China's sluggish upstream sector is beginning to show signs of a turnaround.
China's crude oil production is expected to exceed for the first time an average 2.8 million b/d this year. Beijing is targeting 2.9 million b/d by 1995, a sizable increase considering the declines in most mature producing areas.
That comes on the heels of a record 2.79 million b/d of oil China produced in 1991. Production rose from 2.55 million b/d in 1986 to 2.76 million b/d in 1990.
If current forecasts hold up, China's crude production in 1992 could outstrip that of 1991 by as much as 100,000 b/d.
The growth in production the past 6 years has sharply lagged that of 198185, when China's oil flow jumped by an average 118,400 b/d/year. The rate of growth slowed to 38,000 b/d/year during 1986-90 and 12,000 b/d/year in 1991.
China's offshore accounts for about half of the year to year increase in oil production in a comparison of the first 7 months of 1991 and 1992, but the giant producing complexes at Daqing, Shengli, and Liaohe are more than holding their own. Especially encouraging are recent successes in the Tarim basin, a vast, highly prospective region in China's Northwest that Beijing hopes will underpin ambitious oil production targets by 2000.
Meantime, China's gas production rose slightly from a year ago to 1.48 bcfd the first 7 months of this year. China plans an expanded role for natural gas in domestic industrial, residential, and power generation uses to back out oil for export. An example is the expanded gas grid along the eastern China coast that accompanied the start-up of the country's first self-financed offshore development project, Jinzhou 20-2 gas/condensate field (see story, p. 26).
Beijing aims to double gas production to about 2.9 bcfd by 2000. A key goal is to substitute natural gas as a feedstock for China's surging petrochemical industry, currently fed by Oil.
Nevertheless, the remaining onshore fields mostly continue to decline, and the overall rate of annual oil production increases falls far short of the rate of growth in domestic oil demand. Following Senior Leader Deng Xiaoping's implementation of measures in January to nudge the country more toward a free market economy, China's industrial growth rate was 18.2% in the first half, up 12.2% from plan.
STRONG DEMAND GROWTH
Officials note that in order to keep up with increased oil demand to supply superheated industrial growth, China's oil production must climb by 100,000 b/d/year. That would call for net additions to reserves of at least 4451 million bbl/year to offset natural declines in mature fields.
The situation is costing the world's fifth largest oil producer billions in sorely needed foreign hard currency. To meet soaring domestic demand for oil, China National Chemicals Import & Export Corp. (Sinochem), the nation's oil export/import monopoly, cut its planned export of crude to 360,000 b/d this year from 640,000 b/d in 1991.
Despite the glimmers of improvement on the horizon, there is little likelihood of major contributions to oil and gas production this decade from China's offshore and northwest frontiers. While some sizable projects will be going on stream in the mid-1990s, there are on the horizon no other supergiants such as Daqing, which provides almost 40% of the nation's oil production.
The urgency to accommodate burgeoning domestic oil demand and the need to sustain some level of oil exports may underlie Beijing's recent efforts to accelerate foreign investment in Chinese E&D (OGJ, July 20, p. 128), as well as its recent testiness over territorial disputes in hydrocarbon prone areas of the South China Sea (OGJ, July 13, p. 20)
EXPORTS-IMPORTS
Oil exports account for a sizable chunk of China's foreign exchange earnings.
China earned about $3.2 billion for its oil exports in 1991. Crude exports have fallen from a high of 755,000 b/d in 1985, accounting for about 30% of the nation's oil production at the time.
Meantime, Japan is bearing the brunt of Sinochem's decision to slash crude exports.
The agency plans to cut crude shipments to Japan by at least 20,000 b/d/year starting this year. Sinochem will export 200,000 b/d of crude to Japan in 1992. Last year Sinochem supplied 236,000 b/d of crude to Japan, accounting for about 6% of Japan's total crude imports.
Sinochem also must import about 60,000 b/d of crude to supply its rapidly expanding petrochemical industry.
DAQING
Supergiant producing complexes at Daqing and Shengli in Northeast China account for two thirds of the country's oil production.
Daqing, in Heilongjiang province, has maintained its current production level for about 16 years. That stems from infill drilling, waterflooding, gas lift, and deeper drilling.
