||CHINA'S COAL BED METHANE|
CHINA OIL & GAS NEWSLETTER Volume-100-01-28-April-2000
China plan calls for gas consumption to 50 bcm/year-2005 ; 80 bcm/year by 2010 from current 23 bcm/year.
China's Bohai Bay Yields Big Finds
China preps to expand gas output and distribution amid challenges
Oil&Gas Journal on March 25, 2000 July 20, 1998 Magazine Volume: 96 Issue: 29
|CHINA OIL & GAS
Chinese Defense Minister Meets with Mongolian Leaders
CNPC 1996 results
China to set up products pipeline grid August 03, 1998
CNPC Iran fail deal Caspian oil swap pipeline April 07, 2000
Independents advance Chinese developments
China build up strategic crude oil reserves April 27, 2000 AP
Oil price increase spurs CNPC to hike crude production level
|Chinese Considering 3 LNG Terminals|
||Offshore Oil and Gas Industry||China's Petroleum Industry||China Gas|
||DAQING HOME PAGE|
Chinese planners are reported to be considering constructing as many as three new LNG terminals. One would be at Qingdao, at the southern tip of Shandong Peninsula in northern China. The others would be near Shanghai.
Beijing has apparently concluded that China's growing appetite for energy combined with its drive to introduce cleaner fuels will support expansions at Guangdong and Fujian as well as the construction of additional terminals. Energy planners expect gas demand in the eastern coastal provinces to hit 37 Bcm/y by 2015, an average growth rate of 12.5 percent per year.
While the West East pipeline will be instrumental in meeting this increase, there will be opportunities for LNG as well. Planners are concentrating on a grassroots terminal in the city of Qingdao, which is located in Jiaozhou Bay facing the Yellow Sea. Sinopec, one of China's largest oil companies, is leading development efforts at Qingdao. Plans call for the construction of a 3 MMt/y (4 Bcm/y) terminal with expansion potential. Start-up is slated for 2007.
The initiative is part of the national prestige 2008 Olympic project. Qingdao has been selected as the main location for the water sports competitions during the Olympic Games.
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Chinese Defense Minister
Meets with Mongolian
Chi held separate rounds of talks with President Nachagyn Bagabandy and Prime Minister Rinchinnyamiin Amarjargal on Monday at the end of a trip that has taken him to Britain, Russia and South Korea, said Xinhua. Chi said bilateral ties had improved since the signing of a friendship treaty six years ago and state visits by both presidents in the past two years.
China and Mongolia -- traditionally deeply suspicious of each other -- signed a treaty of friendship and cooperation in 1994, and a joint statement in 1998 detailing a political and legal framework for bilateral ties into the next century.
Chinese President Jiang Zemin paid a state visit to Mongolia in July, following a state visit to Beijing by Bagabandy in 1998. The Chinese defense minister pledged Beijing would abide by the treaty and work to improve cross-border cooperation.
"China and Mongolia will establish long-term, stable and healthy relations in the 21st century," Chi told the Mongolian president, quoted by Xinhua.
China's government has set a goal of producing domestically 156.4 million metric tons (3.128 million b/d) of crude oil by 2000.
That's a little less than current demand and far below estimates of demand for 2000, ensuring that China will remain a net oil importer for the foreseeable future (OGJ, Sept. 29, 1997, p. 33).
In 1996, CNPC produced 141.45 million tons of oil, 1.6 million tons more than 1995. While that's an increase of only 1%, it's the biggest year-to-year gain in recent years. Moreover, it's especially surprising considering the rate of decline in the biggest eastern fields averaging a combined decrease currently of 20 million tons/year.
Natural gas production, however, last year maintained the 1995 level of 16.3 billion cu m (570.5 bcf).
Daqing, China's biggest producing area, produced 56.009 million tons in 1996, keeping above the 50 million-ton levels for 21 consecutive years.
Shengli, China's second largest producing area, continues to fight a losing battle against its natural decline, which stands at an average 13.8%/year in CNPC's established fields.
Shengli produced 29.1 million tons of crude in 1996, after sustaining production at more than 30 million tons/year for the last 9 years.
To sustain production, Shengli's administration has moved offshore, to shallow nearshore area, with some initial success. In 1996, Shengli's shallow water crude production reached 1 million tons. At present, Shengli offshore area has 28 producing platforms and 83 producing wells with a combined productive capacity of 1.28 million tons. With some recent new discoveries in its shallow-water area, Shengli officials are confident that in 3 years, the complex will be able to bounce production back to 30 million tons/year. Liaohe producing area yielded 15 million tons in 1996, down 500,000 tons from 1995, but the country's No. 3 producing area was able to stick to its goal of keeping production at 10% of the nation's total through 2000. To make up for the natural decline in producing fields, Liaohe will mainly depend on newly discovered reserves in the deeper pay zones, shallow offshore area, and its underexplored eastern depression.
