annually to a high level of 100 million
tons. In the western and marine areas, discovery of the giant Tahe oilfield in Tarim
Basin, the breakthrough of giant Xifeng oilfield in Ordos Basin and the demonstration of Penglai 19-3 and other oilfields in Bohai Sea, increased the reserves in these
regions. Overseas, China won the bid for exploration and development project of
L. Feng et al., The Chinese Oil Industry: History and Future,
SpringerBriefs in Energy, DOI 10.1007/978-1-4419-9410-3_2,
# Lianyong Feng, Yan Hu, Charles A.S. Hall, Jianliang Wang 2013

17

18

Developmental Features of the Chinese Petroleum Industry in Recent Years

Block 1/2/4 in Sudan; subsequently, a number of large and medium-sized oilfields

were discovered after the contract had been signed in 1997.
Meanwhile, with the restructuring of the petroleum industry, local companies
were able to undertake exploitation and production in accordance with the new
law, some attaining rapid development. As a result, a new management pattern of
oilfield exploitation took shape. In this petroleum stage, the main problems in
China were as follows: many developed oilfields entered into a stage of high
water-cut and high levels of exploitation with declining levels in production; the
shortage in petroleum resources was still the main restricting factor for the
development of many oilfields; the drilling situations became more and more
complicated, making the existing technology inadaptable, finally, reconstruction
turned out to be arduous because of the aging and severely corrosive ground
systems of old oil fields. Based on the existing problems and difficulties, technical
countermeasures were taken as follows: improving the technology of secondary
oil production according to the characteristics of each oil field; developing and
perfecting the supporting technology and industrial application of tertiary recovery; promoting the supporting technology in the economic and efficient development of low permeable oil fields; improving the effectiveness of thermal recovery
of heavy oil and developing the succeeding technology of steam and soaking in
the later periods of heavy oil; and developing new technologies for evaluating and
decision-making in the exploitation of oilfields. Several other improvements for
the petroleum industry in China included: accelerating the progress of integration
of exploration and development; making efforts to control the scale of investment
to reduce production costs; improving the yield and productivity; taking measures
to increase production by adjusting and optimizing the physical and management
system; changing scientific management methods; and increasing technology
investment to make the size of the enterprise match the needs of development,
improving reservoir management, and enhancing the integral level of oilfield
development (Han 2010).

2.1.2

Evaluation of Oil and Gas Resources in China

According to the Bulletin of Chinese Land and Resources in 2009 (MLRPRC

2010) issued by Chinas Ministry of Land and Resources (MLR), in 2009, proven
geological reserves of oil increased by 1.1 billion tonsthe fourth straight year that
new proven geological reserves exceeded 1 billion tons. Newly proved reserves of
natural gas were 723 billion cubic meters, hitting a historically high level. During
the same period, three large oil companies made remarkable exploration
achievements. The construction of western oilfields was on the rise. A series of
oil and gas discoveries were made in Bohai Bay. CNPC continued to implement the
project of peak reserves growth and achieved a series of strategic discoveries and
significant breakthroughs in major exploration regions, such as Qaidam basin,
Erdos basin, Tarim basin, Junggar basin, Hailaer-Talmud Taga basin and Sichuan

2.1 Exploration and Development of Petroleum in China

19

Table 2.1 Petroleum resources of three main blocks of China

Eastern

Western

Total
(million tons)
Prospective oil 41.8
Geological oil 32.4
Recoverable oil 10.0

Offshore

Total
Share (%) (million tons)
38.5
27.1
42.4
17.5
47.3
4.8

Total
Share (%) (million tons)
29.9
15.2
22.9
10.7
22.6
2.9

Share (%)
14.0
14.0
13.8

Table 2.2 Petroleum resources statistics of main petroliferous basins (million tons)
Basin name
Bohai bay
Songliao
Tarim
Erdos
Junggar
Qiangtang
Pearl River Estuary
Qaidam
Cuoqin

Prospective oil
27.5
14.4
11.4
8.8
8.5
8.5
2.9
1.5
2.2

Geological oil
22.5
11.3
8.1
7.4
5.3
5.1
2.2
1.3
1.1

Recoverable oil
5.5
4.6
2.4
1.7
1.3
1.1
0.8
0.3
0.2

basin. Sinopic increased exploration investment and strengthened its trap reserves.
Sinopec made new exploration breakthroughs in the Leikoupo group in the northeastern part of Sichuan province. It also made significant progress in exploration in
Xinjiang Tahe-Tuoputai region, and exploration discoveries in new strata series in
the Eastern old region and Western new blocks. CNOOC made 15 self-supported
oil and gas new discoveries in Chinese seas, and evaluated 11 oil-gas-bearing
structures independently and successfully. In other words, in 2009, oil and gas
reserves in China hit record highs, while resource development realized the goal of
stable output of oil and increased yield of gas.
In China, a number of nationwide petroleum resource evaluations were
launched respectively in 1994, 2002 and 2005. There are a total of 418 sedimentary basins in the entire nation. By 2005, more than 150 sedimentary basins have
been selected for oil and gas exploration. Among them, 24 basins were discovered
with industrial oil-gas fluid and 34 were found to have evidences of oil and gas. As
the national assessment of oil resources in 2005 revealed (MLR 2005), most oil
resources are distributed in the Eastern, Western and Offshore regions of China.
The evaluation reported three major resource types, including prospective sources
that refer to total estimated petroleum initially in place, geological resources that
refer to discovered petroleum initially in place, and recoverable resources that
mean ultimate recoverable resources. Together, their prospective, geological and
recoverable oil accounts for 82.4%, 79.3% and 83.7% respectively of the nations
whole. The detailed results are presented in (Tables 2.1 and 2.2).

20

Developmental Features of the Chinese Petroleum Industry in Recent Years

Table 2.3 Natural gas resources of three main blocks of China

Central

Prospective gas
Geological gas
Recoverable gas

Total
(1012 m3)
18.0
10.1
6.4

Western
Rate (%)
32.3
28.9
28.9

Total
(1012 m3)
15.9
11.6
7.5

Offshore
Rate (%)
28.4
33.1
33.9

Total
(1012 m3)
12.7
8.1
5.3

Rate (%)
22.8
23.1
23.9

Table 2.4 Natural gas resources statistics of main gas-bearing basins (1012 m3)
Basin name
Tarim
Sichuan
Erdos
East China Sea
Qaidam
Songliao
Yinggehai
Qiongdongnan
Bohai Bay

Prospective gas
11.3
7.2
10.7
5.1
2.6
1.8
2.3
1.9
2.2

Geological gas
8.9
5.4
4.7
3.6
1.6
1.4
1.3
1.1
1.1

Recoverable gas
5.9
3.4
2.9
2.5
0.9
0.8
0.8
0.7
0.6

Natural gas resources in China are mainly located in the central, western and
offshore regions (Table 2.3). In the Tarim, Sichun, Erdos, Qaidam and five similar
gas-bearing basins, whose geological resources are more than 1 trillion cubic
meters (Table 2.4).
In the future, Zhou and Tang (2004) recommend that new data, new theories
and new technologies should be applied to existing places such as Songliao, Bohai
Bay, Ordos, Sichun, Junggar, Tarim, Qaidam and Tuha basin. Also, the greater
efforts must be made for the evaluation of new regions and new basins in order to
find new fields for further exploration. Moreover, they recommend that
new formation mechanism of oil and gas accumulation, and new oil and gas
distribution laws need to be developed. Geological and geochemical data obtained
from oil and gas exploration should be made more publically available, and new
resources assessment methods geared to international standards should be
adopted.

2.2

Production and Consumption of Petroleum in China

China is one of the worlds largest oil producers. In 2009, the oil output of China
amounted to 4.9% of global production. From 1999 to 2009, the notable feature of
Chinas oil production was a steady growth trend at about 1.8% per year (Fig. 2.1).