In the first 7 months of this year, about 1,500 wells were drilled in Daqing complex. The focus is on a combination of infill drilling along with artificial lift in main producing areas to boost recovery from thin pay zones.
Daqing operators also have completed a 1 year, 13 well pilot involving a polymer flood they believe can boost recovery rates by 50%, reported China Features' Xu Yihe. It involved drilling four injection wells alongside nine producers in the aging producing area.
The polymer flood reduced water cut of production to 20% from an average 95%. Crude production rates from the nine wells jumped to a combined 986 b/d from 256 b/d after polymer injection.
Daqing officials estimate that fieldwide implementation of a polymer flood could boost Daqing recovery by 2.2 billion bbl, Xu wrote. Daqing is delaying application of the polymer technology until 1995 because of a lack of polymer supplies. Currently, China's chemical industry can supply Daqing only 1,000 tons/year of polymer. Plans call for that capacity to rise to 5,000 tons/year by 1995.
Daqing officials believe the polymer flood could hike Daqing production by as much as 400,000 b/d above its natural decline during the next 30 years, Xu wrote. Without the polymer flood, Daqing production is expected to drop by 260,000 b/d to about 840,000 b/d by 2000.
For now, Daqing will implement polymer injection only in currently shut-in wells.
SHENGLI
At Shengli, two new pool discoveries in May in the Hudao area, on the eastern fringe of the complex along the Yellow River estuary, have brightened prospects. Although individually small, the new strikes add up to helping sustain production in a complex where most of the wells have a water cut of 85%.
Shengli operators drilled 13 delineation or step-out wells at Hudao, cutting an average pay zone of 125 ft. Average crude production of the Hudao wells is 204 b/d, about double that of wells tapping the old producing zone.
Plans call for drilling another 23 wells in the Hudao area. Officials project total Hudao area production at 3,000 b/d, a level thought sustainable for 20 years.
Shengli operators also are expanding horizontal drilling efforts in the complex drilling seven horizontal wells in 1991. One well, with a displacement of 541 m, cut 22 oil stringers with a combined net pay of 209 m and tested at a rate of 1,679 b/d, about equal to production from nine typical vertical wells at Shengli.
LIAOHE HEAVY OIL
Heavy oil accounts for a growing share of production from the Liaohe complex also in Northeast China.
During the first 7 months of 1992, Liaohe produced 279,138 b/d of oil, of which 104,286 b/d was heavy crude. For all of 1992, Liaohe is expected to produce 280,000 b/d, with 120,000 b/d of that volume heavy oil and 60,000 b/d condensate.
Drilling for and producing crude and condensate at Liaohe is a challenge for Chinese technology. Liaohe's heavy oil lies at an average depth of 1,600 m, compared with a typical depth of about 500 m for heavy oil deposits elsewhere in the world.
Liaohe crude oil has a combined wax and asphalt content of 40-60 wt %, and its condensate has a pour point of 67 C., among the world's highest for condensate.
Heavy oil and condensate account for 60%, or 4.38 billion bbl, of Liaohe total liquids reserves.
The complex has 2,678 directional wells, accounting for 40% of the field total. Liaohe also features cluster drillsites from which as many as six wells can be drilled. Such clusters account for 1,170 wells at Liaohe.
HUABEI, ZHONGYUAN
Two other major Chinese producing complexes, Huabei and Zhongyuan, have experienced sharp declines in recent years.
Both fields are in Central China's Henan province.
Huabei production of 100,000 b/d in 1991 represents a drop of 7,000 b/d from 1990. In the late 1970s and early 1980s, Huabei produced more than 200,000 b/d.
At Zhongyuan, crude production fell to 122, 000 b/d in 1991 from 126, 000 b/d in 1990. Zhongyuan production peaked in 1988 at 144,000 b/d.
Chinese planners are shifting personnel from such declining areas to the underexplored northwest regions. Of the 50,000 exploration workers and 200 rigs working in the remote, rugged Taklamakan desert in Xinjiang Uygur Autonomous Region, about 30% are from Huabei and Zhongyuan.
CHINA'S NORTHWEST
Chinese geologists estimate the northwest frontier basins may hold as much as 40% of the nation's undiscovered potential oil resource and half its undiscovered gas resource.
