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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  NEWSLETTER Volume 101:001-02-Feb-02-2000
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
china environment and natural gas vehicles
Offshore Oil and Gas Industry China's Petroleum Industry China Gas
Largest Bus fleet in the world
DAQING HOME PAGE


CHINA'S OIL AND GAS FIELDS
Chinese Considering 3 LNG Terminals

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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CHINA NEWSLETTER 
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 <>><<____________Volume 101:001-02-Feb-02-2000________________><<><> 
 >><<<<_____Editors: Charlie Bartholomew, Mehmet Tutuncu_____<>><<><<> 
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Chinese Defense Minister Meets with Mongolian Leaders 
CNPC 1996 results
China to set up products pipeline grid August 03, 1998
China's Daqing oil complex will meet its oil production quota
Independents advance Chinese developments 
Sunwing Energy Ltd., Calgary, plans to develop its third oil field project in China. 
Oil price increase spurs CNPC to hike crude production level

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Chinese Defense Minister Meets with Mongolian Leaders 
 Jan 25, 2000 -- (Agence France Presse) Chinese Defense Minister Chi Haotian has held talks with Mongolia's president and premier in Ulan Bator, discussing defense and trade issues, the official Xinhua news agency reported.

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.

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CNPC 1996 results

 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.

XINJIANG
Production from Xinjiang autonomous region's three producing basins-Tarim, Junggar, and Turpan-Hami-reached 14.15 million tons in 1996, up 2.56 million tons, or 12%, from the previous year.

 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
CNPC has regarded the Tarim basin as its trump card for giant oil and gas discoveries. The state company has committed significant capital and effort to exploration there during the past 8 years, but hostile terrain, deep drilling targets, highly fractured reservoirs and complicated geology, and a lack of funds have confined E&D activities to only a few prospective structures.

 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.

JUNGGAR
The Junggar basin, with an area of 130,000 sq km and sedimentary thickness of 12-15 km, is the first basin to produce oil in Xinjiang.

 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.

TURPAN-HAMI
The Turpan-Hami basin, which straddles the eastern Tianshan Mountains, features a number of medium to small-sized oil fields.

 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. 

EXPLORATION
Pursuing giant oil and gas discoveries since 1993, CNPC has  singled out as exploration targets 10 prospective basins.

 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 field was discovered on the loess plateau.
In the Songliao basin, Daqing's petroleum administration found two 100 million ton OOIP oil fields. 
In the shallow water area of the Bohai Gulf, indications are for an additional OOIP of 100 million tons. 
In Kaijiang, eastern Sichuan, CNPC found a natural gas field with a resource pegged at 50 billion cu m.
In addition, a number of 50-million ton OOIP or smaller oil fields were discovered in medium to small basins, including the Erlian basin in northern China and Santanghu basin to the east of Junggar.

PETROLEUM CONTRACTS
CNPC signed 12 petroleum contracts with foreign companies in 1996, bringing the total number of contracts in force to 30 by yearend.
Four of the 12 contracts are for risk exploration for blocks in the Tarim basin; the rest are for development of proven but untapped reserves or EOR/improved recovery projects in producing oil fields.
Currently, eight more contracts are under negotiation,  including four for EOR in Shengli, central Sichuan, and  Zhongyuan; one for non-producing reserves development in  Dagang; and three for cooperative development of natural  gas in Yaha gas field, East Sichuan gas field, and Sebei gas  field in Qinghai.

 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
At the end of 1996, CNPC underwent its biggest organizational reshuffle in years, introducing to the world a fresh group of decision-makers and new internal structures.
Wang Tao retired after 111/2 years-first as Minister of Petroleum Industry, then as President of CNPC. His successor, Zhou Yongkang, served as Wang's right-hand man and former vice-president. Wang is now CNPC's senior adviser.
Vice-presidents Qiu Zhongjian and Zhang Yongyi also retired from their posts, although Qiu will continue to head Tarim exploration efforts. Ma Fucai, Huang Yan, and Wu Yaowen are newly nominated vice-presidents to replace the retirees.
The three new nominees were all former assistants to the president. Ma Fucai used to be Deputy Director of Shengli Oil Administration. Huang Yan continues to hold his position of party secretary of Daqing Oil Administration. Before being nominated to the vice presidentship, Wu Yaowen was also the Director of CNPC International Cooperation Bureau, better known as CNODC.

