By John Kemp
LONDON Jan 18 China's petroleum resources are
roughly comparable to the United States'. There is no reason for
the country to become increasingly reliant on imported crude and
natural gas, provided it can successfully explore and develop
its enormous natural endowment.
For China's top policymakers, the prize is huge. Boosting
domestic oil and gas output would significantly reduce the
country's economic and military vulnerability. China could
emulate the success of the United States following the shale
revolution and achieve a greater measure of energy security.
The penalty for failure, however, is equally large. China
would be left with a growing dependence on unstable sources of
supply, entangled in the difficult politics of the Middle East
and Africa, and struggling to defend long supply lines against
potentially hostile powers.
China's growing reliance on expensive oil imports, mostly
from unstable countries in the Middle East and Africa,
transported via long and vulnerable sea lanes through some of
the world's most hazardous choke points in the Straits of Hormuz
and Malacca, suffuses every aspect of the government's thinking
about energy and foreign policy.
China is vulnerable to any disruption of global supplies and
energy blackmail. In the event of a military conflict, the
umbilical cord which connects China with its major crude
suppliers in the Middle East would be targeted by any opponent.
Even in peacetime, the rising cost of oil imports presents an
increasing challenge to the country's economic competitiveness
and ability to raise living standards.
China is already the world's second-largest crude oil
importer, consuming 4.5-5.0 million barrels of foreign crude a
day in 2010 and 2011, and will overtake the United States as the
world's largest importer by the end of the decade as a result of
the shale revolution.
Until 1993, China was actually a net oil exporter. But while
production has grown from just under 3 million barrels per day
to a little over 4 million, consumption has soared to 9 million.
To reduce the country's economic and military vulnerability,
the government has made improving energy efficiency and the
development of its own strategic petroleum reserve major goals.
It has also ordered the construction of an ocean-going navy to
protect the supply lines and is intensifying its diplomatic
engagement with the main overseas supply areas.
But the country can almost certainly find and develop much
more oil and gas from domestic sources.
12TH FIVE YEAR PLAN
MIT Professor Morris Adelman explained that oil reserves are
not a gift of nature; they are won by hard work and heavy
investment ("Genie out of the bottle: world oil since 1970"
In the twelfth five year plan, covering the years from 2011
to 2015, China's government committed itself to "strengthen the
exploration and development of petroleum and natural gas
resources, stabilise domestic petroleum output, and the
development and utilisation of unconventional oil and gas
resources, such as coal-bed gas and shale gas."
Specifically, it promised to create five large-scale oil and
gas producing areas in the Songliao, Ordos, Bohai, Sichuan and
Tarim/Junggar basins, as well as speeding up the exploration and
development of offshore and deep-water oil and gas fields.
The government also made it a priority to boost the offshore
industry by accelerating the independent design and construction
of mobile marine drilling platforms, floating production
systems, marine engineering work ships and supporting equipment
Some of these exploration efforts are already paying off.
China discovered more than 1.4 billion tonnes of new proven oil
reserves last year, its third-highest annual haul ever, as well
as a record 900 billion cubic metres of natural gas, according
to the Ministry of Land and Resources.
China's onshore and offshore fields produced 4.3 million
barrels per day in 2011, making it the fourth largest oil
producer in the world, after Saudi Arabia, Russia and the United
States, according to the Energy Information Administration
(EIA), the statistical arm of the U.S. Department of Energy.
The country's largest complex of oil fields, the super-giant
Daqing in the Songliao basin in the northeast, was discovered in
1959 and has since produced over 2 billion tonnes (around 15
billion barrels), about 40 percent of the country's entire
production. But Daqing shows increasing signs of exhaustion. By
the 1980s, its wells were producing 9 barrels of water for every
barrel of oil.
Since the 1990s, China National Petroleum Corporation (CNPC)
has relied on polymer flooding, a form of tertiary recovery, to
drive the remaining oil in the field towards the wells.
CNPC has stabilised production at more than 40 million
tonnes a year (300 million barrels) for the last ten years,
through careful control of waterflooding, polymer injection, and
the development of new areas on the periphery of the old
reservoirs, according to the company's website.
But China almost certainly has many more oil resources, both
conventional and unconventional. China's large land mass and
neighbouring sea areas contain a large number of sedimentary
basins that are likely to contain substantial volumes of oil and
On land, the six massive sedimentary basins which are
thought to contain substantial shale gas deposits are also
prospective for shale oil, and probably contain many
undiscovered conventional fields as well. Off
the southern and eastern coasts lies a further string of massive
basins that are highly prospective for petroleum ().
ABUNDANCE OF OIL
According to the U.S. Geological Survey (USGS), the six main
onshore basins contain almost 15 billion barrels of undiscovered
but technically recoverable conventional oil, 88 trillion cubic
feet of conventional gas, and 1.4 billion barrels of natural gas
liquids ("Assessment of Undiscovered Conventional Oil and Gas
Resources of Six Geologic Provinces of China" Sep 2012).
The same six basins contain a further 1,275 trillion cubic
feet of unconventional shale gas, according to the U.S. EIA.
Presumably they also contain substantial volumes of
unconventional shale oil, though shale oil was outside the scope
of the EIA gas study ("World Shale Gas Resources: An Initial
Assessment of 14 Regions Outside the United States" Apr 2011).
Billions more barrels of both conventional and
unconventional oil and gas are likely to be found off the
southern and eastern coasts of China, according to USGS
("Assessment of Undiscovered Oil and Gas Resources of Southeast
Asia" June 2010).
The possibility of huge oil and gas deposits off the
southern and eastern coasts helps explain why China is so
determined to press its historical claims to the Diaoyu/Senkaku
islands in the East China Sea (disputed with Japan) as well as
the Xisha/Paracel and Spratly islands in the South China Sea
(disputed with Vietnam, the Philippines and Malaysia).
These rocky and uninhabited outcrops and reefs could all
come attached with claims to some enormous oil and gas resources
in the neighbouring sea areas.
Even without these claims, China has enormous oil and gas
resources. The technical and political challenge is to turn them
into reserves and production.