However, less than 10% of the postulated hydrocarbon resource in Northwest China has been identified. Early estimates by geologists place the potential resource at 74 billion bbl of oil and 290 tcf of gas in the Tarim basin alone.
Combined oil production from the Tarim, Turpan-Hami, and Junggar basins, all in the Xinjiang Uygur Autonomous Region, averaged 154,000 b/d in 1991.
The three basins are expected to produce 174,000 b/d this year and 200,000 b/d in 1993.
In all, more than 200,000 oil field personnel are working in China's Northwest.
Investment in oil and gas exploration and development in the region has been substantial despite a lack of world class discoveries. In the Tarim basin alone, E&D outlays totaled $750 million during 1989-91.
TARIM SPOTLIGHT
The current focus remains heavily on the vast Tarim basin, which covers 560,000 sq km in southern Xinjiang.
Five oil fields - Lunnan, Donghetang, Sangtamu, Jilak, and Jiefangqudong - accounted for total Tarim crude production of about 11,000 b/d in 1991. The basin's oil production is expected to reach 18,000 b/d in 1992 and climb to 100,000 b/d by 1995.
Lunnan is the largest of the five fields, covering an area of 2,450 sq km. Currently, 25 Lunnan wells are producing a combined 14,600 b/d, including 59 Lunnan, which flowed 41.7 MMcfd of gas and 616 b/d of light oil.
Exploratory drilling results were not noteworthy in 1991, but Tarim explorationists have drilled these successful wildcats or step-outs in 1992:
- 4 Tazhong, about 36 km west of producing 1 Tazhong, flowed 1,804 b/d of high gravity crude and 18.4 MMcfd of gas through an 11.1 mm choke from pay at 3,597-3,607 m. The strike has brightened prospects further for the increasingly attractive Tazhong area, where plans call for another six wildcats.
- 1 Ti flowed 4.7 MMcfd of gas and 679 b/d of condensate.
- 9 Yinmai flowed 5.5 MMcfd of gas and 277 b/d of condensate.
- 132 Jiefang tested 2,160 b/d of light oil and 1.9 MMcfd of gas.
- 123 Jiefang flowed 1,754 b/d of light oil and 4.7 MMcfd of gas.
Meantime, a 195 km oil pipeline from Tarim to Korla, a railroad hub linking the region with the rest of the country, was completed in July. The $30 million pipeline's capacity is 20,000 b/d, with plans for expansion soon to 60,000 b/d.
TURPAN-HAMI, JUNGGAR
Oil production from the 48,000 sq km Turpan-Hami basin in eastern Xinjiang, 170 km southeast of regional capital Urumqi, has climbed to about 10,000 b/d from seven fields from an average 4,068 b/d in 1991.
Plans call for Turpan-Hami production to rise to 80,000 b/d by 1995.
The most recent Turpan-Hami discovery, 3 Wenxi, in the northern part of the basin, tested at a rate of 283 b/d of oil and 212 Mcfd of gas through a 9.5 mm choke from pay at 2,677-87 m.
Turpan-Hami explorationists have identified 19 prospective traps covering a combined 160.8 sq km on the Wenxi structure.
The oldest producing basin in China's northwest region is the 130,000 sq km Junggar basin, where the Karamay oil complex produced 140,400 b/d of crude in 1991.
Exploration and development in the Karamay area, which began 20 years ago, is undergoing a revival. Ten recent wells found oil, most with commercial flow rates.
NATURAL GAS PLAY
At the same time China is trying to boost its oil production, industry planners are focusing on expanded gas E&D and have their sights set on a world class play in the gas prone Shaanxi-Gansu-Ningxia basin of northern China.
To date, gas reserves totaling more than 3.5 tcf have been discovered in the central portion of the basin, China Features reports. Forty groups totaling 50,000 personnel are involved in exploration there, China Features' Wu Gouqing and Chen Zhiqiang wrote.
The basin, China's second largest after Tarim, covers 380,000 sq km across Shaanxi, Gansu, and Shanxi provinces and Ningxia and Inner Mongolia autonomous regions.
