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|China's New natural gas field strengthens energy
Source: http://www.asiantribune.com 01-08-08
China National Petroleum Corporation (CNPC) is dipping into a new natural gas field in Sichuan Province, with a total reserve estimated to be over 300 bn cm.
PetroChina is accelerating the exploitation of the new Longgang gas field, situated on the boundary between three counties: Yilong, Yingshen, and Pingchang. The company will officially reveal the exact reserve of the gas field to the public in October this year.
One CNPC senior manager refused to disclose the expected or confirmed reserve of the field, but admitted that it is a big one.
Another told, “According to the most conservative estimate, the reserve will exceed 300 bn cm, but the actual reserve may be 500 bn, or even 1 tcm, equal to 1 bn tons of petroleum.”
Last summer, CNPC declared it had discovered a new oil field in Hebei Province with a total reserve of about 1 bn tons. The find was regarded as crucial for China’s energy security and economic development and was the most exciting moment in China’s petroleum exploration in the past 40 years.
The exploration of Longgang gas field was launched in April 2006, when CNPC’s central Sichuan branch discovered that the area was extremely rich in natural gas.
On May 21, 2006, CNPC officially opened its first exploration well in Yilong County. After drilling down to over 6,500 meters, it estimated the daily gas production to be about 1.2 mm cm, and the sulphur content to be only about 30 grams per cm.
CNPC completed the second and third exploitation wells in November and December of that year, and declared afterwards that the exploration had revealed that a large natural gas reserve did exist in the area but that its exact extent was still unknown.
At a CNPC meeting, Xu Yongjie, general manager of Chuanqing Drilling Company, the CNPC subsidiary in charge of the Longgang field exploration, said the company would work hard to get exact numbers for the reserve to the public in October.
At present, China’s largest gas reserves are at CNPC’s Sulige field, with a proven 533.6 bn cm, and the second largest is at Puguang gas field, discovered by Sinopec in the Sichuan Basin, with a proven 350 bn cm as of February, 2007.
Oil&Gas Journal Volume 98, Issue 23 (Jun 05, 2000) Special Report
now sees natural gas as a major industry. China
decided to capitalize on its gas resources in order to ease pollution
provide stimulus for economic growth for the next 10 years.
The government plans to boost gas consumption from the current 24
cu m/year (bcm/year) to 50 bcm/year in 2005 and further to 100 bcm/year
in 2010. The plan involves enormous capital input and offers
to Chinese and foreign investors ranging from natural gas exploration
development to downstream operations, such as gas utility equipment
Of the entire gas business chain, from upstream through midstream to
China has placed top priority on the construction of a gas
pipeline construction in particular-to pave the way for the large-scale
development of a natural gas industry.
As a first step to boost gas utilization, China has included gas pipeline construction as part of an infrastructure construction program in its next 5-year planning period (2001-05).
The government has launched a massive gas pipeline construction spree to link gas fields in western China's Tarim, Qaidam, and Ordos basins with gas markets in eastern China. The western part of China holds about 22 quadrillion cu m of natural gas resources, accounting for 58% of the national total.
Currently, China's gas pipeline network is still in the initial stage of development. The bulk of China's natural gas is transported to areas close to gas fields for consumption in chemical plants.
The most extensive gas pipeline network has been built in southwestern China's Sichuan Province, where the network consists of 8,770 km of pipeline carrying gas from Sichuan gas fields to chemical plants as well as to household consumers in the province and in the neighboring provinces of Yunnan and Guizhou. Sichuan is currently China's largest gas production center, with gas output in 1999 reaching 7.6 bcm, accounting for 33% of the national total.
In addition to Sichuan, China is now operating two major long-haul gas pipelines. The Jingbian-Beijing pipeline is China's first long-haul onshore gas pipeline. The 864-km pipeline was completed in 1997, with annual throughput capacity of 3 bcm. The gas supply for the pipeline is from the Changqing oil and gas field for industrial and household consumption in Beijing as well as in Tianjin in northern China.
The other one is a pipeline in the South China Sea, linking ARCO's Ya 13-1 gas field and a power plant in Hong Kong. The 778-km pipeline has been in operation since 1996. It moves 2.9 bcm/year of gas to Hong Kong and 520 million cu m/year (MMcm) to Hainan province.
However, the existing pipeline infrastructure is far from adequate to meet the needs of both the upstream (exploration and production) and downstream (consumption) sectors. The absence of a substantial pipeline system has also caused potential investors to be ambivalent about the prospects of China's gas business.
China encourages foreign participation in gas pipeline construction, but many foreign companies are interested in gas exploration and production and marketing. Without being able to secure enough gas reserves and an adequate gas market, foreign companies are not eager to incur the risk of pipeline construction.