Other major producing areas, including Jilin, Dagang, Huabei, Zhong- yuan, Henan, Jiangsu, and Jianghan, last year managed to sustain or marginally improve upon 1995 production levels.
Tarim yielded 3.05 million tons, up 21%; Junggar, 8.3 million tons, up 5%; and Turpan-Hami, 2.8 million tons, up 27%.
By 2000, the official target for crude production in Xinjiang is 24 million tons (480,000 b/d).
While still largely untapped, Xinjiang has the biggest potential among onshore China regions for giant new oil and gas discoveries.
Encompassing more than 20 basins, Xinjiang's discovered oil resource totals more than 2 billion tons, with a productive capacity of 18 million tons/year from nearly 50 oil fields.
Tarim remains a largely underexplored basin, with only one wildcat drilled on every 1,400 sq km of basin acreage and 0.27 km of 2D seismic lines/sq km shot.
In 1996, CNPC homed in on 12 exploration areas in Tarim, again targeting the biggest prospective structures.
Of the 23 wildcats drilled in the northern, central, and southwestern parts of the huge basin, 13 flowed or had shows of oil and/or gas, with three yielding commercial oil volumes.
These successful wildcats typically flowed on test at rates of 30-244 tons/day of oil and 2,800-240,000 cu m/day of gas. CNPC concludes that the Tarim basin's Dawanqi, Jinan, Luntai, Niaoshan, and Tazhong-16 prospects have the potential to be medium to large sized oil/gas fields, but it wants to further evaluate the areas.
Tarim is a 560,000 sq km basin-more than half of it covered by desert-and its hydrocarbon distribution often defies conventional wisdom, as has been shown by exploration results there to date. In the 8 years since CNPC began assembling a massive exploration campaign in the vast basin, its E&D efforts so far can best be regarded as a necessary process to acquire an adequate store of knowledge about Tarim, rather than yielding a string of elephants.
By yearend 1996, the Tarim basin's crude oil productive capacity totaled about 4.3 million tons.
Of its 1.3 billion-ton oil resource, 880 million tons are concentrated in Karamay, the basin's sole producing field. Karamay, just as Daqing is in the east, is charged with the task of maintaining existing production and extending its productive limits with satellite discoveries. The natural production decline averages 6.5-7%/year in Junggar.
In years to come, CNPC will begin to develop 70.03 million tons of un-tapped proven reserves near Karamay.
In frontier areas of the Junggar basin, CNPC discovered three major oil fields: Xiaoguai, Huanma, and Luliang with combined reserves estimated at 50-100 million tons.
Exploration and development are now concentrated in the Turpan-Shanshan-Toksun area in the west. There, an oil-prone belt was found in 1996, with reserves estimated at more than 50 million tons.
Future exploration targets include the Permian-Triassic, Toksun depression, and western Aiding Lake slope. The Hami area in the east is virtually unexplored.
Each of these basins contains a postulated oil-equivalent resource of at least 300 million tons and prospective acreage totaling more than 10,000 sq km. They include: the group rift basins in northeastern China, deeper pay targets of the Bohai Gulf Coast, Paleozoic system in northern China, Jurassic system in northwestern China, and carbonate rocks in southern China and Tibet.
In 1996, these efforts paid off. With discovered oil and gas resources exceeding CNPC's targets by 28% and 73%, respectively, CNPC added more than 600 million tons of hydrocarbon resources to its portfolio in 1996.
While Tarim has so far failed to live up to CNPC's expectations, the state company did make some encouraging discoveries in the Junggar, Songliao, Sichuan, Erdos, and Bohai Gulf basins.
In the Junggar basin, CNPC discovered an oil field with original oil in place (OOIP) of 100 million tons and two with OOIP each estimated at more than 50 million tons.
In the Erdos basin, a 100
million ton OOIP oil
discovered on the loess plateau.
CNPC promised to open more blocks to foreign oil companies before the turn of the century, accommodating an estimated $2 billion for exploration and development by foreign firms.
CHANGING OF THE GUARD
Senior officials from the top three producers-Daqing, Shengli, and Liaohe-also have been promoted to CNPC's decision-making hierarchy. They are Ding Guiming, Director of Daqing; Lu Renjie, Director of Shengli; and Wang Xiancong, Director of Liaohe.
A NEW COMPANY
OIL, GAS PRICE HIKES
In addition to higher crude oil prices, CNPC is also fighting to bring up the domestic natural gas price in 1997. A CNPC proposal calls for adding 0.1-yuan/cu m to the current average of 0.5-YUAN/CU M. Among other things, the price of gas for producing fertilizer is expected to increase by 0.08 yuan/cu m, whereas the price of gas for residential use is to rise by 0.1 yuan/cu m.
The proposal is still being deliberated by SPC's Pricing Administration. The proposed price hike will help CNPC to garner another 80 billion yuan in revenue.
CNPC has long been complaining about low domestic natural gas prices, which are far below international levels and barely enough to defray development costs. The reasonable gas price level, industry observers point out, should be about 0.8 YUAN/CU M.