 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
Foreign oil companies will have one more partner to work with when investing in China's petroleum industry.
Approved by the State Council on Dec. 7, 1996, and starting operations in January 1997, China National Star Petroleum Corp. is China's third independent state oil company apart from CNPC and China National Offshore Oil Corp. (CNOOC).
It was formed under the auspices of the Bureau of Petroleum and Marine Geology under the Ministry of Geology and Mineral Resources (MGMR), a 30,000-employee organization long engaged in Chinese petroleum exploration, both onshore and offshore.  The State Planning Commission (SPC) is currently preparing the legal framework for Star, with which it can delineate concession blocks for foreign participation.
 Meanwhile, SPC is amending two existing regulations to bring Star on a level with CNPC and CNOOC.
Under the "Regulations of the People's Republic of China on Sino-foreign Joint Exploitation and Development of Chinese Onshore Oil Resources (1993)," only CNPC has been allowed to engage in onshore petroleum activities. The same situation applies for CNOOC for offshore JVs under  "Regulations of the People's Republic of China on the Exploitation of Offshore Petroleum Resources in Cooperation with Foreign Enterprises (1982)." The revised versions of the two regulations are expected to be disclosed soon. 
Foreign investors can expect an immediate benefit from this, as Star is preparing to offer acreage in the East China Sea. 
Star has applied to the State Council to launch an international bid round for the 46,000 sq km Xihu depression in the East China Sea, site of MGMR's three registered blocks, considered the most prospective in East China Sea. 
Being short of cash and eager to establish itself in the oil arena, Star is banking heavily on the success of this bidding round and has spent the months since its inception selecting blocks and preparing data packages.      MGMR's oil and gas team was one of the first units dedicated to oil and gas exploration in China. It has operated in 76 sedimentary basins and found commercial oil/gas in 35 of them. It has contributed to the breakthrough discoveries, including Daqing, Shengli, Liaohe, Tarim, and offshore fields in the Pearl River Mouth basin.  However, the unit found itself with limited power-financial and organizational-to launches large-scale E&P efforts without the status of a national oil company.

 CONFLICTS AHEAD?
 Predictably, Star's interests will conflict with the two established state firms, CNPC and CNOOC.
To iron out potential clashes-especially between CNPC and Star-the State Council is reinforcing an oil/gas block registration system. Applications for block registration will be evaluated by the National Mineral Resources Committee  (NMRC), and the permits will then be issued by MGMR. Once registered, a block is inaccessible to other oil petroleum units for at least 5 years. The task, formerly performed by the Oil/Gas Registration Office of the SPC, will be handed to NMRC this year.
As a state oil company, Star is directly supervised by the State Council. MGMR recommends the board of directors, while the State Council appoints the chairman and the president.
 "The organizational structure and management style will be modeled after CNOOC," said a Star official.
 Headquartered in Beijing, Star supervises eight regional bureaus-six onshore and two offshore-and 10 exploration and production units. The bureaus, which will be restructured into oil and gas companies, are now operating in Jilin, Ordos, Jiangsu, Tibet, northern Tarim, Sichuan, East China Sea, and the Spratly Islands regions.
 At yearend 1996, MGMR had proven and probable reserves totaling 90 million tons of oil equivalent. This year, beyond its scheduled international bid round, Star plans to add another 50 million tons to this total. By 2000, Star has targeted a total figure of 353-447 million tons of oil equivalent proven and probable reserves and production capacity of 4-4.5 million tons of oil equivalent.
 Star also has made overseas E&D a priority from the outset.  Again, lack of money poses a problem here as well.

 OIL, GAS PRICE HIKES
 China also has take steps this year to bring its domestic oil prices in line with world markets.
Effective Jan. 1, 1997, China's crude oil price rose an average 84 yuan/ton, pushing the current average from 880 yuan/ton to 964 yuan/ton.
 Under a circular issued by SPC, the price for first-tier crude, which accounts for 80% of CNPC's crude sales, increased by 120 yuan/ton. The price for second-tier crude remains unchanged at 1,200 yuan/ton.
 Sources say China expects to add another 200 yuan/ton to the price of first-tier crude in 1998 to further narrow the gap between the two crude price tiers.
 The consecutive price adjustments, including an increase of  an average 65 yuan/ton in 1996, are seen as CNPC's  struggle to balance its books, with plans to bring domestic  crude prices up to par with world crude prices in 3 years.
 In recent years, the state has left CNPC on its own, making the state firm responsible for its profits and losses.  According to CNPC Sales Co., the price hike will bring CNPC 7.2 billion yuan more in revenue.