2.2 Production and Consumption of Petroleum in China

21
10%

180
8%

160
140

6%

120
4%

100
80

2%

60
40

rate of change

crude oil production (million tons)

200

0%

20
2%

0
1984

1988

1992

1996

2000

2004

2008

rate of change

crude oil production

Fig. 2.1 Chinas crude oil production in 19842009. Source: International Petroleum Economics
(Chinese journal). Note: Data is calculated in company range and has little differences with that
from the Bureau of Statistics of China

100%
hydro and
nuclear

90%
80%
70%

natural gas

60%
50%
crude oil

40%
30%
20%

raw coal

10%
0%
1990

1993

1996

1999

2002

2005

2008

Fig. 2.2 Structure of energy production of China 19902008. Source: CSY 2010

However, there are some indications from recent years that this increase may not
continue because of the increasing difficulty in getting the oil (see Chap. 4)
(Fig. 2.2).
According to the NBSC, in 2009, total national crude production was 189
million tons with a 0.4% drop year over year and natural gas 83 billion cubic
meters with a 7.7% growth year over year. This decline is also apparent in the

22

Developmental Features of the Chinese Petroleum Industry in Recent Years

80%
70%
60%

CNPC
share

50%
40%

Sinopec
share

30%
20%

CNOOC
share

10%
0%
1997

1999

2001

2003

2005

2007

2009

Fig. 2.3 Chinas top three petroleum companies share in total crude oil production. Source:
International Petroleum Economics (Chinese Journal)

statistics of the three largest companies. According to the CNPC annual report in
2009, CNPC crude oil production was 0.8 billion barrels, falling by 3.1% year over
year and natural gas for sales 2.1 billion cubic meters, increasing by 13.3% year
over year; CNPC overseas crude oil production reached 70 million tons, increasing
by 12.5% year over year, and overseas natural gas 10 billion cubic meters, increasing by 50% year over year. For Sinopec, its production of crude oil and natural gas
was 0.3 billion barrels and 299 billion cubic meters respectively, with increases of
1.5 and 2% separately. For CNOOC, its output of oil and gas reached 0.2 billion
barrels of oil equivalent, increasing by 17.2% year over year. These three
companies have played a leading role in national crude oil production, and since
1997 the yield of crude oil from CNPC has constituted for more than half of the
production (Fig. 2.3).
Of all the large oilfields in China (Table 2.5), Daqing oilfield has played a
leading role in production with a yield of 50 million tons annually for many years
(Sun 2010). Since 2003, Daqing has entered into a new, sustainable development
stage, producing more than 40 million tons annually and continuing to provide a
reliable resource guarantee for Chinas energy security. In 2009, Shengli oilfield
had an annual output of 27.8 million tons; its output has remained above 26.6
million tons since 1999. With its oil production exceeding 15 million tons,
Changqing oilfield has become the third largest oilfield on mainland China in
2009, following Daqing and Shengli, and it is also the largest oil and gas producer
in the western region of China. The production of Tarim oilfield exceeded 5 million
tons for the first time in 2002, and has ranked sixth or seventh since then.
Along with Chinas massive economic development, Chinas oil consumption
has increased year after year, especially, in the high energy consumption secondary
industries. More energy availability has been translated into the improvement of

2.2 Production and Consumption of Petroleum in China

23

Table 2.5 Oil production of the top 10 oil fields in China from 1998 to 2009 (million tons/year)
Oil field name
Daqing
Shengli
Changqing
Xinjiang
Liaohe
Jilin
Tarim
Dagang
Huabei
Zhongyuan

1998
55.7
27.3
4.0
8.7
14.5
4.0
3.9
4.3
4.7
4.0
2004

1999
54.5
26.7
4.3
9.0
14.3
3.8
4.2
4.1
4.7
3.8
2005

000
53.0
26.8
4.6
9.2
14.0
3.8
4.4
4.0
4.6
3.8
2006

2001
51.5
26.7
5.2
9.7
13.9
4.0
4.7
4.0
4.5
3.8
2007

Daqing
46.4
45.0
43.4
41.6
Shengli
26.7
27.0
27.4
27.7
Changqing
8.1
9.4
10.6
12.1
Xinjiang
11.1
11.7
11.9
12.2
Liaohe
12.8
12.4
12.0
12.1
Jilin
5.1
5.5
5.9
6.2
Tarim
5.4
6.0
6.1
6.4
Dagang
4.9
5.1
5.3
5.1
Huabei
4.3
4.4
4.4
4.5
Zhongyuan
3.4
3.2
3.1
3.1
Source: International Petroleum Economics (Chinese Journal) (in Chinese)

2002
50.1
26.7
6.1
10.1
13.5
4.4
5.0
3.9
4.4
3.8
2008

2003
48.4
26.7
7.0
10.6
13.2
4.8
5.3
4.2
4.4
3.6
2009

40.2
27.7
13.8
12.2
12.0
6.6
6.5
5.1
4.4
3.0

40.0
27.8
15.7
10.9
10.0
5.9
5.5
4.9
4.3
2.9

Chinas social life, increasing ownership of personal cars, and the quickening pace
of construction that characterize a well-off developing society. Recently, China
surpassed Japan by becoming the worlds second largest oil consumer (BP 2010). In
2009, its oil consumption reached 0.4 billion tons. Consumption has grown at a rate
of 6.9% annually since 2000, while the average growth rate of crude production was
only 1.8% (Fig. 2.4). In the past three decades, coal has satisfied the vast majority of
Chinas total energy consumption requirements. In 2008, oils share in the energy
mix in China was 18.7%, dropping 4.7% from its highest of 23.4% in 2002
(Fig. 2.5).
Since becoming a net oil importer in 1993, China has raised its oil imports year
after year partly because of its relatively slow growth of oil supply (Fu 2010). In
1999, net imports amounted to 33.6 million tons, a figure that increased by almost
six times by 2009. Annual oil imports in 2009 reached 204 million tons, increasing
by 13.9% year over year and exceeding 0.2 billion tons for the first time (Fig. 2.6).
Therefore, both a decrease of domestic crude output and a growth of imports made
the oil refining industry in China increasingly dependent on crude oil imports. The
proportion that net crude imports accounted for refinery processing rose from 50%
in 2008 to 53% in 2009 (Yuan et al. 2011).
Most of Chinas imported crude oil comes from the Organization of Petroleum
Exporting Countries (OPEC) and that proportion has been rising over the past

Developmental Features of the Chinese Petroleum Industry in Recent Years

450

45%

400

40%

350

35%
30%

300

25%

250

20%
200

15%

150

10%

100

5%

50

0%

rate of change

oil consumption (million tons)

24

5%
1980

1990

2000

2002

2004

2006

2008

rate of change

oil consumption

Fig. 2.4 Chinas oil consumption in 19802009. Source: CESY 2009, NBSC

100%
hydro, nuclear
and wind
power

90%
80%
70%

natural gas

60%

oil

50%

raw coal

40%
30%
20%
10%
0%
1978

1990

1993

1996

1999

2002

2005

2008

Fig. 2.5 Chinas structure of energy consumption in 19782008. Source: NBSC

10 years (Huang and Chen 2007). Imports, especially, from the Middle East, also
have been increasing, but there has been a slight decline in the Middle East
proportion. Fig. 2.7 shows the fluctuations of sources and quantities of Chinas
crude oil from 1997 to 2009. Since 2009, 42 million tons of crude oil, accounting
for 20.6% of Chinas total imports, has been from Saudi Arabia, making it the
largest crude oil supplier for China. Angola is the second largest crude oil
supplier, exporting 32.2 million tons to China, accounting for 15.8% of Chinas
imports. Crude oil imports from Russia increased by 31.5%, but the 15.3 million
tons in 2009 are still less than the imports of 16 million tons in 2006.