The largest foreign participant in China's onshore gas sector is Royal Dutch/ Shell. Last September, Shell signed a $3 billion contract with China National Petroleum Corp. to jointly explore and develop gas resource in northwestern China's Ordos basin. The contract allows Shell to tap gas reserves on the Changbei block, which covers 1,600 sq km, build a gas pipeline, and establish a sales network. The pipeline will extend through Inner Mongolia, Beijing, Tianjin, Hebei Province, and Shandong Province. The Changbei project is the first onshore upstream petroleum project initiated by Shell in China and the largest project launched by CNPC with foreign investors. Upon completion, the project will supply 3 bcm/year of natural gas to eastern China for 20 years. The project is expected to start up in 2004.
Last year, Enron Development Corp. and CNPC undertook a plan to build a 503-km pipeline to move 3 bcm/year of gas from Sichuan's Zhongxian area to Hubei Province. Enron took a 45% share of the 1.9 billion yuan project, expected completion this year.
BP Amoco PLC is another major that has shown interest in China's gas business, but it is not likely to engage in domestic gas pipeline construction. BP Amoco is more interested in the retail gas sector in eastern China. As part of the concession to encourage BP Amoco to invest in the initial public offering of PetroChina Co. Ltd., a unit of CNPC, PetroChina has agreed to set up a joint venture with BP Amoco to market the gas produced in Xinjiang's Tarim basin in areas around Shanghai in eastern China. BP Amoco contributed up to 20% to PetroChina's $3 billion IPO. BP Amoco's new position with PetroChina will enable it to form a joint gas-marketing venture as well as to build or acquire as many as 150 service stations in China over the next year.
Although China encourages foreign participation in domestic gas transmission pipeline construction, the country still bans in principle foreign investment in town-gas (local distribution company) pipeline construction. The government plans to lift the ban and select a few cities to allow foreign companies to become involved in China's LDC pipeline grid business on a build-operate-transfer basis, in order to attract foreign capital and technology.
Xinjiang-Shanghai pipeline<>China is now embarking on several major gas pipeline construction projects (see map).
The centerpiece of the construction campaign is one that links Xinjiang with Shanghai. The 811-mm diameter, 4,212-km pipeline will pass through 15 major cities before reaching Shanghai. The pipeline will have a designed capacity of 20 bcm/year. The 15 cities are Korla, Turpan, Shanshan, and Hami in Xinjiang; Liuyuan, Zhangye, Wuwei, Lanzhou, Dingxi, and Liquan in Gansu; Zhengzhou and Xinyang in Henan; Hefei in Anhui; and Nanjing and Changzhou in Jiangsu.
PetroChina submitted its project proposal to the State Development Planning Commission (SDPC) for approval last September targeting completion of engineering design this year.
The construction will be divided into two phases. Construction of the 1,581-km first section from Tarim to Jingbian in northwest China's Shaanxi province is to start next year for completion in 2002.
Construction of the second, 2,586-km section from Jingbian to Shanghai is to start in 2002 for completion in 2003.
However, PetroChina will allow a throughput of only 12 bcm/year for 30 years, of which 10 bcm will be for consumption in eastern China-including Shanghai and Jiangsu, Zhejiang, and Anhui provinces-and 2 bcm will be designated for consumption in locales en route. PetroChina is prepared to scale down the initial pipeline throughput to four bcm/year, in case the market in eastern China is ready before 2004. >
The government stresses the simultaneous development of gas resources, pipeline, and downstream projects, but PetroChina cannot offer any assurances that all the downstream gas projects will be ready by the time the pipeline construction is completed.
The complexity of building natural gas-based projects, including power plants and LDC networks, centers on extensively aligning efforts of multi-government offices and financial institutions, because such projects will mean shifting away from an existing energy system based on coal-fired power plants and liquid fuels for home heating facilities.
Based on the pipeline operation economics and purchasing capacity of the end-users in Shanghai, SDPC is likely to set the price of Xinjiang gas at about 1.3 yuan/cu m at the Shanghai city gate.
All these related
projects, including gas exploration
and development in Tarim basin, the pipeline, and downstream projects,
are expected to cost a total of about 120 billion yuan, including 38
for the pipeline construction and 60 billion for the downstream
However, foreign companies are lukewarm to the pipeline construction proposal. They are more interested in gas production at Tarim and retail gas sales in eastern China. Moreover, few companies are willing to invest in the project without a local partner, given the risks involved and huge capital requirement.
China's preference for foreign involvement in the pipeline is to form a joint-venture consortium between foreign and local companies. Some companies are interested in involvement in the retail part of the Xinjiang-Shanghai gas business chain, while others are interested in gas exploration and production in the Tarim basin, the gas supply source for the pipeline.