LACK OF PIPELINES
Black Sea Energy Ltd., and Sunwing Energy Ltd., both from Calgary, announced plans to merge. The new company will change its name and retain its head office in Calgary. Black Sea has exploration interests in South America, Russia, and the U.S., and oil-producing properties in Siberia. Privately-owned Sunwing was awarded the first onshore production sharing agreement with China National Petroleum Co. at Daqing in northeast China. Black Sea has agreed in principle to pay Sunwing up to $2 million to fund pre-merger operating costs and transaction expenses.
Two North American
independents are marking
progress in oil fields in northeastern China.
U.S. independent XCL and
exploring and developing
the adjacent Zhao Dong and Zhang Dong blocks, east of Beijing (see map,
p. 22). XCL is operator and 49% interest holder in Zhang Dong block.
Zhao Dong, Apache Corp. is operator, and XCL owns a 24.5% interest.
partners in both blocks are CNPC unit Dagang Oilfield (Group) Ltd. and
China National Oil & Gas Exploration & Development Corp.
XCL ZHANG DONG
CHINA OIL & GAS
China Natural gas OGJ Jan
Natural gas China has embarked on an ambitious gas utilization plan, which calls for increasing gas consumption to 50 billion cu m (bcm)/year in 2005 and 80 bcm/year by 2010 from the current 23 bcm/year.
and spin-off industries will emerge from this scheme.
China is looking at three gas resources: domestic resources in northwestern China, LNG supplies from Asia or the Middle East, and pipeline gas from Russia. The last two resources will serve as supplementary to the domestic resources. The first shipment of LNG is due in 2005, while the Russian pipeline link is a more-remote prospect.
China has started a program to deliver natural gas from the west to the east, and it has approved a feasibility study for plans to use the western natural gas resources. These plans call for China to build a 503-km pipeline to move gas from Sichuan's Zhongxian producing area in southwestern China to Jinzhou in Hubei province. The 2 billion-yuan pipeline, with a capacity of 3 bcm/year, will transport gas to industrial and residential customers in 10 cities along its route. Construction started in 1999 and is slated for completion in third quarter 2000. The pipeline is going to be extended from Zhongxian to Henan in central China to Shanghai after 2002.
Foreign capital and technology are expected to help China boost development of its natural gas infrastructure-for E&P as well as for gas pipeline construction. In early November 1999, China lifted the ban on foreign investment in town-gas pipeline construction. An official with the State Administration of Petroleum and Chemical Industries (SAPCI) said China is going to select some cities that will invite foreign companies to participate in town-gas construction on a build-operate-transfer basis. Foreign investors have urged China to set up a regulatory framework to open up the gas market, spur competition, eliminate a system of gas allocation and market reservation, and create an efficient pricing system.
Domestic natural gas prices offer no incentive for either domestic or foreign investors. The prices are fixed for a large part of the market, ranging from 0.46 yuan/cu m to 1.4 yuan/cu m. Because the bulk of China 's natural gas is used in the production of fertilizers, China seeks to maintain the price of natural gas fed to fertilizer plants low enough that farmers can afford to buy the fertilizer. According to the SAPCI official, the government is working a new gas pricing regime based on a take-or-pay arrangement and allowing gas pipeline operators to set their own prices. In addition to domestic gas, China will import LNG, with the first cargo expected to arrive in 2005.
The first LNG project, to be built in Guangdong, will soon get government approval. After approval, China will start the process of selecting a foreign partner to establish a joint venture for the construction of the LNG terminal and a pipeline from the terminal to the nation's pipeline network. The bid for foreign LNG suppliers will follow. So far, seven countries have shown interest in supplying LNG to China: Australia, Indonesia, Malaysia, Qatar, Oman, Saudi Arabia, and Yemen.
CNOOC will take a 36% stake in the proposed 5 billion-yuan project, leaving a foreign consortium to take 35%, Shenzhen Municipal Government 15%, Guangdong Power Bureau 10%, and Guangzhou Gas Corp. 4%. The project involves: building a 3- million-tonne LNG receiving terminal at Dapeng Bay in Shenzhen and two grassroots power plants fed by regasified LNG, one in Shenzhen and the other in Huizhou; revamping three existing power plants; and building a pipeline to tie the LNG terminal into the nation's grid. Of the initial import of 3 million tonnes/year of LNG, 37% has been earmarked for the two new power plants and 17% for the three existing power plants; at least 8% has been earmarked to date for industrial consumption, and the remainder, after industrial market needs have been met, will go for residential consumption.
The source of the data shown in maps and tables featured in the third
A stable energy supply is essential to ensure China's continued rapid economic development. Since the early 1990s, China has begun to recognize that it is set to import massive amounts of oil and gas in the coming decades in order to sustain its economic development. The country is now leaving no stone unturned in its endeavor to explore for and secure all possible energy sources, both domestically and abroad.