2.3 Development of Oil Pipelines in China

25

250

(million tons)

200
150
100
50
0
1997

1999

2001
import

2003

2005

2007

2009

export

Fig. 2.6 Crude oil imports and exports of China 19972009. Source: General administration
of customs
250

(thousand tons)

200

Oman
Sudan

150

Russian Federation
Other Africa
Other Europe & Eurasia

100

Other Middle East

Iran

50

Angola
Saudi Arabia

0
1997

1999

2001

2003

2005

2007

2009

Fig. 2.7 Sources of Chinese crude oil imports 19972009. Source: General administration
of customs

2.3

Development of Oil Pipelines in China

Chinas oil pipeline system developed along with the oil industry. Since 1988, oil
and gas exploration made significant breakthroughs successively in Tuha, Tarim,
Shan-Gan-Ning, Qaidam and offshore areas. Under the government policies of
stable development in the east and speeding development in the west and
developing of oil and gas simultaneously, construction of crude oil and other
kinds of pipelines began. Through 2009, CNPC, Sinopec and CNOOC have built

26

Developmental Features of the Chinese Petroleum Industry in Recent Years

crude oil, product oil, natural gas and submarine pipelines for a total of 75 thousand
km, basically forming an eastwest and southnorth transportation network.
Pipelines are Chinas fifth major transportation industry, along with railways,
highways, aviation and waterways, and play an important role in ensuring a stable
and growing national economy (Pu and Ma 2011).
Regional pipeline networks have been formed in the Northeast, Northwest,
North, East and Central regions of China. Major transportation pipelines include:
those of Daqing to Tieling with its double track, Tieling to Dalian, Tieling to
Fushun, Tieling to Qinhuangdao, Qinhuangdao to Beijing, Alshankou to Dushanzi,
Dongying to Huangdao with its double track, Dongying to Linyi with its double
track, Linyi to Yizheng, as well as others in west China, Ningbo to Shanghai and to
Nanjing, Yizheng to Changling and so on (Pu 2010).

2.3.1

Chinas Oil Pipeline Development (19882010)

1988, 6: Launched Huatugou-Gormu crude oil pipeline: total length of 435 km and
with an annual deliverability of 2 million tons. In Sep. 1990, this pipeline
became operational to meet the requirements of national defense and economic
development in the Autonomous Region of Tibet.
1991, 7: Launched Lunnan-Korla crude oil pipeline: total length of 191 km and with
an annual deliverability of 3 million tons.
1993: Built the crude oil transportation pipeline from Huabei oilfield to
Shijiazhuang refinery: total length of 150 km and with an annual deliverability
of 3.5 million tons.
1995: Built pipeline from Changchun City to Jilin City: total length of 156 km and
with an annual deliverability of 4 million tons.
1995, 7: Launched the pipeline from Tazhong to Lunnan: total length of 302 km and
with an annual deliverability of 6 million tons; became operational in Aug. 1996.
1995, 9: Launched the double track of pipeline from Lunnan to Korla: total length
of 161 km and with an annual deliverability of 10 million tons; became operational in June 1996.
1996, 6: Launched the pipeline from Korla to Shanshan: total length of 476 km and
with an annual deliverability of 10 million tons; became operational in June
1997.
1996: Built and put into production the pipeline from Ansai to Yanan: total length
of 107 km and with an annual deliverability of 1.22 million tons.
1997: Built the pipeline from Jingbian to Maling: total length of 200 km and with an
annual deliverability of 1.1 million tons.
1997: Built the pipeline from Mabianzhou Daya Bay to Guangzhou Petrochemical
Company: total length of 170 km and with an annual deliverability of 12
million tons.
2001: Built the pipeline from Ansai Jingan oilfield to Xianyang: total length of
463 km and with an annual deliverability of 3.5 million tons.

2.3 Development of Oil Pipelines in China

27

2004, 3: Built the pipeline from Ningbo to Shanghai and then to Nanjing: total
length of 645 km and with an annual deliverability of 20 million tons.
2004, 4: Launched the pipeline along Yangtze east to Yizheng Jiangsu Province and
west to Changling Hunan Province: total length of 973 km and with an annual
deliverability of 27 million tons; became operational in Dec. 2005.
2005: Kazakhstan-China crude Pipeline project (phase 1), Chinas first multinational long distance transmission pipeline was completed, west to Atasu
Kazakhstan, across Alshankou China and east to Dushanzi Xinjiang Uygur
Autonomous Region: total length of 1,208 km and with an annual deliverability
of 20 million tons.
2005, 12: The first section (Atasu-Alshankou: total length of 962.2 km) of the
Kazakhstan-China Crude Pipeline was completed and became operational.
2006: Western crude pipeline (part of western crude and product pipelines) became
operational with a designed transport capacity of 2 million tons per year. This
pipeline and Kazakhstan-China crude pipeline formed the Strategic West to East
Oil Transmission Project. The pipeline formally became operational in June 2007.
2007: Implement the Phase II project of the Kazakhstan-China Gas Pipeline from
Kenkiyak to QomCole: total length of 761 km; became operational in Oct. 2009.
2007, 6: Crude pipeline from Caofeidian off-take station to oil terminal in Tianjin
became operational: total length of 190 km with a designed annual deliverability
of 20 million tons.
2008, 2: Crude pipeline from Aoshandao Zhoushan City in Zhejiang Province to
Cezidao in Zhoushan City became operational: total length of 45 km.
2008, 4: Started the construction of Jibai crude pipeline, north to Ji2 Union Station
of oil production plant located in Jiyuan oil town of Dingbian county in Shaanxi
Province, and south to Baibao oil transporting station of Wuqi county in
Shaanxi Province: total length of 104 km; became operational in Dec. 2008.
2009: Construction commenced of Russia-China crude pipeline, consisting of three
sections: far-east pipeline from Tayshet to Skovorodino, border pipeline from
Skovorodino to Mohe and Mohe-Daqing pipeline. The pipeline is 1,030 km
long. Border pipeline from Skovorodino to Mohe launched on 27 April and
Mohe-Daqing pipeline on 18 May. It will be operational and Russia will begin to
supply 15 million tons of crude to China annually through this pipeline for the
next 20 years.
2009. 9: Launched the pipeline of Shikong-Lanzhou from the Shikong Ningxia
take-off station to Lanzhou terminal station: total length of 359 km; planned to
be operational in June, 2010.
2009, 9: Anbao-Yinchun pipeline started construction: total length of 141 km;
planned to be operational in June, 2010.
2009, 11: Launched the pipeline from Rizhao port take-off station to Dongming
Petrochemical terminal station: total length of 462 km; will be operational in
June, 2011 on schedule.
In 2010, construction of key pipeline projects that include a third Shaan-Jing
gas pipeline, as well as Qinhuangdao-Shenyang and Taian-Qingdao gas

28

Developmental Features of the Chinese Petroleum Industry in Recent Years

pipelines, crude pipelines such as Mohe-Dalian and Rizhao-Dongming, and product

pipelines consisting of the Sunan and Pearl River Deltas (phase 2) projects. From 2010
to 2015, 50,000 km of pipelines are expected to be completed. Chinas total oil and gas
pipelines will reach 110,000 km by 2015 (Pu and Ma 2011). Meanwhile, a large
quantity of auxiliary projects include underground gas storage, liquefied natural gas
(LNG) receiving stations and reserve storage will be constructed to guarantee the
security of oil and gas supplies. By 2015, the nationwide network system will be
completed which is characterized by diversified sources, flexible transmission, adequate logistic support and stable supply.
The next few years are likely to be the peak time for Chinas oil/gas pipeline
construction. As the link between resources and markets, pipeline construction will
make considerable development possible with large imports of foreign resources,
increasing reservoirs and rising output from domestic oilfields, and vigorous development of regional markets. China will focus on gas development in the plan for the
next 5 years (Qu 2011).

