Petroleum industry in the People's Republic of China

The petroleum industry in the People's Republic of China is strongly affected by the country's growing population and political ideology, as well as its lack of local oil reserves. It highlights the current set up of the government, their relationship with surrounding states, and steps they are taking to play a positive role in the worldwide community.

China

China has a growing population of over 1.3 billion people; therefore they rely heavily on other states for resources, such as oil. The Chinese government is taking diplomatic action to improve their relationship with ASEAN states. The Chinese government has to take extra strides to secure good relationships with its neighbors. Malaysia is a neighbor state that is often seen as in contention with China because of political differences. Yet, the relationship with Malaysia is symbiotic because of their large supply of oil and their need for security assurances from China. Malaysia is the number one producer of petroleum in the South China Sea, and they account for over one half of the production in the region.^[1]

A big role is played in China's oil endowment by its state owned oil companies, mainly China National Offshore Oil Corp, China National Petroleum Corp, and Sinopec.

History

Looking to capitalize on petroleum trade and also to participate in the growing demand and marketplace for the black liquid, China pursued domestic opportunities (before the 1950s importing all of its oil needs). Because of the relatively assembly line method behind Chinese oil exploration in the years following 1950 a bulleted, chronological presentation would better suit the information.^[2]

• 1959: Vast reserves discovered in Songhua Jiang-Liao basin in northeast China.
• 1960: Daqing oil field in Heilongjiang Province becomes operational.
• 1963: By this Time Daqing oil field producing nearly 2.3 million tons of oil.
• 1965: As Daqing production wanes, oil fields in Shengli, Shandong, Dagang, and Tianjin yield enough oil to nearly eliminate the need of importing crude oil.
• 1973: As production rates increase, China explores exportation possibilities—exporting of crude oil to Japan begins. Offshore drilling exploration begins as well.
• 1974: Exports increase to 6.6 million tons.
• 1978: Exports increase to 13.5 million tons.
• 1985: Exports increase to 20 million tons.
• 1993: Internal demand for oil exceeds its domestic production—exports no longer possible.^[3]

As demand exceeds its production, exporting of oil to its former largest importer, Japan, became impossible. Since its first days as a modern day importer (as opposed to its oil importing days before the 1950s) in the 1990s it has grown to be the second-largest oil-consuming nation, next to only the United States.^[4] Much of China's oil imports derived largely from Southeast Asia, but it's, again, growing demand has forced it to import oil from all over the globe.

Current situation and future plans

Chinese oil reserves

Oil well in Qaidam Basin, Qinghai Province

Further information: Global_strategic_petroleum_reserves#China

China's oil relationship with other countries has shifted from that of a world exporter to that of a world importer. This shift to dependence on foreign oil has changed the exploration and acquisition policies of China. China's oil need overwhelms its internal capabilities. Oil acquisition is now a process of investment in foreign lands and a creation of an internal oil reserve in case of emergency.^[5] China has taken steps to alter its security polices in places in the world that are rich in oil. China National Petroleum Corporation is invested in producing, marketing, and supplying oil in China.^[6] This company supports internal sources of oil production and reserves. Domestic oil production supplies only two thirds of the countries oil needs and it is estimated that China will require 600 million tons of crude oil by 2020.^[7] Based on this fact China has begun to take drastic measures with its internal oil reserve programs. A purely importation driven oil plan would leave China vulnerable to market fluctuations and more susceptible to international oil conflicts due to their dependence.

To combat this dangerous position of foreign dependence China is investing in its first national oil reserve base, a program beginning in 2004. There are three different providences in which they are focusing. The first Zhoushan, Zhejiang Province, was built by Sinopec, China's largest oil refining company. The storage space is 5.2 million cubic meters says the National Development and Reform Commission.^[8] Zhejiang was originally a commercial oil transfer base. Its coastal position makes it convenient for movement purposes, although it is at the same time vulnerable to offshore violence. The next reserve of interest In Huangdao or Qingdao, Shangdong Province and the final Dalian, Liaoning Province. All of these reserves are coastal and with their creation comes vulnerability to possible coastal attacks. These stockpiling strategies, as well as the international acquisition companies, are state-run initiatives to combat supply disruption. In 1993 (after China became a net importer of oil) China projected that these stockpiling sites would be filled and provide for 90 days of oil. This goal, however, is yet to be fulfilled.^[9]

Along with an emphasis on defensive oil stocks, there is a significant push to create an offensive oil acquisition program. Offshore drilling rigs have been approved by all levels of the Chinese government. Liuhua 11-1 is the largest oil field in the South China Sea. Amco and Nanhai East engineering teams experimented with offshore drilling techniques, a floating production system that would have drilling and production support.^[10] This kind of breakthrough is what China has been looking for, due to the protection from market fluctuations and their dependence on imports. The FPSO (floating production, storage and off-loading system) has equipment capable of handling 65,000 bbl of oil and 300,000 bbl of total fluids per day and it would be loaded and shipped by shuttle tankers.^[11] Experimental possibilities like drilling in the South China sea exemplify the independent capabilities that China possesses for its oil production and acquisition projects.