Increased production and distribution of natural gas is key to achieving this goal.
In this context, however, the expansion of natural gas use in China is only a part of the country's comprehensive development plan for an energy supply system. The first step in the practical implementation of gas expansion in China is to overcome many leaders' prejudice that natural gas is a very expensive fuel source, to be used exclusively for the production of fertilizer.
Barriers to gas expansion
For example, China is currently importing a relatively large percentage of its oil supply, and the level of imports is going to reach at least 2 million b/d in 2010. As for coal, a supply shortage of around 100 million metric tons is projected for 2010.
This supply shortage issue is a serious challenge for those deciding China's energy policies.
Environmental issues are also a serious challenge for Chinese energy planners.
China depends on coal as its primary energy source. According to a study by the U.S. Department of Energy, China will need roughly 350 gigawatts (GW) of coal-fired power generation capacity in 2015. (In 1995, China had around 142 GW of generating capacity fueled by hydrocarbons.)
This massive consumption of coal in power generation is, and will remain, the main source of environmental pollution in China.
The dire energy supply shortage and environmental degradation issues are providing a favorable basis for expanding the use of gas in China. China's Xinhua News Agency and London's Royal Institute of International Affairs (RIIA) undertook a joint study of China's natural gas industry. The results of this study were published in a report titled, "China Natural Gas Report," by the authors of this article.
The purpose of this study was to determine the main issues regarding China's gas market expansion. The report forms the basis for this article.
The main questions to be answered are:
How large are China's proven gas reserves? What is China's targeted gas production based on current reserves? How large is China's projected domestic natural gas demand? How will the gap between gas supply and demand be balanced? What is the projected scale of gas imports, as both liquefied natural gas (LNG) and pipeline gas? Which sector will play the biggest role in China's gas market expansion? What is the reality of gas pricing policies and what are the implications? Why has only a limited gas distribution network been developed in China? How will the burden of financing China's gas sector expansion be handled? What are the prospects for foreign participation in China's gas business?
Before summarizing the main findings of the study, it is worth noting the principal perceptions of natural gas development in China, as presented by gas specialists from China National Petroleum Corp. (CNPC) at the 15th World Petroleum Congress in Beijing, Oct. 12-16, 1997.
Preliminary engineering studies for natural gas utilization projects including overall planning, preliminary feasibility studies, and full feasibility studies-will be strengthened.
This CNPC perception envisions the development of a comprehensive trunk pipeline and distribution network.
The real question is: How and on what schedule will China's gas expansion be realized? The following main findings of the Xinhua-RIIA study will provide some clues.
In 1997, China's natural gas production was only 21 billion cu m. It remains to be seen whether the country's ambitious gas production targets of 72 billion cu m in 2010 and 95 billion cu m in 2020 will be realized.
China's main gas-producing areas will be the Sichuan and Ordos basins, the Xinjiang region, and offshore areas (see map, p. 27). It is not an exaggeration to say that the scale of gas imports will be fundamentally affected by the level of gas production from these four major producing areas, and by the level of consumption in the power and residential sectors.
The sources of gas production in China, however, are quite limited, and the lack of investment in developing gas transportation and distribution network creates some difficulty in achieving an accelerated gas development. As a result, relatively few consumers are currently using the limited gas supplies.
The main consumers of natural gas in China are fertilizer and chemical plants. Some residential areas are receiving gas, and a small portion is being allocated to power generation.
The difficulty in finding new consumers for increased gas use can be easily seen in both the Ya 13-1 and Changqing pipeline cases (see map, p. 28). Actual demand falls far short of current production. In other words, Chinese consumers cannot yet afford to pay for expensive gas.
Unlike consumers, producers are complaining about low gas prices and high production costs. Unless China tackles this price issue, its gas expansion will not materialize as projected.
The ideal option seems to be a gradual price increase, which could minimize the burden on consumers while providing a healthy incentive for production increases.
It is worth noting that China is targeting a new market for its gas expansion.
Projected gas demand in 2010 is 95 billion cu m, of which 50 billion cu m is expected to come from power generation, 21 billion cu m from the chemical sector, and 24 billion cu m from city fuel use. The demand figure for 2020 is estimated to be as high as 140 billion cu m, of which 75 billion cu m will come from power generation, 30 billion cu m from the chemical sector, and 35 billion cu m from city fuel.
These projections show that the power-generation sector will provide the biggest market for China's gas expansion. Price issues will be critical to the increasing role of gas in power generation.
China aims to develop a national grid capable of transporting 150 billion cu m/year of gas. The country also intends to develop gathering centers and storage capacity of 15-17 billion cu m.
The importance of developing a domestic gas pipeline network in China lies in the fact that the country could be connected easily to the proposed transnational pipelines, which could deliver a relatively large volume of gas from Russia and the Central Asian republics of the former Soviet Union (OGJ, July 6, 1998, p. 27).