2.4

Refining and Marketing Oil in China

Chinas crude oil processing capacity increased from 1998 to 2009. In 2009, total
annual crude oil refining throughput was about 375 million tons, increasing by 7.9%
year over year. For CNPC, throughput was 112 million tons, falling by 2.5% year
over year, and for Sinopec, 183 million tons, rising by 6.7% year over year
(Fig. 2.8).
From 1998 to 2009, the production of major refined products such as gasoline,
kerosene, diesel, lubricating oil, and fuel oil generally showed an upward trend. The
production of gasoline, kerosene and diesel in 2009 increased by 107%, 157% and
189% respectively compared with production in 1998. In 2009, total output of
refined oil reached 228 million tons, increasing by 9.4% year over year, including
72 million tons of gasoline, and increasing 13.1% year over year, 15 million tons of
kerosene, increasing by 27% year over year and 141 million tons of diesel,
increasing by 6% year over year (Fig. 2.9).
China has always attached importance to crude refining. A large number of
projects, that were put into production or commenced and developed, have
achieved remarkable results. In 2009, contrary to world trends, Chinas crude
refining industry grew and established large-scale refining installations at Huizhou
Guangdong, Fujian, Dushanzi and Tianjin, etc. (Song 2010). Primary processing
capacity increased by 45 million tons and total crude processing capacity rose to
483 million tons per annum, making China the second-largest refining country
behind the United States. Meanwhile, Sinopec China and CNPC became the
worlds third-largest and eighth-largest refining companies respectively
(Table 2.6).
By the end of 2009, there were 17 refineries that reach the level of refining 107 tons
per year in China, including Sinopec with 11, CNPC with 5 and CNOOC with 1.

29

400

16%

350

14%

300

12%
10%

250

8%

200

6%

150

4%

100

2%

50

0%

rate of change

refinery throughput (million tons)

2.4 Refining and Marketing Oil in China

-2%
1998

2000

2002

2004

refinery throughput

2006

2008

rate of change

Fig. 2.8 Chinas crude oil refinery throughput in 19982008. Source: International Petroleum
Economics (Chinese Journal)
250
total

(million tons)

200
diesel oil
150

gasoline

100

fuel oil
kerosene

50

lubricating oil
0
1998

2000

2002

2004

2006

2008

Fig. 2.9 Chinas major refined products production in 19982008. Source: Data Handbook for
Energy Planning, International Petroleum Economics

The average scale of refining bases for Sinopec was 6.4 million tons per year, and for
CNPC, 5.1 million tons per year (Qian 2010) (Table 2.7).
According to the Medium and Long Term Development Plan of Refining
Industry published in December, 2005 by the National Development and Reform
Commission (NDRC), more than 20 competitive 10 Mt per year refineries would be
established by the end of 2010, accounting for 65% of total processing capacity.
From 2009 to 2015, the total newly increased refining capacity is expected to come
up to 197 Mt per year, including Sinopec, 107 million tons per year, CNPC, 80 Mt
per year and CNOOC, 10 million tons per year.

30

Developmental Features of the Chinese Petroleum Industry in Recent Years

Table 2.6 Global Top 10 petroleum refining companies in 2009

Processing capacity
(106 tons/year)
Changes compared Share of global processing
Rank Company
2009 to 2008
capacity in 2009 (%)
1
ExxonMobil Corporation
289.9
8.3
6.7
2
Royal Dutch Shell
231.5
1.6
5.3
3
Sinopec
198.6
8.0
4.6
4
British Petroleum
166.4
0
3.8
5
ConocoPhillips
138.9
4.1
3.2
6
Valero Energy Corporation
135.2
5.4
3.1
7
Petroleos De Venezuela S.A 133.9
0
3.1
8
CNPC
130.8
8.8
3.0
9
Total S.A
129.7
3.0
3.0
10
Chevron Corporation
124.6 25.6
2.9
Source: International Petroleum Economics (Chinese Journal) (in Chinese)
Table 2.7 Refining bases with the level of 107 tons per year in China (million tons/year)
Base
Owner
2005
Dalian Petrochemical
CNPC
10.5
Fushun Petrochemical
CNPC
10.0
Yanshan Petrochemical
Sinopec
8.0
Shanghai Petrochemical
Sinopec
14.0
Gaoqiao Petrochemical
Sinopec
11.0
Jinling Petrochemical
Sinopec
13.0
Zhenhai Petrochemical
Sinopec
20.0
Qilun Petrochemical
Sinopec
10.0
Guangzhou Petrochemical
Sinopec
7.7
Maoming Petrochemical
Sinopec
13.5
Lanzhou Petrochemical
CNPC
10.5
Dalian West Pacific Petrochemical Co., Ltd.
CNPC
10.0
Tianjin Petrochemical
Sinopec
5.5
Fujian Refining & Chemicals
Sinopec
4.0
Dushanzi Petrochemical
CNPC
5.5
Qingdao Refinery
Sinopec

Huizhou Refinery
CNOOC

Source: International Petroleum Economics (Chinese Journal) (in Chinese)

2.5
2.5.1

2010
20.5
10.0
10.0
14.0
11.3
13.5
20.0
10.0
13.0
13.5
10.5
10.0
15.0
12.0
10.0
10.0
12.0

Refined Oil Market

Supply and Demand of Refined Oil

Since 2003, Chinas consumption of petroleum-derived products has become

almost equal to its refining capacities under the two-way adjustment plan (import
and export). Gasoline exports accounted for only a small proportion of gasoline

2.5 Refined Oil Market

31

Table 2.8 Chinas supply and demand of petroleum-derived products 20032008

Petroleum products (million tons)
Gasoline

Year
2003 2004 2005 2006
Supply
40.7 47.0
48.6
55.9
Consumption 40.7 47.0
48.5
52.4
Diesel
Supply
84.7 99.5 109.7 116.5
Consumption 84.1 99.0 109.7 118.4
Kerosene
Supply
9.2 10.6
10.7
9.7
Consumption
9.2 10.6
10.8
11.3
Source: China Energy Statistic Yearbook, China Statistic Yearbook (in Chinese)

100%

2007
56.0
55.6
123.4
124.3
11.6
12.4

2008
63.5
63.4
133.2
138.9
11.7
12.8

wholesale, retail
trade and hotel
,restaurants
construction

90%
80%
70%

residential
consumption

60%
50%

others

40%
30%

industry

20%
10%

transport, storage
and post

0%
1995

2000

2005

2006

2007

2008

2009

Fig. 2.10 Petroleum products consumption by sector in China. Source: CESY 2010

production. Demand for diesel and kerosene relied mainly on domestic output.
Demand for petroleum products grew rapidly from 2003 to 2008. Average annual
growth rate of gasoline, diesel and kerosene demands were 9.3%, 10.6% and 6.8%
respectively (Table 2.8).
Chinas petroleum-derived products are consumed by all components of Chinas
economy: agriculture, forestry, animal husbandry, fishery, water conservancy,
industry, construction, transportation, warehousing, postal service, catering and
household consumption, etc. (Fig. 2.10).
The growing demand for oil-derived products in transportation, warehousing
and postal service motivated growth of gasoline and diesel production in China.
Because of the rapid development of transportation, total turnover of freight traffic
was 12 trillion ton per km in 2009, up 127% compared to 2003. The volume of
passenger transportation was 2 trillion persons per km in 2009, an increase of 79.8%
compared to 2003. Improvement of roads and other infrastructure construction, and
growth of population and vehicle sales promoted a sharp rise in diesel consumption
in China.

32

2.5.2

Developmental Features of the Chinese Petroleum Industry in Recent Years

Price Mechanism of Crude Oil and Refined Oil

Chinas crude oil price has been integrated with international crude oil markets,
while the same case does not apply to oil-derived products. Since the adjustments to
the price of oil products effects a wide range of industries and peoples livelihoods,
the price has been regulated by the government. Since 1998, China gradually
accelerated the pace of price adjustment (usually increases) on crude oil and oilderived products.
Chinas oil price started to integrate with the international market since 1998. On
June 3, 1998, the State Planning Commission promulgated a crude oil and
petroleum products prices reform plan which announced that both domestic
crude oil and oil-derived products prices were to be based on those from
Singapore. These price plans were implemented in June 1, 1996 and June 5,
1996, respectively (Chen and Wang 1999).
The prices of domestic petroleum products have started to be integrated with
international markets since June, 2000. This meant that the prices of domestic
petroleum products would be altered according to international market price
changes.
From that point on, the reference market changed from being based only on
Singapore to a combination of Singapore, Rotterdam and New York. When the
international price fluctuated within the range from 5 to 8%, domestic oil price
would not be altered, however, when the fluctuation went beyond the range,
medium retail prices would be adjusted by the NDRC. Two major oil companies
(Sinopec and CNPC) could work out concrete retail prices using the base price plus
or minus 8%.
In January of 2007, a new refined oil pricing mechanism crude oil plus cost,
was implemented. The system, first, took an average of Brent, Dubai and Minas
crude oil prices as a benchmark. Second, refining costs, reasonable margin, domestic tariffs and circulation fees for refined oil, etc., were added from the domestic oil
retail base price. Unfortunately, this mechanism led to serious lags in price
alterations.
A newly reformed price mechanism began in Jan. 1, 2009. Domestic onshore
oil prices continued to be integrated directly with international markets; domestic
refined oil products continued to be priced in coherence with international
markets indirectly and with governmental controls. Domestic oil products (gasoline and diesel) would be priced on the basis of international crude price, with
domestic average processing cost, tax revenue and reasonable refining margins
taken into account. Finally, the new system changed gasoline and diesels retail
price from base price permitted fluctuations into maximum retail price
(Feng et al. 2009).
There were 20 price alterations from Jan. 2003 to June 2009. China raised fuel
prices 14 times and lowered prices 6 times. Refinery gate prices for gasoline and
diesel increased 5,000 Yuan/ton and 4,440 Yuan/ton, respectively (Table 2.9).

