SUN
WUKONG China's oilfield of
dreams By Wu Zhong, China
Editor
HONG KONG - The discovery of a
large oilfield in Bohai Bay off northern China is
of great significance for Beijing's oil-security
strategy, which is the key to sustaining the
country's economic development. No wonder Premier
Wen Jiabao said he was so excited upon learning
the news that he could not get to sleep that
night.
PetroChina, the listed arm of the
state-run China National
Petroleum Corp (CNPC), has
announced that the newly discovered oilfield has a
reserve of 1 billion tons, or about 7.35 billion
barrels, making it the largest discovery in the
country in four decades.
The oilfield is
in the Nanpu block of the CNPC's Jidong Oilfield
in Caofeidian in Tangshan city in northern China's
Hebei province. The Nanpu block, partly offshore,
covers an area of 1,300-1,500 square kilometers
and is expected to produce light crude.
Hu
Wenrui, vice president of PetroChina, said at a
press conference last week that after the
discovery of the new oilfield, CNPC has decided to
boost oil production in Jidong to 2.2 million tons
this year. And afterward, oil production in Jidong
will increase by 1 million tons each year to reach
10 million tons in 2012.
Hu said that
reaching an annual production capability of 10
million tons is just Phase 1 of the plan. With a
reserve of 1 billion tons, production capacity in
Nanpu could eventually reach 25 million tons a
year. But he stressed: "How far the new oilfield
will be cultivated depends on the country's oil
demand and on PetroChina's overall development
strategy."
The development of the Nanpu
oilfield will stabilize and gradually increase oil
production in eastern China, Jia Chengzao, another
vice president of PetroChina, said at the press
conference.
At first glance, the increased
oil production in Jidong may appear to be just a
drop in the bucket compared with China's
fast-growing demand for energy. China's total oil
consumption reached 320 million tons last year. At
such a level of consumption, the oil reserve of 1
billion tons in Nanpu, if all extracted, could
sustain the country for just over three years.
However, analysts say the discovery of the
Nanpu oilfield is of great significance for
China's energy-security strategy, as it has
increased the likelihood that further discoveries
will be made.
Zhai Guangming, former
manager of the Jidong Oilfield and an academic at
the Chinese Academy of Engineering, said that
judging from the geological structure in Bohai
Bay, "bigger oilfields are likely to be found,
though the exploration is difficult".
The
Daqing Oilfield in northeastern China, found in
1962, had an explored reserve of 2.2 billion tons
of oil, but more than 5 billion tons has since
been extracted. It is also likely that real
production in the Nanpu oilfield will be more than
the currently confirmed reserve of 1 billion tons.
Han Xuegong, a professor with
Beijing-based CNPC Managers Training Institute,
told Shanghai Securities News: "According to my
knowledge, PetroChina already affirmed the
existence of a big oilfield in the [Nanpu] area.
However, it has not announced the discovery until
now. This suggests that there are likely other
newly found oilfields which have yet to be
announced. From this perspective, it may not be
too assertive to say that another peak time of oil
exploration in China is coming."
As no
significant oil reserves have been discovered in
four decades, China's annual oil production has
remained at about 160 million tons in recent
years. Therefore, China has had to increase oil
imports steadily since 1993 to meet fast-growing
demand. Analysts say the Nanpu oilfield, once
productive, could represent a major breakthrough
in the country's stagnant petroleum production.
Moreover, the new oilfield has been found
at a time when China is boosting its efforts to
build up its strategic oil reserves to strengthen
its energy security. No doubt, the new discovery
gives the country an advantage in this regard.
Now, China can either increase production to
reduce oil imports or increase its strategic oil
reserves.
No wonder the international
price of crude oil dropped by US$1 per barrel on
the day PetroChina announced its Nanpu discovery.
Energy security - particularly oil
security - has become a major concern for China in
recent years. The world's average oil
reserve-to-production ratio is 40.5 per year. But
in China the ratio is just 13.4 per year.
Moreover, its oil production cannot meet the
demand for its fast-growing economy. As a result,
the country has become increasingly dependent on
imports. Last year, about 44% of oil consumed in
China was imported, making the country
increasingly vulnerable to international oil-price
fluctuations.
According to government
plans, China will maintain a strategic oil reserve
equivalent to 30 days of imports by the year 2010.
The plan will be implemented in three phases. In
Phase 1, some 10 million to 12 million tons of oil
will be stored. And storage in Phases 2 and 3 will
be 28 million tons each. Four national-oil-reserve
bases were chosen in 2003: Zhenhai and Zhoushan in
Zhejiang province, Dalian in Liaoning province and
Huangdao in Shandong province. China began to fill
its first strategic oil reserve last year. Sites
for Phases 2 and 3 have yet to be decided.
Hu Wenrui, in an interview with
Shanghai-based China Business News, revealed that
after the discovery of the Nanpu oilfield, it is
almost certain that the Caofeidian area will be
chosen as a base for a strategic oil reserve in
Phase 2.
Hu said the discovery of the
Nanpu oilfield gives the government greater
flexibility in formulating China's oil-security
strategy. "If the government decides on
large-scale production, it could reduce the
country's oil imports. On the other hand, the
country could continue to buy oil from overseas
while keeping production in Nanpu at a certain
level to maintain its reserve."
Jia
Chengzao said PetroChina plans to build pipelines
to transport oil extracted from Nanpu, which is
260 kilometers from Beijing and 150km from
Tianjin. Jia estimated that production cost at
Nanpu is about 59 cents per barrel, far below the
international average cost of $1.2-1.5 per barrel.
'China threat' The discovery of the
Nanpu oil reserve will help China refute the
so-called "China threat" theory. One of the
arguments of that theory is that with its fast
development, the world's most populous country
will devour most of the energy on the globe,
posing a threat to other countries.
Han
Xuegong said the timing of the announcement is
meant to deliver a message to the international
community that China does not pose a threat to
world oil security, because the Middle Kingdom
still has its own oil reserves to discover and
extract.
It is no wonder that Wen could
not get to sleep after hearing the news.
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