Unlike the LNG option, which would allow only the already prosperous eastern coastal provinces to be the beneficiaries of gas imports, development of a nationwide trunk line will be instrumental in expanding the scope of gas use. The projected volume of imported gas in 2010 is 30 billion cu m, of which 20 billion cu m will be by pipeline and 10 billion cu m as LNG. In 2020, gas imports are expected to increase to 60 billion cu m, of which 40 billion cu m will be by pipeline and 20 billion cu m as LNG.
With the establishment of a national trunk line network, a substantial volume of imported gas could be distributed to inland areas, where significant economic development benefits could be seen.
The timing and scale of LNG imports through the Yangtze River Delta will be balanced by the import of gas through the transnational pipelines that are to be developed.
Some may argue that import volumes of 30 billion cu m in 2010 and 60 billion cu m in 2020 are not realistic, but the figures could be even greater if the introduction of long-distance east-west and north-south pipelines is realized in a timely manner.
The investments involved will be astronomical. For example, the construction of a transnational gas pipe- line, either from Russia to China or from Central Asia to China, could cost $8-10 billion.
If the scope of the distribution network and related downstream business developments are considered, the cost will be even greater. This financial burden is beyond China's capacity.
The strength of gas infrastructure development lies in the fuel's environmentally friendly nature, which could enable the development projects to win financial support from multilateral financial institutions, such as the World Bank and the Asian Development Bank. Once these institutions are involved, private-sector support could follow easily.
Foreign investment opportunities also are being opened up in China's coalbed methane sector. China United Coal Bed Methane Corp. was established in 1996 and aims to produce 10 billion cu m/year of gas in 2010, based on its 35 trillion cu m coalbed methane resource. The target is realistic, and already a number of foreign companies have taken up positions in coalbed methane development.
First, gas's growing role in China's energy's mix will make a significant contribution to easing the domination of coal in China's energy mix. If gas's projected shares of 8% in 2010 and 8.5% in 2020 are realized, the effect on China's energy structure will not be small.
This target might be regarded as too ambitious, but possible if relatively large and stable gas supply sources are secured in China and abroad. China's neighboring countries-in particular Japan and South Korea-will respond very positively to this radical energy structure change. Expanded gas use in China also will help improve China's environmental difficulties, particularly with regard to air pollution. A large-scale increase of gas use in China's power generation will have two major benefits: the rate of increase in coal use for power generation could be slowed, and pollution levels would decline considerably.
The benefit will not be confined to China. Its neighbors such as South Korea and Japan, which have been casualties of China's pollution, will be indirect beneficiaries of increased gas use in China.
It is also worth noting that advanced technologies, including gas-to-liquids processes and fuel cells, could be applied in China for effective and efficient use of gas in the coming decades.
If policy changes could be made in a timely manner, these new gas-related technologies could improve China's deteriorating environment.
Widespread application of these technologies in China's gas sector would require at least 5-10 years of lead-time. During the transition period, existing technologies can be applied in coal and emerging gas consumption sectors.
This could substantially reduce the current environmental burden of massive coal use and consequently improve China's environmental condition. Efficient energy consumption is just as important in reducing overall environmental degradation as is efficient energy production.
Finally, the simultaneous introduction of LNG and transnational pipeline gas during the next decade can provide fresh momentum for China's balanced economic development. The widening gap in the level of economic development between the coastal provinces and the interior areas is, and will continue to be, a serious burden on the Chinese government, as it is a source of social instability.
In addition, redundant manpower resulting from government restructuring of state-owned enterprises will become another source of social instability. Without a national infrastructure development to absorb these human resources, the Chinese government would have a difficult time handling the potential instability problems.
Thus, energy issues in China are closely related to economic development and social stability. Gas expansion in China could play a role in positively alleviating current and pending difficulties in these arenas.
In short, increased use of natural gas will not, alone, be an all-encompassing panacea for China's energy supply and consumption problems, but it could at least play a significant role in changing China's inefficient and environmentally unfriendly energy production and consumption patterns.
The most important finding of the study is that China is determined to expand its gas industry and is ready to attract foreign investment in most aspects of its gas business. Understanding the changing role of gas in China's dynamic energy balance is clearly the starting point for initiating foreign participation in China's energy sector and in taking a positive role in the country's overall economic development. The Authors
Keun-Wook Paik is senior research fellow in the energy and environmental program at the Royal Institute of International Affairs (RIIA), London, and an honorary fellow at the University of Aberdeen, where he earned his PhD. He is author of a 1995 RIIA publication titled, "Gas and Oil in Northeast Asia: Policies, Projects, and Prospects." He has published articles in Energy Policy, Geopolitics of Energy, Journal of Energy and Development, The Pacific Review, and Oil & Gas Journal. Currently, he is working on a paper titled, "Gas and Power in Northeast Asia: Expansion of Gas and the Implications towards Power," which RIIA will publish this fall. His next project is on the international implications of China's energy agenda.
Quan Lan is associate editor of China OGP, a publication of Xinhua News Agency, Beijing. She is a graduate of Beijing University of Aeronautics and Astronautics and the China School of Journalism.