      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.

 DOWNSTREAM MERGER
Restructuring is happening on the downstream side of China's petroleum sector as well.
The State Council at the end of August disclosed plans to merge four major petrochemical producers in eastern China's Jiangsu province. 
A 100% state-owned petrochemical conglomerate, embracing Yangzi Petrochemical Corp. and Jinling Petrochemical Corp., under both Sinopec; Nanjing Chemical Industry Group Co., under the Ministry of Chemical Industry (MCI); and Yizheng Chemical Fiber Co. Ltd. (YCFC), under China National Textile Council, was to be licensed as a new organization at the end of September.
The four plants, located within 45 km of Nanjing, capital of Jiangsu province, are expected to break ties with their original parents. The new company, yet unnamed, will come under the direct jurisdiction of the State Council and be supervised by the State Economic and Trade Commission.
Li Yizhong, currently Sinopec's executive vice-president-a position equivalent to a vice-minister-was named chief coordinator and is expected to be appointed by the State Council as president of the new company.
What it means
The new group company, with combined assets of 50 billion yuan, is expected to take care of corporate strategic planning, supply of feedstock, and human resources, while the four plants will look after their own production and marketing.
The strategic alliance to combine the four was triggered by  a project expansion proposed by YCFC, which entails  increasing purified terephthalic acid (PTA) capacity to  650,000 tons/year from the present 250,000 tons/year. The proposal was turned down by the State Council because it thinks the expansion is redundant, since Sinopec Yangzi recently completed its PTA expansion to 600,000 tons/year from 450,000 tons/year, sufficient to feed YCFC's polyester production. The two companies have recently been at odds over the price structure for PTA, which was liberalized in 1993. YCFC is one of the largest polyester producers in the world.
The merger, which came with little warning, is ostensibly meant to avoid such redundant capacity expansion; but perhaps of greater significance is the opportunity to enhance operating economies through new efficiencies in the inter-supply of petrochemical feedstock. 
Historically, Yangzi has been a major PTA and ethylene glycol supplier to YCFC. It has also supplied feedstock to Jinling's 40,000-ton/year phthalic anhydride units and surfactant facility. After the restructuring, Jinling will be positioned to supply naphtha to Yangzi's ethylene crackers, which now rely on imports for feedstock supply. Jinling is currently feeding Yangzi's aromatics unit with its straight-run cuts.      The merger will also help stabilize the domestic chemical fiber market and help Yizheng get a stable supply of raw materials. China's chemical fiber industry is easily affected by the international market, because 30% of its raw materials are imported.
One urgent issue of concern is whether Yangzi and Jinling will continue to receive crude oil supplies from Sinopec, which acquires them from CNPC under an annual SPC allocation, while the two will no longer report to Sinopec, as in the past. This, along with the supply of imported crude oil and refined products marketing, remains an open issue.
As Yangzi has marked progress with its 600,000 ton/year JV ethylene project with German chemicals giant BASF AG, the State Council has reaffirmed that the merger will not affect the status of the project in the least.
Yangzi plans to proceed with a public offering on the domestic stock market as scheduled in late October, which will pave the way for a float on the international market in the near future.
Most notable is that Yangzi and Jinling have been positioned as the future star performers among Sinopec's coastal refining/petrochemical complexes. Yangzi is now dedicated to optimum refinery-petrochemical integration, and Jinling is to emerge as one of the key processors of Middle East sour crude.
Accordingly, how well they perform might serve as a precursor or even template for further consolidation and restructuring in China's downstream petroleum industry. 