2.6 International Cooperation

33

Table 2.9 Wellhead price and alterations, China, 20032009

Times
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
Source:
gov.cn/

2.6
2.6.1

Date (mm/dd/yy) Refinery gate price (Yuan/ton) Change %

1-1-2003
3,020

2-1-2003
3,210
6.3
5-10-2003
2,920
9.0
12-6-2003
3,210
9.9
3-31-2004
3,510
9.4
8-25-2004
3,750
6.8
3-23-2005
4,050
8.0
5-24-2005
3,900
3.7
6-25-2005
4,100
5.1
7-23-2005
4,400
7.3
3-26-2006
4,700
6.8
5-24-2006
5,200
10.6
1-14-2007
4,980
4.2
11-1-2007
5,480
10.0
6-20-2008
6,480
18.3
12-19-2008
5,580
13.9
1-15-2009
5,440
2.5
3-25-2009
5,730
5.3
6-1-2009
6,130
6.9
6-30-2009
6,730
9.8
National Development and Reform Commission, http://www.sdpc.

International Cooperation
Development of International Cooperation of Chinese
Petroleum Companies

After more than 10 years of development, Chinas oil companies have made great
progress in international business. Most projects focused on comprehensive efforts,
including oilfield production, technical services, refinery and pipeline construction,
etc. Increasingly business transformed from the extraction processing business into
capital management. Four strategic development zones were established: the Middle East-North Africa, Central Asia-Russia, South America, and South Asia. By
2009, 69.6 million metric tons of crude oil and 8.2 billion cubic meters of natural
gas had been produced by CNPC through 81 oil and gas projects located in 29
countries. This constituted a historic breakthrough in oil and gas production for
China. The scale of overseas operations has been enlarged continuously. Production
capacity of crude oil and natural gas by the company CNPC reached 70 million tons
per year and 10 billion cubic meters per year.
Chinas oil and gas production that was produced in other countries exceeded 0.1
billion tons for the first time in 2008. Meanwhile, Chinas share of this production
exceeded 50 million tons for the first time. Based on the achievements in 2008,

34

Developmental Features of the Chinese Petroleum Industry in Recent Years

Table 2.10 CNPCs main business development distribution in the world

Location
Asia

Countries
Iran, Oman, Syria, Pakistan, Indonesia, Burma, Kazakhstan, Turkmenistan,
Uzbekistan , Mongolia, Thailand
Africa
Sudan, Algeria, Mauritania, Tunisia, Libya, Chad, Niger
Europe
Russia, Azerbaijan
America
Canada, Mexico, Venezuela, Peru, Ecuador
Source: Annual Report of CNPC

Chinas enterprises were able to maintain stable growth in overseas operations in

2009 despite the global economic problems; production reached more than 0.1 billion tons and Chinas share amounted to about 55 million tons. At the same time,
Chinas business enterprises, through mergers and acquisitions, became one of the
major buyers in international oil and gas markets. In 2009, 13 mergers and
acquisitions were announced by Chinese companies, of which 11 turned out to be
successful. The total amount of these transactions reached nearly US$16 billion,
making 2009 the most active year for Chinese companies overseas mergers and
acquisitions.
From the above we can see that Chinese petroleum enterprises represented by
CNPC, CNOOC, Sinopec and Sinochem Group (Sinochem), have made remarkable
achievements in multinational operations, and have demonstrated that their
internationalized management is reaching a mature stage.

2.6.1.1

Development of CNPC International Business

CNPC is the first large state-owned enterprise to carry out international cooperation
in China. In 1993, the CNPC won their bid for production of block 6/7 in Perus
Talara region. It was not only the first overseas oilfield development project CNPC
operated, but also the breakthrough for Chinas petroleum enterprise in international business (Qin 2007). China began to understand that it had the technical and
business experience to be able to play on the international stage.
Presently, CNPC owns and operates more than 70 overseas projects, basically
distributing in more than 30 countries, such as Iran, Sudan (Table 2.10). Projects in
the Middle East and North Africa consist of projects in Block 1/2/4, Block 6 and
Block 3/7 in Sudan, a project in Oman, a project in Algeria, and a project in Syria.
Projects in Central Asia-Russia include: AktobeMunai Gas, Kenkiyak-Atyrau
Pipeline, North Buzachi, and Central Block at the Eastern Edge of the Precaspian
Basin in Kazakhstan, a project in Pakistan, a project in Gumdak in Turkmenistan,
projects in Gobustan and in Azerbaijan. Projects in South America include: Block
6/7 in Peru, a project in Block 11 in Ecuador, and projects in Intercampo, Caracoles
and Orimulsion in Venezuela.
At present, international cooperation is becoming a new economic growth point
for CNPC. Table 2.11 highlights the rapid development process of CNPC in
international operations (CNPC 2009):

2.6 International Cooperation

35

Table 2.11 Major Events that have happened during the development of CNPC
Year CNPC events
1993 (a) Obtained exploration and service assignments on Block 7 in Perus Talara oilfield
(b) Produced the first barrel of crude oil overseas through the project in Canada
1994 (a) The exploration contract with Papua New Guinea was signed
1995 (b) CNPC won the tender of exploration project of Block 6 in Muglad Basin and signed
production sharing agreement
1997 (a) CNPC signed production sharing agreement for Block 1/2/4 in Muglad Basin Sudan
and thereafter achieved partial equity of Block 3/7
(b) CNPC signed the contract in which Khartoum Refinery in Sudan was jointly invested
in and constructed by CNPC
(c) CNPC acquired a 60 % stake in AktobeMunai Gas by paying out US$0.32 billion
and achieved mining rights in Aktobe oilfield
(d) CNPC signed a production sharing agreement for Al-Ahdab oilfield
(e) CNPC won tenders for the Intercampo and Caracoles oilfields in Venezuela
(f) Obtained exploiting rights for Uzen oilfield in Kazakhstan
1999 (a) The first shipment of oil from Block 1/2/4 Sudan was exported
2000 (a) Khartoum refinery with a processing capacity of 2.5 million tons per year became
operational
2001 (a) The first overseas service station was built in Khartoum
(b) Signed contracts for projects in Orimulsion, Venezuela and in Burma
2002 (a) Project of polypropylene in Sudan produced qualified products
(b) CNPC acquired Devon Energys share in Indonesia for US$0.2 billion
(c) Acquired Petroleum Development Oman for US$25 million
(d) Signed development contract with Turkmenistan, contract for project of K&K in
Azerbaijan and contract for Central Block at the Eastern Edge of the Precaspian Basin
in Kazakhstan
(e) Kenkiyak-Atyrau Pipeline became operational
2003 (a) Investment in a project in Block 1/2/4 in Sudan was paid back
(b) Signed contracts for Gobustan oilfield in Azerbaijan, the Adrar Upstream and
Downstream Integrated Project, the North Buzachi oilfield project with Kazakhstan
and projects in Syria and Ecuador successively
(c) Won a project in the Gobustan oilfield in Azerbaijan
(d) CNPC signed a development and production enhancement contract for the Kabiba
oilfield with Syrian Petroleum Corporation (SPC)
(e) CNPC acquired 50 % equity in Amerada Hess Indonesia Holdings Ltd.
(f) Signed a contract with the Algerian state-owned Hydrocarbons Company, and
obtained the upstream and downstream integration contract for oilfield development
and construction, and operating the refinery in Adrar province
(g) CNPC purchased 35 % stake of Saudi Arabia Companies-North Buzachi oilfield
in Kazakhstan
(h) Acquired Block 11 in Ecuador
(i) CNPC purchased a 65 % share of North Buzachi in Kazakhstan that was owned
by Chevron Texaco of United States
2004 (a) CNPC inked an agreement on stock rights assignment for the Iranian MIS project
with Canadian Sheer Energy Company giving CNPC 49 % of the project
(b) Won the tender for Block 438b in Algeria
(c) CNPC signed a contract with the Mauritanian Ministry of Industry and Mining for
exploration and development of Block Ta13, Block Ta21 and Block 12
(d) CNPC acquired the NK exploration block and a 50 % holding in the SLK oilfield from
Kuwait Foreign Petroleum Exploration Company
(continued)