The oil stocks and offshore reserves both share vicinity to the sea. This is an asset when one considers the relative ease of transportation. It is also a weakness because, as mentioned before, the stocks and reserves are not protected by land. The Taiwanese security question is presented: how long could China sustain a cross-straight assault? All three of the stock oil bases are within range of Taiwanese cruise missile attacks.^[12] Therefore as the issue of oil acquisition is presented, so is the issue of energy security follows close behind.

China's oil output is far lower than its domestic need as its growing economy demands greater and greater amounts of crude oil every year. In 2004, China had to import 100 million tons of crude oil to supply its energy demand, more than half of which came from the Middle East.^[13] It is a possibility that high oil prices could quell global economic growth in China. This is one of the reasons why it no longer exports oil to Japan who formerly depended heavily on Chinese oil. They had major disagreements on prices and China decided to cease the trade agreement. China is attempting to secure its future oil share and establish deals with other countries. Chinese President Hu Jintao has proposed to build a pipeline from Russian oil fields to support China's markets as well as other billion-dollar arrangements with Russia, Central Asia, and Burma. They have recently purchased less than 1 percent of the British oil company BP, worth about $1.97 billion.^[14]

China's oil industry is dominated by its state owned oil companies, in particular three major players: China National Offshore Oil Corp, China National Petroleum Corp, and Sinopec. These companies have largely invested in exploration and development in countries that have oil fields but do not have funds or technology to develop them. CNOOC signed a deal to extract a million barrels of oil a day in Indonesia as well as other projects with Australia.^[15] In addition, an oil reserve that will theoretically fill with 30 days worth of oil has begun construction in China. However, their oil policy on the world oil market has not been completely clear as to how they will deal with the situation as a whole.

In order to obtain oil, China must import from states that can be considered unstable. China's need for oil may outweigh the costs of importing from a conflict-laden Middle East. China is striving to diversify their energy sector by seeking imports from other regions of the world and by starting alternative energy programs such as nuclear. China's oil endowment is going to be a program that will require an eclectic mix of domestic oil use, imports from all over the world, and development of alternative forms of energy.^[16]

As of 2010 China consumed 455 million tons oil of which over 200 million tons were imported. China's oil demand is expected to increase by 6% in 2011 according to PetroChina.^[17]

References

1. ^ "South China Sea and Natural Gas." Global Security. 2 Apr. 2008 <http://www.globalsecurity.org>
2. ^ The Library of Congress Country Studies, "China Oil and Natural Gas," July 1987
3. ^ King, Byron, "Investing in Oil: A History," The Daily Reckoning, June 2005
4. ^ "Central Asia: Regional Development." State Department. United States Government. 2 Apr. 2008 <http://www.state.gov>
5. ^ Goodman, Peter S. "Big Shift in China's Oil Policy." Washington Post 13 July 2005. 30 Mar. 2008
6. ^ China National Petroleum Corporation." Business Week. 8 Apr. 2008
7. ^ Goodman, Peter S. "Big Shift in China's Oil Policy." Washington Post 13 July 2005. 30 Mar. 2008
8. ^ Chang, Andrei. "Analysis: China's Fuel Oil Reserves." United Press International 21 Dec. 2007
9. ^ Nieh, Daniel, comp. The People's Republic of China's Development of Strategic Petroleum Stockpiles
10. ^ "Liuhua 11-1, South China Sea, China." Offshore-Technology.Com. 3o Mar. 2008
11. ^ "Liuhua 11-1, South China Sea, China." Offshore-Technology.Com. 3o Mar. 2008
12. ^ Chang, Andrei. "Analysis: China's Fuel Oil Reserves." United Press International 21 Dec. 2007
13. ^ "China suspends crude oil exports to Japan," www.chinadaily.com, 21 February 2004
14. ^ Ponikelska, Lenka, Subrahmaniyan, Nesa, "China Buys Stake in BP; Investment Is 'Welcomed' (Update2)," Bloomberg.com, 15 April 2008
15. ^ Hoffmann, Fritz, "China's Quest for Oil," TIME, www.time.com, 18 October 2004
16. ^ Pei, Minxin. "China's Big Energy Dilemma." Carnegie Endowment for International Peace. 21 Apr. 2008 <http://www.carnegieendowment.org/publications/index.cfm?fa=view&id=18315&prog=zch>
17. ^ China's Demand for Oil to Grow 6.2% in 2011: PetroChina The China Perspective. 24 Jan. 2011 <http://thechinaperspective.com/articles/china039sdemandforoiltogrow62in2011petrochina8134/index.html>

External links

• China Petroleum and Chemical Industry Association (CPCIA)