Shi Xingqun, chief of the regional Changqing Oil Exploration Administration, a unit of state oil company China National Petroleum Corp. (CNPC), expects the Shaanxi-Gansu-Ningxia basin to soon surpass offshore Yinggehai basin in terms of gas reserves and eventually become China's largest gas producing area, Wu and Chen wrote.
Shi noted exploration in the basin is extending the prolific gas play north and south, with the exploratory campaign expected to wrap up within 3 years and full scale development to begin in 1996.
The first well in the basin, drilled in 1969, flowed 1.8 MMcfd. However, lack of equipment and the region's harsh climate brought exploration there to a virtual halt for 15 years.
Exploration resumed in the basin in 1985 with increased investment and the idea that the gas has its origin in coal seams. The basin also is China's leading coal producer.
In 1990, eight wells were drilled in the basin and flowed an average 15.9 MMcfd. But the big strikes came in December 1990 and January 1991, when two wells flowed 38.9 MMcfd and 44.5 MMcfd, respectively. That led the regional administration to focus on the 1 200 sq km central portion of the basin. In all, 70 wells have been drilled there in a common reservoir with average test rate of 1.06 MMcfd/well.
The central basin strikes are 320 km east of Yinchuan, capital of Ningxia, and 480 km north of Xian, capital of Shaanxi.
Chinese officials are drawing up plans for downstream projects to use the gas supplies that will be developed. Plans call for three natural gas based chemical plants at Yinchuan: one to produce undisclosed volumes of ethane, polyethylene, methanol, caustic soda, and fertilizer, one to produce 300,000 tons/year of ammonia, and the third to produce 50,000 tons/Year of sulfuric acid and 80,000 tons/year of caustic soda.
Meanwhile, design work has been completed and construction is to begin soon on a 320 km gas pipeline linking the discoveries with Yinchuan.
In addition, Beijing's municipal government plans to lay a 900 km gas pipeline from the central basin discoveries to the city. The idea is to use about 100 MMcfd of gas to back out coal and reduce air pollution in the nation's capital.
OTHER ONSHORE
Beijing continues to open more onshore acreage for foreign exploration and development.
Amoco Orient Petroleum Co. this year became the first major western petroleum company to receive an onshore exploration contract in China, covering 1.27 million acres in the Fuyang basin of Anhui Province (see map, OGJ, May 25, p. 29).
In another significant onshore step, China National Oil Development Corp. (Cnodc) signed a contract in November 1991 with Energy Development Corp. (EDC), Houston, covering joint exploration and development in Jiangxi Province (OGJ, Nov. 4, 1991, p. 36). Work got under way this summer (OGJ, Aug. 17, p. 46).
The EDC contract was the second Cnodc signed with a foreign oil company since 1985, when Beijing announced its intent to open its 11 southern provinces to international E&D investment. The first was signed at yearend 1990 with a combine of Fletcher Challenge Ltd., Santa Fe Energy Resources, and Nomeco Oil & Gas Co. The combine is focusing on the 15,900 sq km Donting basin in Central China's Hunan Province.
The southern provinces have 167 sedimentary basins and subbasins covering 1.83 million sq km.
Cnodc Pres. Cheng Shouli was quoted by China Features as saying more than 10 foreign oil companies have discussed with his company prospects for cooperation in exploring for oil and gas in southern China.
There is a strong likelihood an international tender covering other onshore regions outside the southern provinces will proceed soon. Beijing officials, quoted earlier this month by Agence France Presse, said at least 23 blocks in southern China will be offered by yearend. Terms are expected to be more flexible, with bids accepted in Guangzhou as early as October.
Acreage elsewhere in China, including the previously off limits Tarim basin, is expected to be put up for international bids soon. In a major policy shift, Premier Li Peng, considered a Communist hardliner previously opposed to stepped up foreign investment in China's industry, last week said China will welcome foreign investment in E&D in the Tarim basin as well as other onshore China areas. An extensive campaign of geological and geophysical studies is under way in the Tarim basin with the assistance of Japan National Oil Corp.
OFFSHORE ROUNDUP
China started offshore exploration and development about 10 years ago, a campaign that has yielded some discoveries of note with foreign assistance but not the world class finds that had been anticipated.