36

Developmental Features of the Chinese Petroleum Industry in Recent Years

Table 2.11 (continued)

Year CNPC events
(e) CNPC signed an agreement with Ay-Dan to buy shares of ADM and acquired a 100 %
stake in it. CNPC also acquired 50 % shares in Konys and Bektas oilfields
2005 (a) CNPC acquired PetroKazakhstan with a total investment of US$4.18 billion. It was a
typical multinational acquisition and the largest overseas merger for a Chinese
petroleum enterprise, which led to an increase in crude production of 10 million tons per
year
2007 (a) CNPC and Venezuela signed an agreement for joint exploration of the Zumano oilfield
by Petrozumano. It was the most attractive achievement since 2004, when China started
oil exploration in Latin America
(b) CNPC signed a production sharing contract and a natural gas sales-and-purchase
agreement with Turkmenistan. According to the agreements, Turkmenistan will export
30 billion cubic meters of natural gas to China annually for 30 years
2008 (a) A cooperation project was launched with Chevron for the development of acid gas in
northeastern Sichuan Province, which was the biggest continental upstream cooperation
project of China
2009 (a) Acquired a 45.5 % stake in SPC (one of the top three refineries of Singapore). SPC
became a new platform for CNPCs international business
(b) CNPC and BP jointly won a service contract to develop Iraqs largest Rumaila oilfield
(c) CNPC, Total and Petronas won the Halfya oil field (in Iraq) service contract; signed a
series of agreements on oil and gas cooperation with Turkmenistan, Kazakhstan,
Uzbekistan and Russia; signed a cooperation contract with Canadas Athabasca Oil
Sands Corporation for oil sands exploration and development; purchased Mangistau
Munai Gas for US$3.3 billion, further expanding the cooperation business in Central
Asia; finally, CNPC and the Costa Rica National Oil Company set up a joint venture
company to upgrade and expand Costa Ricas MOIN refinery
Source: Annual Report of CNPC

2.6.1.2

Development of Sinopec International Business

Sinopec has paid great attention to international operations. The Group accelerated
its Going Global pace and achieved great progress. Presently, the Group has
cooperation agreements with many countries, including Iran, Saudi Arabia, Gabon,
Kazakhstan, Yemen, Ecuador, Angola, Oman, Libya, Niger and Mali, to exploit
and develop their local oil and gas projects (Sinopec 2009).
Major events taking place in the internationalized management process of
Sinopec and its controlled companies are given in Table 2.12.

2.6.1.3

Development of CNOOCs International Business

On January 30, 1982, the Chinese State Council promulgated Regulations of the
Peoples Republic of China Concerning the Exploitation of Offshore Petroleum
Resources in Cooperation with Overseas Partners, legislatively granting the
CNOOC an exclusive right of conducting oil exploration, development, production
and sales offshore from China, and giving CNOOC complete charge of the business

2.6 International Cooperation

37

Table 2.12 Major events that have happened during the development of Sinopec
Year Sinopec events
2000 (a) Signed exploration and service contract for Kashan Block with the Ministry
of Petroleum of Iran
2001 (a) Signed an agreement for Yemen S2 exploration and development project with German
Prussian Shige Company of Germany
2002 (a) Signed a cooperation contract for the exploration of Zhaerzhating oilfield in the Eastern
Sahara desert with the Algeria state-owned Hydrocarbons Company
2003 (a) Successfully drilled a high-yield well in risk exploration of Irans Kashan Block
(b) Purchased Ecuador Block 16 and thus owned the first non-operating project in South
America
2004 (a) Sinopec, together with the Saudi Arabia Oil Company, signed a Natural Gas Exploration
and Development Agreement upon Section B in Rub Alkhali Basin with the Ministry
of Petroleum of the Kingdom of Saudi Arabia. It had been 10 years since China
implemented the strategy of Going Global and this was Chinas first official project on
the worlds largest provider of oil and gas resources, Saudi Arabia
2006 (a) Purchased shares of Angolas three deep-sea oilfields with a total investment of US$0.69
billion, including: a 27.5 % share of Block 17, a 40 % share of Block 18 and a 20 %
share of Block 15
(b) Successfully purchased Udmurtneft Petroleum Corporation of Russia with an
investment of US$3.5 billion
(c) Won six bids for international refining engineering and service projects with total
contract value of US$3.1 billion; obtained an upgrading project for Irans Allah refinery
with the total contract value of 2.2 billion Euros, which was by far Chinas biggest
overseas refining engineering and service project
2009 (a) Purchased a 10 % stake in the Light of North oil sands project in Alberta Province
Canada from Total. This gave Sinopec and total half of the shares in the project.
The projected recoverable oil reserves from this project amount to 1 billion tons
(b) Purchased Addax Petroleum Corporation for US$8.3 billionby far the largest overseas
acquisition for a Chinese enterprise. Addax is an independent oil company, with 25
exploration blocks. Its oil and gas resources are concentrated in Nigeria, Gabon and
Iraqs Kurdish region. By the end of 2008, its 2P reserves reached 0.5 billion barrels;
its average daily output in 2008 was about 140 thousand barrels
Source: Annual Report of Sinopec

of exploiting oil resources in cooperation with overseas partners. On February 15,

1982, the CNOOC was formally established in Beijing. The important task of
cooperating with overseas partners and developing Chinese offshore oilfields,
CNOOC has played an important role in the process of Going Global for Chinese
enterprises (Luo 2004). From its very inception, CNOOC has deepened its international operations, achieved great development abroad, and expanded its skills in
overseas business.
In recent years, CNOOC has continuously expanded its international business.
Its internationalization has been accelerated through mergers and acquisitions,
which made contributions to the rapid growth of its overseas output. Major events
that have happened during this process are given in Table 2.13.