The pipeline runs 953 kilometers from the Sebei Natural Gas Field in the Qaidam Basin, Qinghai Province, and is expected to cost 2.5 billion yuan. The pipeline has a designed capacity to send two billion cubic meters of natural gas a year and is expected to be operational by October 2001.
HOUSTON, April 4 /PRNewswire/ -- Santa Fe Snyder Corporation (NYSE: SFS) has drilled a successful oil well at the South Bootes structure on block 15/34 in the Pearl River Mouth Basin, offshore China. The well extends the Bootes field and upgrades reserve estimates into the 50-70 million barrel range. "The addition of this latest drilling success to our earlier discoveries in China reinforces the attractiveness of this high potential area," said James L. Payne, Chief Executive Officer. "We anticipate first production from the joint development of these discoveries in the South China Sea around year end 2002."
The Panyu 5-1-2 well logged 200 feet of net pay interval and confirms that the Bootes accumulation extends into the South Bootes structure, which is located about 11 miles from the Ursa discovery. The Ursa/Bootes complex lies in about 300 feet of water and is south of Hong Kong. The Bootes field is now estimated to contain 50-70 million barrels of oil, bringing the total Ursa/Bootes complex into the 90-120 million gross estimate range. The 1998 Ursa discovery well was flow-tested in excess of 11,000 barrels of oil per day.
Next major steps in China include the immediate drilling of the Andromeda prospect on the 100 percent owned block 15/35 approximately 10 miles to the north of Ursa/Bootes, which should be completed by June. The Company also plans to submit for approval to the Chinese authorities development plans for Ursa and Bootes. Contingent upon that approval, the Company will begin facility construction and drill additional development wells. Oil quality in the complex averages 28 degrees API gravity, permeability is exceptionally good, and flow rates are prolific. Gross production levels are estimated to be in the 40-60,000 barrel per day range and the contractual terms on the concession are attractive.
The Company has a dominant acreage position in the Pearl River Mouth Basin, offshore China, totaling 3.8 million net acres. It has positions in contiguous blocks 15/26, 15/34, and 15/35 and also owns interests in blocks 26/35 and the adjoining blocks 16/02 and 16/05. Santa Fe Snyder owns a 50 percent equal interest in block 15/34 with Baker Hughes E & P Solutions and is the operator. The Chinese National Offshore Oil Company has the right to participate in the field developments up to a 51 percent level.
Santa Fe Snyder Corporation is a large, independent oil and gas company with operations in the United States, Southeast Asia, South America and West Africa. Its common stock trades on the New York Stock Exchange under the symbol SFS.
Santa Fe Snyder
Web Site: http://www.santafe-snyder.com
Chinese National Petroleum (CNPC) said that it had not been able to strike a deal with the Iranian oil ministry on construction of a pipeline for Caspian oil swaps. The two sides had begun a new round of negotiations in February, seeking to hammer out the terms for cooperation on the Neka-Tehran pipeline project. However, CNPC said that no agreement had been reached. Negotiations will continue, but spokesmen for the Chinese company said that the Iranian side would have to make progress on finding financing for the project for the next round of talks to be fruitful. The Iranian Oil Ministry was supposed to arrange financing for the Neka-Tehran line, while CNPC was to provide labor and engineering services.
Tehran selected MAPNA, an Iranian company, as the winner of a tender for construction of the pipeline in late 1998. CNPC and Sinopec submitted an offer in the same tender, and many industry experts were surprised when this bid was not selected. Eventually, in January of 1999, MAPNA was asked to work with the Chinese companies to co-ordinate a joint bid. It was reported that Iranian officials also met with Sinopec representatives. However, no information was available on those discussions. MAPNA and the Chinese consortium competed in the tender against a dozen firms from Germany, Great Britain, Italy, Russia, Saudi Arabia and South Korea. The Iranian government has not revealed the size of any of the bids. The winner of the tender was to build a 390 km pipeline from the port of Neka on the Caspian Sea to Tehran. The pipeline will allow oil shipped from other ports on the Caspian to flow to the refineries of Tehran and Tabriz. The contractor must also construct three associated pumping stations for the pipeline plus storage and blending facilities in Tehran and Tabriz. Iranian officials put the value of the build-operate-transfer (BOT) deal at $ 400-500 mm.
Iran is already exporting some oil on a swap basis. (Exact figures are not available, but volumes appear to be quite small.) It takes delivery of Central Asian crude on the Caspian coast, refines the oil in Tehran and Tabriz for local use and makes an equivalent amount of crude available on the producer's behalf at the Kharg Island terminal on the Persian Gulf. With present infrastructure, the amount of oil Iran can handle in this fashion is limited to a few mm metric tpy. Tehran hopes that the new pipeline, which will be able to handle 18.5 mm tpy of oil or 370,000 bpd, will increase the volume.