Of the total potential resource of more than 7 billion bbl identified by that effort, about 4 billion bbl is believed recoverable.
About half of the offshore E&D contracts signed since 1980 remain in force. China National Offshore Oil Corp. (Cnooc) said of the total outlays by foreign companies of more than $3 billion spent offshore by yearend 1991, $2.4 billion went for exploration. Foreign companies spent about $350 million of the total in 1991.
Disappointments aside, China continues to place heavy emphasis offshore, especially for offsetting onshore declines in order to boost total oil production slightly by the mid-1990S.
With a planned net gain of 140,000 b/d during 1990-95, Beijing expects 80,000 b/d of that increase to come from the Nanhai area of the Pearl River Mouth basin, Beibu Gulf, and Bohai Sea. Those three areas produced an average 46,000 b/d in 1991, broken out as about 20,000 b/d from the Pearl River Mouth basin, 19,000 b/d from Bohai Sea, and about 7,000 b/d from Beibu Gulf.
Beijing plans production increases of 20,000 b/d/year from the three areas during the next 5 years.
Cnooc projects total offshore production of 160,000-200,000 b/d of oil and almost 360 MMcfd of gas by 1997.
BOHAI UPDATE
Cnooc expects oil productive capacity in the Bohai Sea to more than triple by 2000 from the current 20,000 b/d, China Features' Xu wrote.
Bohai fields Chengbei, Bozhong 281, and Bozhong 34-2/4 were discovered and developed by a joint venture of Cnooc and Japan-China Oil Development Corp. in 1989-90.
Cnooc subsidiary Bohai Oil Corp. (BOC) has opened two thirds of the Bohai Sea to foreign joint venture participation but left the remainder, Liaodong Bay in the northwest corner of the area, for self-financed exploration and development, where it recently brought on stream Jinzhou 20-2 gas/condensate field.
Earlier this year, Cnooc signed a 7 year oil exploration and development contract with BHP Petroleum Pty. Ltd. unit BHP Petroleum (China) Inc. and Texaco Inc. unit Texaco Petroleum Mij. (Nederland) by covering exploration of the 5,600 sq km Contract Area 11/19 in the eastern Bohai Sea (see map, OGJ, Apr. 13, p. 35). It is the second Bohai block awarded the pair (OGJ, Dec. 9, 1991, p. 32).
BHP-Texaco recently completed a 1 year geological study covering 8,870 sq km of the eastern Bohai Sea.
In addition, Exploration Co. of Louisiana, Lafayette, La., and China National Oil Development Corp. tentatively agreed to a 7 year exploration program in shallow waters of the Bohai Sea (see map, OGJ, June 1, p. 30).
Together, joint venture and solo exploration efforts have proved 10 oil bearing structures in the Bohai Sea, There are six contracts covering Bohai Sea acreage under negotiation with companies from Australia, Japan, Norway, U.K., and U.S.
SOUTH CHINA SEA
Foreign companies, especially from the U.S., have figured heavily in China's ambitious exploration efforts in the South China Sea.
The Agip SpA-Chevron Corp.-Texaco Inc. (ACT) combine, working with Cnooc affiliate Nanhai East Oil Corp. (NEOC), brought on stream Huizhou 21-1 and Huizhou 26-1 oil fields in the Pearl River Mouth basin in 1990 and 1991, respectively. Huizhou 21-2, with original oil in place pegged at 121.6 million bbl, is expected to produce at peak about 20,000 b/d. Huizhou 26-1, with estimated original oil in place of 192.7 million bbl, is expected to produce as much as 30,000 b/d.
The ACT group has drilled 15 wildcats and appraisal wells on Block 16/08, of which about half tested oil and gas.
The group is considering joint development of two other fields on the block, said County NatWest Woodmac, Edinburgh.
Developing Huizhou 32-2 and 32-3, with estimated reserves of 30 million bbl and 20 million bbl, respectively, is expected to cost a total of $350 million, the analyst said.
Drilling templates have been installed in the fields, suggesting that fixed production and processing platforms will be installed in each. Production will most likely move by pipeline to the floating production, storage, and offloading vessel moored 2 km from Huizhou 21-1 field.
ACT group hopes government approval for the development will be received this year, which would allow production start-up in 1995 at the earliest.