38

Developmental Features of the Chinese Petroleum Industry in Recent Years

Table 2.13 Major Events that have happened during the development of CNOOC
Year CNOOC events
1994 (a) CNOOC purchased 32.6 % of ARCOs (USA) rights in Malacca Strait block in
Indonesia with an investment of US$16 million
1995 (a) Purchased a 6.9 % stake in the Malacca Strait block in Indonesia from Nippon Oil
Corporation
2002 (a) Purchased three blocks of oil and gas fields from Australia and Indonesia with an
investment of US $1.2 billion
(b) With an investment of US$0.59 billion, CNOOC purchased partial rights in Indonesias
five oilfields from Spains Reposol, and became the largest offshore petroleum company
in Indonesia
(c) Built a sharing partnership with Indonesia in Tangguh oilfields upstream products,
and signed a 25-year liquefied natural gas (LNG) sales and purchase agreement.
The contract value amounted to $8.5 billion
2004 (a) Acquired Australias northwest shelf natural gas project, and signed a 25-year LNG
supply contract with this projects operators
2005 (a) Ventured into oil sands resource development for the first time and purchased an 18.5 %
share of MEG company in Canada
(b) On behalf of China, CNOOC has conducted international bidding for cooperative
exploitation of oil and gas; 172 petroleum agreements and contracts have been signed
with 75 companies belonged to 21 countries and regions; Currently, CNOOCs overseas
assets are distributed in the Asia-Pacific, Africa and North America regions.
Professional service companies affiliated with CNOOC also have ties with foreign
markets involving several regions, such as Southeast Asia, America, Africa and the
Middle East
2006 (a) CNOOC acquired a 45 % equity interest in OML 130 Offshore Nigeria for USD 2.3
billion
(b) CNOOCs 27 overseas projects have been in operation and the companys total
investment reached USD 4.8 billion; overseas oil and gas net proven reserves are 0.3
billion barrels of equivalent. Overseas output amounted to 5.8 million tons of oil
equivalent, accounting for 14.4 % of CNOOCs total domestic and foreign output. Risk
exploration prompted CNOOC to expand rapidly in overseas business
2007 (a) CNOOC had equity in 39 sections distributed in 8 countries. Its operation covered
an area of 0.2 million square km. Its risk exploration covered an area of 0.4 million
square km
2009 (a) CNOOCs Akpo deepwater oilfield in OML 130 project in Nigeria successfully
commenced production. CNOOC had a 45 % equity share of the OML 130 project.
Akpo oilfield is one of the worlds major deep-water discoveries. Total expected
controlled reserves and proven reserves of this great oilfield can amount to about 0.62
billion barrels
(b) Acquired 20, 10, 10 and 10 % equity in Tucker, Logan, Cobra and Krakatoa blocks
respectively of Norway National Petroleum Corporation in Gulf of Mexico Block;
The completion of the transaction meant that the investments of Chinese petroleum
enterprise had entered the Gulf of Mexico
Source: Annual Report of CNOOC

2.6.1.4

Development of International Operations of Sinochem

Sinochem was founded in 1950. It was a key state-owned enterprise under the
supervision of State-owned Assets Supervision and Administration Commission of
the State Council. Its predecessor was China Import Co., Ltd. Its business segments
include: petroleum, chemical fertilizer, chemical products trade, distribution and

2.7 Role of Technology in the Petroleum Industry of China

39

Table 2.14 Major Events that have happened during the development of Sinochem
Year Sinochem events
2003 (a) Successfully acquired Atlantis Holding Norway AS (ATLANTIS) for US$0.1 billion; It
was originally a fully-owned subsidiary of Norway Petroleum Geo-Service ASA (PGS)
which mainly dealt with exploration and production. Its assets include 11 contract
blocks distributed in Tunisia and the United Arab Emirates, with a project operation area
of 10,000 km2
(b) CRS Resources LDC was purchased by Sinochem Corporation from ConocoPhillips
Corporation; It is located in Ecuador. Its assets include 14 % of the rights in Ecuador
Orient Basin Block 16, whose proven recoverable reserves amount to 4.6 million ton
2006 (a) Held high-level talks with the Indian state oil corporation. Both sides planned to
cooperate on crude oil, oil products trade, upstream exploration and development, and
chemical marketing, to realize win-win cooperation for both countries
2007 (a) Acquired the New XCL-China, LLC (New XCL). The headline purchase price was
approximately US$218 million and the total consideration paid was approximately US
$228 million; New XCL was a privately owned Delaware Limited Liability Company
whose sole asset was a non-operated 24.5 % stake in Zhao Dong petroleum block in
Bohai Bay, offshore China
2009 (a) Sinochem acquired Emerald Company. Emerald owned equity ranging from 50 to 100 %
respectively in 11 blocks in Syria, Colombia and Peru. In ten of these blocks, Emerald
had a recoverable reserve of 100 million barrels plus 1 billion barrel of potential reserve
for exploration. This acquisition signaled that Sinochem had rolled out a strategic layout
of oil and gas assets in South America and the Middle East
Source: Annual Report of Sinochem

logistics, crude oil, fuel oil, natural rubber futures; overseas oil and gas exploration
and development, oil refining, chemical ore mining and refining, chemical fertilizer
and chemical production; also hotel and real estate development and management
(Sinochem 2009). It is one of the four largest oil companies in China. Sinochem is
Chinas largest fertilizer importer and phosphate and compound fertilizer producer,
and Chinas most important chemical service provider.
To meet the national energy supply needs of China, Sinochem has expanded its
petroleum business into foreign markets since 2002. Major events taking place in
the Sinochems internationalized management process as given in Table 2.14.
While the scope and extent of these operations may come as a surprise to many,
it is no different from how many large oil consuming nations spread their risk and
prepare for the future. In general China holds a minority stake in all the operations it
takes part in, and like other large nations attempt to insure its future resource flows
through what is normally considered legitimate international business approaches.
Partner companies usually get about half of the oil developed. Nevertheless some
important problems remain, including the determination of boundaries between
maritime countries.

2.7

Role of Technology in the Petroleum Industry of China

In the past 20 years, Chinas petroleum industry has made numerous important
scientific and technological achievements which are the precious wealth and intangible assets for the development of science and technology. They represent the

40

Developmental Features of the Chinese Petroleum Industry in Recent Years

technological level, technological strength and technological power of Chinas

petroleum industry, and have both promoted the development and changed the
outlook of that industry (Ming and Yunm 2006).

2.7.1

Achievements of Research on Geological Theory in China

From 1986 to 2009, two important contributions were made in the theory of
petroleum generation: (1) the concept of immature oil was introduced which
changed research on hydrocarbon generation mechanisms and organic geochemistry; (2) a systematic summary was made about the character of Jurassic coal in Tuha
basin, and a multi-stage hydrocarbon-generating and oil formation model in coal
measure strata was built providing the basis for oil-finding in the extensively
distributed coal measure strata of China.

2.7.2

Achievements of Exploration Technologies in China

China is a complex area geologically, with many mountains and folded rocks. This
has led to China making many contributions to understanding such regions. For
example, the following are some major research activities of the two major
companies.
1. CNPC: Explored lithological reservoirs and developed sequence stratigraphy
and efficient techniques for trap identification, promoting the understanding of
the regulation of lithological reservoir formation; improved exploration
techniques for foreland basins, enriched and developed the theory of faultrelated folds and structure modeling techniques, deepened the understanding
of structure character of foreland basin and oil and gas reservoir-forming rule,
and matched acquisition technology of mountain areas and fine structural imaging techniques; developing the exploration technique for carbonate rock of
marine facies and volcanics, developed techniques of identification, evaluation
and prediction of paleokarst reservoirs, oolitic beach reservoirs and volcanic
reservoirs. Finally they deepened the understanding of hydrocarbon accumulation rule; techniques of seismic fine imaging, underbalanced drilling and complex lithological logging evaluation and reservoir reconstruction.
2. Sinopec: In the eastern fault basin, their geologists gradually formulated
reservoir-forming theory of the lithological and stratigraphic oil and gas
reservoirs, and instructed the oil and gas exploration and development of many
basins in eastern Central Europe; built several kinds of buried-hill reservoirforming models for weathering crust buried hill, fault block buried hill and
buried hill episode; a complete set of exploration techniques was formulated
for improving the probability of finding oil and gas resources, ranging

2.7 Role of Technology in the Petroleum Industry of China

41

from seismic imaging to fine interpretation, and prediction and evaluation of

carbonate reservoir, and various projects from discrimination of oil and gas to
acid-fracturing transformation and tests in reservoir beds, underbalanced drilling
techniques, horizontal drilling techniques and diameter measuring and drilling
techniques; deepening the understanding of multiplex control models of hydrocarbon accumulation and growth mechanisms of high-quality reservoirs,
changed the exploration fields from structural reservoir s to structural
lithological reservoirs.