PetroChina has ruled out the possibility of allowing foreign companies to become involved in gas production in Tarim, because the company confirmed enough reserves for the pipeline. PetroChina mostly encourages foreign companies to participate in exploration that involves risk. PetroChina has proved more than 400 bcm of natural gas reserves in the Tarim basin. The company is trying to discover more this year.
Other western pipelines
In another major example of the gas infrastructure build-up, PetroChina started building another natural gas pipeline in northwestern China in April. The pipeline will extend 953 km from the Sebei gas fields in Qinghai Province to Xining, capital of Qinghai Province, and Lanzhou, capital of Gansu Province. The pipeline will have an annual transportation capacity of 3-5 bcm of gas, of which 1.7 bcm will be for consumption in Xining and 2.8 bcm will be for Gansu.
PetroChina has decided to spend 600 million yuan on natural gas exploration and production this year in the Sebei fields. The Sebei fields cover 7,000 sq km and have gas reserves estimated collectively at 500 bcm. The fields are in the eastern part of the 120,000 sq km Qaidam basin, where PetroChina says gas reserves total 900 bcm. PetroChina plans to produce 5 bcm/year of natural gas in the basin by 2005. Qaidam's gas production last year was 360 million cu m, up 34% on the year.
Meanwhile, PetroChina is moving a step closer to building a natural gas pipeline from Sichuan Province in southwest China to Wuhan, capital of Hubei Province, in central China. China International Engineering Consulting Corp. has completed its assessment of the feasibility study done by PetroChina on the 711-mm diameter, 700-km pipeline and has submitted the project proposal to SDPC for approval. The pipeline is scheduled for completion in 2002. Sichuan has proven gas reserves of 589.5 bcm, 56% of which are in the eastern part of the province. Gas from Sichuan will supply Wuhan for 30 years at a required 1-1.2 bcm/year.
In addition to Wuhan, the Sichuan gas will also supply 10 cities in Hubei: Yichang, Jingzhou, Jingmen, Xiangfan, Lichuan, Enshi, Zhijiang, Qianjiang, Xiantao, and Yidu. Gas demand in Hubei province is estimated to rise to 650 MMcm in 2005 and to 1.5 bcm in 2010. From Wuhan, the pipeline will be extended further after 2002 to the Yangtze River delta region, including Shanghai and the provinces of Jiangsu and Zhejiang in eastern China.
Also under construction is
a 53.6-km pipeline from Xi'an,
the capital of Shaanxi Province, to Weinan, which is north of Xi'an.
59 million yuan pipeline will have an annual delivery capacity of 380
of natural gas. This pipeline will transport natural gas produced from
Changqing oil and gas field. Xi'an has an existing gas pipeline that
the city with Jingbian, the site of the Changqing oil and gas field.
pipeline has an annual delivery capacity of 400 MMcm.
China has also decided to build a natural gas pipeline from Changqing gas field in northwest China to Inner Mongolia in north-central China. The pipeline will extend 471 km eastward from Ushen County in western Inner Mongolia and terminate in Huhhot. The pipeline, with an annual capacity of one bcm, is slated for completion by the end of this year.
a separate development, China's Hainan province is
seeking foreign investment to jointly build and operate the second and
third sections of an integrated natural gas pipeline grid in order to
on the use of gas produced from the South China Sea. The
pipeline will skirt the island province, passing through 12 cities and
counties from Shanya to Qionghai. The 2.2 billion yuan pipeline project
is divided into three sections, with the first section brought into
in 1996. The three sections will have a combined transportation
of 3-5 bcm/year of gas.
For China's energy security reasons and to push earlier development of natural gas resources in host countries, China and some central and northern Asian countries are in talks over building several transnational gas pipelines from Russia, Kazakhstan, and Turkmenistan to China.
least five such pipeline proposals are now in consideration
by the Chinese government.
and Russia now differ on the routing of the pipeline.
Russia, China, and South Korea will soon sign a trilateral contact to extend a natural gas pipeline from Russia via China to South Korea.
China said it will build the Sino-Russian gas pipeline along with a 2,400-km crude pipeline that is to extend from Angarsk in eastern Siberia to northeastern China in order to minimize costs and land use.
According to an agreement signed in March by Russian Minister of Fuel and Energy Victor Kalyuzhnyi and Zeng Peiyan, minister for China's SDPC, China and Russia have agreed to begin building the crude pipeline in 2003, and completion is scheduled in 2005. About 1,630 km of the pipeline will be built within Russia at a cost of $950 million, while the remainder will be built in China at a cost of $650 million.
However, just as with the gas pipeline, China and Russia still haven't agreed on the routing of the pipeline, with the Russians insisting on cutting the pipeline's distance by running it through Mongolia, with the Chinese calling for skipping Mongolia for security reasons.