China's long-term level of oil imports will outstrip by three times the country's own forecast, the International Energy Agency said. The figures suggest that China will become a far more influential player in the global oil market and in the oil-rich Middle East, the agency said. "China's economic growth has outstripped its own energy resources," said William Ramsey, deputy director of the IEA, part of the Paris-based Organization for Economic Cooperation and Development. "China is an energy superpower second only to the United States. Meeting its energy needs is one of the most difficult challenges China will face." Separately, IEA Director Robert Priddle urged OPEC countries to release "substantial" extra oil supplies to help reduce soaring prices at the pump. Priddle said that extra oil supplies are needed because "world stocks are at an unusually low level. We need substantial additional supplies." The oil cartel cut production by 4.3 mm bpd more than a year ago after prices had plummeted to below $ 11 a barrel. Since then, prices have lept as high as $ 34 a barrel, sending prices at the pump soaring. The IEA estimates that there is a shortfall of about 2.5 mm bpd and warns that if prices don't fall soon, buyers will be encouraged to switch to other energy sources. Priddle did not recommend a supply figure that would reduce prices. However, he said an extra 500,000 to 1 mm bpd are needed to balance supply and demand in the April-June period, with supplementary levels required to make up the shortfall in reserves.
The IEA released a report on China's energy situation and forecast that Chinese imports will rise to 8 mm bpd in 2020 - roughly three times China's own estimates. China currently imports 1 mm bpd. The disparity between IEA and Chinese estimates is accounted for by differences in how new technology, energy efficiency and offshore development will impact China's demand for oil imports. "8 mm bpd is a high number," Ramsey said. "The market would be concerned with that amount in a tight oil market but can accommodate it in terms of availability. It is a matter of setting up new commercial relationships without conflict." Global production is predicted to rise from 75 mm bpd to 111 mm bpd in 2020. China has tried to exploit its domestic resources, but the IEA says that the country's economic growth will overwhelm those efforts. China is already the world's second largest energy consumer after the United States. The IEA said China will be the second largest importer of oil well before 2020. Soaring demand for international oil will likely see it play a much greater role in the oil-rich Middle East. "There is an inevitability of increasing dependency on the Middle East for China," Ramsey said. China imported 47.5 % of its oil from the Midwest in 1997, up from 39.4 % in 1990, according to IEA figures. It has already invested in two oil fields in Iraq and has announced plans for joint ventures in Iran and Saudi Arabia.
"To meet growing energy demands, China will look to diversify its energy sources, both at home and abroad," said Wu Jianmin, China's ambassador to France, "with natural gas and nuclear energy playing a greater role. Our new strategy is to develop resources in the western part of China," Wu said. "One of the top priorities is a 2,300-mile gas pipeline from Shanshan of China to Shanghai."
It is imperative for China to build up strategic reserves of crude oil to avoid massive economic losses resulting from fluctuations on the international market. The proposal was presented by Wu Ruilin, president of Sinopec's Jinling Petrochemical. National strategic reserves of crude oil could help Chinese enterprises enjoy more flexibility and avoid risks on the market, he said, adding that the quota system on crude oil purchase should also be adjusted. Statistics show that China has had to import crude oil to meet domestic demand since 1993. It is estimated that the crude shortfall will reach 100 mm tons by 2010. If the current situation continues, China will have to pay additional $ 800 mm by then.
Today, the fanfare is subdued -- China doesn't get as worldwide attention as it once did -- but the action continues. Companies are quietly drilling away in various regions -- with considerable success.
Take, for example, a notable exploration play in the Bohai Bay of the North China Sea, about 150 miles east of Beijing, where two U.S. independent companies have made several discoveries in a virtually unexplored offshore region that may prove to be a major boost to their bottom lines.
After five years of exploration work and several successes, Phillips Petroleum announced last July its first big discovery on the 2.3 million-acre Block 11/05 in China's Bohai Bay. The PL 19-3-1 discovery well was drilled to a total depth of 5,531 feet and encountered a gross pay interval of more than 1,400 feet, with 712 feet of net pay in the Minghuazhen and Guantao formations.
Since the discovery, Phillips has drilled several appraisal wells in the new field and estimates recoverable reserves at about 400 million barrels of oil.
Kerr-McGee also has been
busy in Bohai
Kerr-McGee officials said the discovery is analogous to Chinese fields to the northeast and Phillips' PL 19-3 field to the southeast. If test results are encouraging the company will drill an appraisal well in early 2000 about two kilometers to the north.
Kerr-McGee acquired block 04/36 in 1995 and operates with an 81.8 percent interest. In 1996 the firm contracted for Bohai Bay block 05/36 and operates with a 50 percent interest. Both blocks comprise about 838,000 gross acres.
Photo courtesy of Phillips
Three appraisal wells have
So what's attracted
Phillips and Kerr-McGee to
of the world?