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China to set up products pipeline grid August 03, 1998
Chinese state-owned integrated petroleum major China National Petroleum Corp. has disclosed plans to lay two long-distance refined products pipe- lines in northeastern China and southwestern China in a bid to establish the country's products pipeline grid.
The pipeline in northeastern China would extend from Daqing and end at either port city of Dalian or Qinhuangdao, with a total length of around 1,000 km and diameter of 426 mm. This pipeline, scheduled for completion in 2010, is intended to eliminate a transportation bottleneck that long has plagued northern China, where refining capacity far exceeds local demand. Capacity wasn't disclosed for this pipeline.
However, estimates are that, by 2010, refined products capacity in northern China will grow to 560,000 b/d, while demand will remain at about 400,000 b/d. The oversupply will emanate mainly from refineries at Fushun Petrochemical Works in Liaoning (60,000 b/d) and Daqing Petrochemical Corp. in Heilongjiang (100,000 b/d).
From the Liaoning refinery, an existing 254-km products pipeline from Fushun to the port city of Bayuquan, transports refined products from three refineries under Fushun Petrochemical Works, whereas, in Heilongjiang, the refineries have to depend on the obsolete rail system for products distribution.
The proposed pipeline in southwestern China would extend from Lanzhou or Wuwei in Gansu Province to Chengdu in Sichuan Province. The distance between Lanzhou and Chengdu is 900 km, and 1,150 km between Wuwei and Chengdu. With capacity planned at 200,000 b/d, this pipeline can help to ease supply shortages in southwestern China, where there are no refineries.
Government forecasts estimate that, by 2010, refined products demand in Guangxi, Yunnan, Guizhou, Sichuan, and Chongqing provinces will top 400,000 b/d.
CNPC's Oil & Gas Pipeline Bureau (PLB) has finished feasibility studies for the two pipelines and submitted the studies to CNPC for scrutiny.
When approved, the pipelines will be designed, constructed, and operated by PLB. 

LACK OF PIPELINES
China lacks an integrated refined products pipeline grid.
The country transports 70% of the refined products it consumes by rail, 21% by road, 8% by waterborne barge or tanker, and only 1% by pipeline.
Most of China's existing refined product pipelines are of small diameter, covering short distances and having limited capacities.
The combined length of the country's products trunk line system is 1,718 km.
The longest pipeline, which extends 1,080 km from Golmud to Lhasa, has a capacity of 29,000 b/d.

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China's Daqing oil complex will meet its oil production quota
China's Daqing oil complex will meet its oil production quota of 1.1 million b/d, despite the summer floods that inundated over 1,500 wells in the country's northeast region, said Daqing city Mayor Yang Xin (OGJ, Sept. 7, 1998, p. 32). The floods along the Nenjiang and Songhua rivers submerged numerous oil fields in Daqing, Jilin, and Liaohe provinces. Only 2% of daily production was affected, even in the most severely hit areas. November 09, 1998

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.

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Independents advance Chinese developments 
November 30, 1998 Magazine Volume: 96 Issue: 48
Sunwing's Zhaozhou Project [144,465 bytes] 
Where XCL is Developing Bohai Bay Oil [263,563      bytes] 

Two North American independents are marking development progress in oil fields in northeastern China.
Sunwing Energy Ltd., Calgary, has completed its first quarter of oil production from Zhaozhou field under a pilot program and is proceeding with a 65-well development program in the area. Sunwing also detailed preliminary plans for a second field development program in China.
XCL Ltd., Lafayette, La., and its partners have completed an appraisal well on the Zhao Dong block and expect production to begin in first quarter 1999. Production from the adjacent Zhang Dong block, for which XCL is operator, will also begin next year.

SUNWING ZHAOZHOU
Canadian independent Sunwing Energy has drilled five pilot wells in Zhaozhou field, on Zhou Block 13 in the Songliao basin (see map, this page). The block lies in the Daqing region, China's largest oil-producing area.
Prior to Sunwing's entry into the area, China National Petroleum Corp. (CNPC) had drilled 14 delineation wells there. The wells all had oil shows and tested oil on pump, said Sunwing Pres. Gerry Moench.
"Block 13, which covers approximately 30 sq km, had been extensively explored by CNPC but had no producing wells until Sunwing completed five enhanced-recovery pilot wells that it began last year under its pioneering production-sharing contract (PSC)," said Sunwing.
During the first quarter of production from Sunwing's pilot wells, output totaled 23,000 bbl of oil, or an average of 255 b/d.
Although the project is small at this time, Sunwing is in the process of finalizing a development program for Zhaozhou.
Because of the climate in far northeastern China, the drilling season there lasts only 7 months-September through March. So Sunwing's Zhao- zhou development program will be complete in two seasons, with drilling slated to start in September 1999.
Zhaozhou production is expected to peak at 2,600 b/d in 2000, said Moench.
Under its Zhaozhou PSC, Sunwing receives 85% of all oil revenues until it has recouped its development costs. Thereafter, it will receive 49% of oil revenues.