A joint venture of NEOC, Phillips Petroleum International, and Pecten Orient Co. is developing two other adjoining Pearl River Mouth basin fields, Xijiang 24-3 and Xijiang 30-2, about 20 km northwest of Huizhou 211. The two are expected to go on stream in 1994-95 and reach combined peak production of 50,000 b/d.
The biggest strike to date off China involves the Liuhua 11-1 oil field Amoco Orient Petroleum Co. found in 1986 about 200 km southeast of Hong Kong. Oil in place is estimated at 1.46 billion bbl. Amoco and NEOC in 1991 signed a contract to jointly develop the field. Production is expected to begin in 1996 at 47,400 b/d.
The first Sino-foreign joint effort to explore for oil in what China calls the Nansha area of the South China Sea started with a cooperation contract Cnooc signed in May with Crestone Energy Corp., Denver.
The focus of interest is the Wanan Bei-21 area near Viet Nam's Dai Hung oil field that Hanoi is offering to foreign companies for joint development. The Crestone contract has revived a territorial dispute over the region between China and Viet Nam (OGJ, July 13, p. 20).
EAST CHINA SEA
Foreign companies' limited success in the South China Sea has spurred Beijing to open the East China Sea to bidding on exploration and development work there.
The government earlier this year offered two clusters of acreage consisting of a combined 20 blocks covering 72,800 sq km in the East China Sea (see map, OGJ, July 20, p. 128). Deadline for bids is July 1993.
It is China's fourth offshore bidding round and the first offering in the East China Sea. Fifty-three foreign companies applied for East China Sea oil exploration rights (OGJ, Aug. 10, Newsletter).
Meantime, China plans to spend about $400 million to develop oil and gas reserves discovered between the two clusters of acreage up for bid. Chinese explorationists discovered oil and gas in 1983-84, including four high yielding wells, but development was shelved for lack of capital. Proved reserves are estimated at 517 bcf of gas and 63 million bbl of oil.
Plans call for production to begin in 1994 and build to 28-42 MMcfd of gas and 2,400 b/d of oil, sustainable for 15 years.
YACHENG UPDATE
Cnooc and a combine of ARCO and Santa Fe Minerals (Asia) Inc. are developing Yacheng 13-1 gas field in the South China Sea in a $1.2 billion project (OGJ, June 1, p. 30).
Cnooc signed a letter of intent with Industrial & Commercial Bank of China in March for a loan of $700 million to cover its 51% share of project costs, with ARCO-Santa Fe putting up the remainder. Plans call for two wellhead platforms and a process platform in the field.
Reserves are estimated at 3.3 tcf for Yacheng 13-1, in the Yinggehai basin about 95 km south of Sanya on the southern tip of Hainan Island, China Features quoted Cnooc Pres. Zhong Yimin as saying. Chinese geologists estimate potential gas reserves in the basin at 14.1 tcf, about half that of the Sichuan complex China's main gas producing area.
Six appraisal wells drilled at Yacheng flowed a combined 205 MMcfd of gas, with one well yielding 42 MMcfd, China Features' Xu reported.
A 30 in., 480 mile offshore gas pipeline linking the field with Hong Kong is under construction. A 16 in., 60 mile pipeline will supply Hainan Island gas and liquids from Yacheng 131.
Field start-up is scheduled for early 1993 at an initial rate of 126 MMcfd. Production is to ramp to 330 MMcfd by 1996, a minimum level sustainable for 20 years. Zhong estimates peak productive capacity for Yacheng 13-1 at 484 MMcfd by 2000, Xu wrote.
Cnooc also in March signed a 20 contract with China Light & Power Co. (CLP) and Exxon Energy Ltd., Hong Kong, under which Cnooc will sell Hong Hong 281 MMcfd beginning in 1996 to fuel a proposed 3 million kw CLP-Exxon power plant. Remaining gas and liquids will supply a proposed 30,000 ton/year ammonia plant and a 45,000 ton/year urea plant on Hainan Island.
Zhong expects the upstream and downstream projects related to Yacheng development to be complete in about 40 months, Xu wrote.
Copyright 1992 Oil & Gas Journal. All Rights Reserved.