"Kerr-McGee is always looking at selective basins around the world for potential to develop into core areas for the company," added company spokesperson Debbie Schramm. "This is a region we wanted to test to see if it could work into a core area. "It's a little early to tell if that will be the case," she continued, "but we are encouraged by the results so far.
Patton called Bohai Bay "a
very oil- prone
Phillips acquired the block in 1995, and acquired 12,700 kilometers of new 2-D seismic data over the entire block, on which the company planned its drilling program. The first well (1996) was a sub-commercial gas discovery -- but while unsuccessful, it did provide much needed geologic information and well data that has been valuable to exploration efforts.
Patton said, "That well
gave us much needed
information that led to reprocessing of the 2-D seismic data and
a better correlation to the entire region. "Bohai Bay is a lacustrine
with complex stratigraphy and high variable reservoir quality," he
"Our initial plans were focused on the deeper syn-rift reservoirs,
to the large onshore fields -- but much of this section was of poor
within our block, due to the increased depth of burial around the
sag. "This understanding focuses our efforts on better reservoir
he said, "which directed us to shallower depths and post-rift fluvial
The Peng Lai 14-3-1 well, drilled in the east central sector of the block to a total depth of 12,766 feet in 79 feet of water, intersected a gross oil column of 686 feet from 7,434 feet to 8,120 feet in Miocene-age sands. Two drillstem tests flowed oil at a combined peak rate of 1,602 barrels of oil a day.
Thirty-five miles south-southwest, the Bozhong 36-2-1 discovery was drilled to 8,491 feet in 69 feet of water. Tests of a 653-foot interval within a gross hydrocarbon column of 1,909 feet flowed at a maximum rate of 2,262 barrels of oil a day.
"The geology of these two discoveries was structurally and stratigraphically complicated, and following the disappointing results of an appraisal well, we realized that to understand these areas we would need to acquire 3-D seismic."
In 1998, Phillips acquired 1,200 square kilometers of 3-D seismic in three different surveys, covering the two discoveries and an exploration prospect, the PL 19, which excited the firm.
Seismic acquisition over the block is complicated by a shallow gas anomaly, which can mask the image -- but in this particular exploration play, Phillips was happy to see the gas anomaly on the seismic data covering the PL 19 prospect. "The gas was encouraging," Patton said, "because it tells us that there is an active hydrocarbon system charging the prospect."
Finding What They
The appraisal, 1.6 miles south-southwest of the discovery well, reached total depth of 5,325 feet and encountered a gross pay interval of about 1,700 feet with 748 feet of net pay in the Minghuazhen and Guantao formations.
Phillips ran three drillstem tests on the appraisal well to evaluate various sand packages for deliverability and hydrocarbon properties. The first two tests each flowed 700-800 barrels of oil a day of 22 degree API oil, with a similar gas-oil ratio of 250-300 cubic feet per barrel from separate intervals 650 feet apart in the well.
The third test, 390 feet above the second interval, flowed about 105 barrels of oil daily with a gas-oil ratio of 138 cubic feet per barrel. The company said analysis of the test results indicated that the well's zones could produce at a rate of 3,000 to 5,000 barrels of oil a day with artificial lift under production conditions.
These two wells were drilled in a fault block with an area of closure of about 1,400 acres. By December, the firm had drilled five wells in the PL 19-3 field and planned two more appraisal wells.
Based on the third appraisal the company estimated the field's recoverable reserves at around 400 million barrels of oil.
The PL 19-3-4 appraisal well was drilled to 6,084 feet and encountered a gross pay interval of over 886 feet, with 290 feet of net pay in the two main producing zones.
Drilled in an untested fault block 1.5 miles north of the discovery well and 1,000 feet lower on structure, the PL 19-3-4 confirmed the same pay interval with an oil-water contact 92 feet deeper than the initial well.
The third appraisal well, the PL 19-3-5, was drilled to a total depth of 6,094 feet and encountered a gross pay interval of 850 feet, with approximately 260 feet of net pay in the Minghuazhen and Guantao formations. The well was drilled in a previously untested fault block on the western flank of the PL 19-3 field, nearly two miles from the PL 19-3-1 discovery well.
"The PL 19-3-5 well results were consistent with our pre-drill interpretation and establish the presence of oil on the field's western flank fault block," said Mike Coffelt, vice president of worldwide exploration. "This will add to the 400 million-barrel reserve estimate we released earlier. "We continue to be encouraged by the results of our appraisal program."
Jump Starting a Play
The company is considering acquiring additional 3-D seismic over the PL 19-3 development area to better image through the shallow gas cloud. Part of the structure is masked by the gas. In addition, Phillips is even considering a 4-D seismic survey over this field.
The company isn't sitting on its laurels. Following the completion of the appraisal program, Phillips will move its two rigs and drill four new exploration wells on other unexplored features in the block. "We have a large number of prospects -- that's one of the major reasons we continue to be attracted to the region," Patton said. "Finding a commercial foothold that will allow us to drill other prospects is what we've been striving for. "This first commercial field is the key to jump starting the entire region."