What's new in production

	Vol. 227 No. 7
VICTOR SCHMIDT, DRILLING ENGINEERING EDITOR

China’s thirst. China is a large country with one-fourth of the world’s population whose strong demand growth since 1982, in conjunction with growth in other economies, has increased the competition for oil. Simple supply and demand forces have raised the price consumers must pay for oil and created a scramble for new resources. But what has become of China’s internal efforts to increase domestic production?

According to February’s World Oil’s Outlook 2006, China is the world’s fifth largest oil producer. The Russian Federation (9.3 million bopd), Saudi Arabia (9.1 million bopd), US (5.0 million bopd) and Iran (3.9 million bopd) produce more than China at present. In 2005, the country produced 3.4 million bopd from 576 oil fields.

Historically, China has grown its production steadily at 1 – 2%/yr, which is in line with the rest of the world’s demand growth. Recently, this production output has jumped with a 5.3% gain in the 2003 – 2004 period and a 3.2% increase in the 2004 – 2005 period. A recent news item reports that China’s next five-year plan (2006 – 2010) will continue the production climb.

While its production growth has been good, China’s demand has grown much more rapidly. According to BP’s Statistical Review of World Energy, China’s cross-over from a net producer to net importer occurred in 1993, when its 3.1 million bopd of demand outpaced its production of about 2.9 million bopd. Since that time, Chinese oil demand has varied, growing from 2%/yr to 16%/yr, but averaging just under 8%/yr. From 1990 forward, Chinese oil demand has increased strongly, rising between 41% and 46% every five years. From a low of 1.6 million bopd in 1982, the country now requires 6.9 million bopd, a 430% increase in just 23 years.

To meet the growing needs of its economy, China’s government and state owned oil companies are expanding pipelines, developing joint ventures and operating internationally to find and develop new reserves. In March this year, Chen Geng, CNPC’s general director, signed for a feasibility study with Russia’s Transneft to build a branch of the East Siberia-Pacific Ocean (ESPO) oil pipeline to China. China presently receives Russian oil by rail.

The two companies also signed documents establishing a joint venture for them to operate together in other countries. According to Chen, CNPC is exploring, producing, and refining hydrocarbons at 58 facilities in North America, Central Asia, the Middle East, and South America.

China is also beginning to receive oil from the Caspian basin. At the end of April, the first Kazakh oil arrived by pipeline at Alashankou, Xinjiang province, China, beginning a new phase of oil shipment into the country. Transneft will send 10.2 million bopd to China this year using the Atasu-Alashankou pipeline. This pipeline is the first part of a trans-Asia system that will ultimately connect Atyrau on Kazakhastan’s Caspian Sea through Kenkiyak, Kazakhstan, and on to China. The ultimate destination is the Dushanzi oil refinery in Xinjiang, connecting central Asian oilfields with Chinese consumers over 1,800 mi away.

Fig. 1. China estimates reserves in Tibet’s Qiangtang basin at a maximum 37 billion bbl oil in place. Map after P. Vermeesch, Stanford University.

While China’s oil companies are busy linking to other sources on the continent, they are not slowing the search for new in-country reserves. Last year, Chinese researchers from Chengdu University of Science and Technology reported on oil shale samples collected in July 2000 from Tibet’s Qiantang basin. This basin is high on the Tibetan plateau at over 17,000 ft above sea level. 

Based on lab results, the 180 million year age of the rocks and the anticipated size of the deposits, the researchers estimate that the basin holds 28 billion to 37.8 billion bbl of oil in place. This potential volume is double the size of Kashagan field in Kazakhstan, which is estimated to hold 10 to 30 billion bbl of recoverable oil. China plans to offer 10 Qiantang basin blocks for exploration license in the near future. BP and ENI/Agip are already working with PetroChina and drilling in Tibet.

Trans-Caucasus pipeline. The pipeline, connecting the Caspian Sea oil fields to the Mediterranean Sea oil markets, started deliveries last month. Stretching from Baku, Azerbaijan, northwest through Tbilisi, Georgia, and then southwest across the mountains to Ceyhan, Turkey, the new delivery system loaded its first 600,000 bbl of crude onto a tanker bound for Savona, Italy. 

Construction on the system began in September 2002 and was completed in 2005. The pipeline was tested and commissioned early last year, and then the operator began filling its length with 10 million bbl of crude in May 2005. The crude is coming from Azerbaijan’s Azeri-Chirag-Gunashli field in the Caspian Sea.

The 1,094-mi. pipeline will build to a capacity of one million bopd with the addition of oil from other producing fields. Partners in the pipeline include BP (operator) with 30.1%, SOCAR (25%), Chevron (originally Unocal) with 8.9%, Statoil (8.71%), Turkiye Petrolleri Anonim Ortakligi (6.53%), Eni/Agip (5%), Total (5.0%), Itochu (3.4%), Inpex (2.5%), ConocoPhillips (2.5%) and Amerada Hess (2.36%).

Cantarell. Cantarell, Mexico’s giant oilfield, has begun to decline. In 2005 it produced 2 million bopd, down from a high of 2.14 million bopd in 2004. Mexico projects a 6% decline to 1.9 million bopd this year and with intervention expects to limit the decline drop to 1.44 million bopd by 2008, according to Pemex officials.

With Cantarell’s decline underway, Mexico is investing in new fields. Over the next 20 years, onshore Chicontepec field will receive $37.5 million in investment, according to Mexican President Vincente Fox. The field is reported to hold 18 billion bbl of oil, which could produce at 1 million bopd by 2014.