2.7.3

Achievements of Other Technologies in China

1. Oil and gas development: The design and application of polymer molecules,
which, when first applied, resulted in substantial improvement of oil recovery
factors. After 6 years researching, inventing and applying two kinds of cheap,
efficient and pollution-free polymers with heat resistance and salt tolerance were
developed, including comb-shaped polymers and hydrophobic associating
polymers, in oil and gas field development. The remarkable achievements also
were made in enhancing recovery factor of high water cut oilfields and a
breakthrough in the economic development limit of steam drive for mediumdeep heavy oil reservoir and ultra-low permeability reservoirs, strengthening
overpressure, low permeability, sulfur and loose reservoirs, and improving
exploitation in condensate gas reservoirs. These discoveries made a set of
difficult-to-produce reserves of China petroleum industry gradually turn into
economic recoverable reserves.
2. Drilling engineering technologies: Advances and achievements of drill engineering technologies included a new type of domestic Measurement While
Drilling (MWD) and positive pulse generator of key components earth guidance
system and steering systems for rotary drills; developing the technology for near
drill bit resistivity and natural gamma MWD; the successful application of
drilling technology for multi-lateral wells in China.
3. Geophysical exploring technologies: the improvements include software development, technological integrative matching and equipment development for
geophysical exploration and well logging, and also the development of a
new type of large-tonnage vibroseis-KZ-28, portable mountainous area drilling
rig/drilling tool and auger mining for deep wells. These have satisfied the
requirements of domestic and foreign exploration of complex areas, improved
the quality of original data and information, increased production efficiency and
reduced the exploration cost.
4. Oil and gas pipelines: the four core technologies for oil-gas pipelines
generates, includes comprehensive engineering technology for West to East
Gas Transmission; optimization technology of welding parameters of X80
pipeline steel and selection technology for welding material with high toughness; internal inspection technology for pipelines; and pipeline operation

42

Developmental Features of the Chinese Petroleum Industry in Recent Years

technology. These technologies played an important role in accelerating the oil

and gas exploitation process (Shi 1995).
5. Ground engineering technologies: China undertook research on unheated technology for paraffin base crudes in alpine region, formulating six sets of oil-field
ground process models and two sets of gas-field ground process models; developed and applied five sets of low temperature separation equipment to domestic
and foreign oilfields; developed technology for de-acidification of heavy oil, and
provided powerful technical support for overseas oil and gas development. For
the aspect of oilfield maintenance and operation engineering and technology,
imported equipment were mastered, and matching technology research was
strengthened and ten technology series were established, consisting of
overhauling, side tracking and fracture acidizing, etc.

2.8

Energy Conservation, CO2 Emissions Reduction

and Renewable Energy

From the quantitative point of view, the quantity of carbon emissions of a country
depends on the total amount and structure of energy consumption (Sun and Zhou
2011). From an economic point of view, it depends on the total size of the national
economy and the efficiency of energy distribution and utilization. The efficiency
of energy consumption has significant differences under different systems. Take
the planned economic system as an example: in the past with the continuing
development of the economy, energy consumption and carbon emission rose in
tandem, and overall emissions were on a high level. However, with the deepening
of market reforms, the implementation of energy conservation measures, and the
adjustment of the production structure, Chinas energy efficiency has been
improved greatly, and carbon emissions have shown a downward trend since
1978. Therefore, choosing an effective economic system (or perhaps choosing
to regulate it better) to improve the efficiency of energy consumption should be an
important and feasible way of carbon emissions reduction (Fig. 2.11).
According to the Energy Research Institute of NDRC, 2,146 kg of carbon
dioxide is discharged when one ton of oil is burnt (Table 2.15) (Tian 2009). Thus
we can calculate Chinas annual total amount of carbon dioxide discharged by oil
combustion from 1953 to 2007. Since the rise of total energy consumption and the
increase in the proportion of oil consumed, the annual total amount of carbon
dioxide discharged by oil combustion has been increasing. In 1953, oil consumption
was 3.8% of total energy consumption and all carbon emissions were 441 million
tons. In 1978, oil consumption reached 22.7% of all energy, carbon emission
reached 278 million tons, and then in 2007, the proportion of oil consumption
reached 20%, but the total energy amount increased substantially, so the carbon
emission of oil combustion reached 1140 million tonnes (Fig. 2.12).

2.8 Energy Conservation, CO2 Emissions Reduction and Renewable Energy

43

(ton/ thousand yuan)

6
5
4
3
2
1
0
1953

1959

1965

1971

1977

1983

1989

1995

2001

Fig. 2.11 Carbon dioxide emission per unit of economic activity in China from 1953 to 2007.
Source: CESY 1989, China Statistical Yearbook (CSY) 2006, Statistical Bulletin 2007

Table 2.15 Carbon emission factors of various energy sources (ton/ton coal equivalent (tce))
Programs
Coal and carbon
Oil
Natural gas
Fi(C)
0.748
0.585
0.444
Fi(CO2)
2.745
2.146
1.629
Note: Fi(C) is carbon emission factor, Fi (CO2)is carbon dioxide
obtained by the former multiplied by 3.67
Source of data: Energy Research Institute of NDRC

Hydropower, nuclear power

0.0
0.0
emission factor. The latter is

1200

(million tons)

1000
800
600
400
200
0
1953

1959

1965

1971

1977

1983

1989

1995

2001

2007

Fig. 2.12 Carbon dioxide emissions from oil consumption in China. Source: CESY 2010

44

Developmental Features of the Chinese Petroleum Industry in Recent Years

Table 2.16 Renewable energy development scale in China in 2008

Categories
Scale of usage
Annual capacity
Power generation
186.8 million kW
585.8 billion kWh
Hydropower
171.5 million kW
563.3 billion kWh
Wind power
12.2 million kW
14.8 billion kWh
Photovoltaic energy
0.15 million kW
0.22 billion kWh
Biomass power
3 million kW
7.5 billion kWh
Gas (methane)

12.1 billion cubic meters

Domestic biogas
30.5 million
11.4 billion cubic meters
Large methane project
1,600 sets
0.7 billion cubic meters
Heating solar

Water heater
125 million m2
Hot oven
0.45 million sets

80  1015 J
Terrestrial heat
40 million m2
Source of data: National Energy Bureau, China Energy Development Report 2009

In recent years, the global energy supply has become tighter and tighter and the
pressure on the environment has sharply increased. Soon, energy becomes a major
bottleneck to Chinas economic development while the international pressure
caused by the environment will only grow. So it is an inevitable choice that
China should look for alternative sources of energy such as wind, biomass, and
solar power, and develop both new, ideally renewable energy sources. Since the
Renewable Energy Law was enacted, China has established a policy framework
to support renewable energy and issued a series of supporting policies and rules
(Niu 2008). In January of 2006, the NDRC promulgated such policies as: The
Guidance Catalogue of Renewable Energy Industry Development, The
regulations of renewable energy, and The management provision of the renewable energy prices and the cost-sharing. In June, 2006, the Chinese Ministry of
Finance issued The Special Measures for Renewable Energy Development Interim
Fund, while in September of the same year, the NDRC issued The long-term plan
of renewable energy development, (Wang 2007a, b) which stated briefly that
renewable energy as a portion of overall energy consumption would increase
from 8% in 2006 to 15% in 2020. In order to achieve these objectives, the estimated
total investment should be 2 trillion Yuan, with the fund to focus on the development of hydropower, biomass, wind power and direct solar energy. The development of renewable energy is described as of 2008 in Table 2.16.
In conclusion, China has developed its use of oil and other fossil fuels enormously through investments in modern fossil fueled industries and also government
investment in the engineering and other schools necessary to make this happen. The
result has been an enormous increase in the Chinese population and economy. At
this time China is developing simultaneously all its energy options: domestic oil, oil
from other countries, coal and renewable energy. The critical role of oil is well
known to many authorities and is receiving precedence despite large efforts the
production of domestic oil may be reaching a plateau. Consequently China has

2.8 Energy Conservation, CO2 Emissions Reduction and Renewable Energy

45

established oil exploration and development contacts with many other countries and
business entities through normal commercial channels. Nevertheless most Chinese
authorities understand that the use of any fossil fuel will be only a tiny part of the
time within which China has had a highly developed civilization. Hence China has
begun the inevitable transformation to a society run on renewable energy, if that is
possible.

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