SUNWING DAGANG
Meanwhile, Sunwing is advancing plans for a similar pilot development program in China's Dagang area, farther south. Wholly owned Sunwing subsidiary Pan-China Resources Ltd. has a development contract covering a portion of Dagang.
According to Sunwing, the contract area "could contain original oil in place volume ranging from 400 million bbl to as much as 1 billion bbl of light oil (32 gravity)."
The Dagang project will begin with a pilot phase involving the drilling of five wells and the recompletion of another five. This could lead to a potential development involving as many as 100 wells, said Moench.
Drilling for this program will begin in March 1999.
These two projects typify Sunwing's strategy. "We are looking in new areas for both oil and gas," said Moench. "We want to focus more on development and not on rehabilitation or exploration."
Sunwing recently agreed to merge with Black Sea Energy, another small Calgary-based independent (OGJ, Nov. 9, 1998, p. 47). Black Sea has interests in China, Russia, Southern California, and Peru.    XCL Zhao Dong

U.S. independent XCL and partners are 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. For Zhao Dong, Apache Corp. is operator, and XCL owns a 24.5% interest. Other partners in both blocks are CNPC unit Dagang Oilfield (Group) Ltd. and China National Oil & Gas Exploration & Development Corp.
The firms tested appraisal well C-4-2 on Zhao Dong block. The well flowed 2,500 b/d of oil from one of six productive zones. It was drilled to 9,184 ft TVD and successfully appraised the C-4 discovery (OGJ, Sept. 29, 1997, p. 48). C-4 flowed 15,359 b/d of oil and 10.7 MMcfd of gas in October 1997.
Eight wells drilled on the block to date have combined test rates, or indicated test rates, of about 55,000 b/d of oil, said XCL. According to XCL Chairman and CEO Marsden W. Miller Jr., "The eight wells successfully tested 19 separate sands with approximately 575 ft of maximum net pay in six separate geological zones-the Pliocene, Mio- cene, Oligocene, Cretaceous, Jurassic, and Permian."
Well C-4-2 tested a deeper zone not encountered by the discovery well. It was drill stem tested and found to be productive in Permian sediments. The zone flowed as much as 2,500 b/d of 40 gravity oil from the Shihezhi at 8,960 ft.
On a test of C-4, three zones in the Oligocene Shahejie flowed at a combined rate of 2,668 b/d of oil and 5 MMcfd of gas. These zones were also encountered by C-4-2 and are productive by log and core analysis, says XCL.
The firm also said that several additional sands of Miocene and Pliocene ages, which were fault-separated and wet in C-4, are productive in C-4-2, according to formation test and log and core analysis. On test, the Miocene sands flowed at rates as high as 4,300 b/d of oil in other wells on the block, while Pliocene sands tested as much as 1,400 b/d.
"Test data from those same zones on the C and D (sub)blocks confirm their productive capability in the C-4-2 well," said XCL. "The zones were not further tested, in order to maintain the integrity of the casing and ensure that the well could be completed for production."
XCL plans to start production from Zhao Dong well C-4-2 by Mar. 15. The partners will begin completion of C-4 by Apr. 1, so both wells should be producing in the second quarter.

XCL ZHANG DONG
On the adjacent Zhang Dong block, XCL and Dagang Oilfield plan to reenter and sidetrack six existing wells in December. Seven wells have been drilled on the blocks to date.
Production facilities have already been constructed on Zhang Dong, so production can begin as soon as the wells are completed.
In 1999, the Zhang Dong partners will drill two or three wells from an existing causeway, two from an artificial island, and one with a jack up rig. Drilling on the artificial island is expected to continue at a rate of at least six wells/year during 2000-02, says XCL. Each well will be put into production as it is completed.
"On the Zhang Dong block," said Marsden, "ellipseDagang has performed extensive 2D and 3D seismic that reveal the existence of a large geologic structure extending in depth from the shallowest through the deepest of the formations now proven productive on the Zhao Dong block.
"Dagang, by drilling seven wells, primarily on the flanks of the structure, has tested the Oligocene zone. Seismic data indicate that all other geologic zones proven productive on the Zhao Dong block are prospective on the Zhang Dong block."    XCL is also considering prospects for early production from C-D field on Zhao Dong block, using temporary facilities.

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Sunwing Energy Ltd., Calgary, plans to develop its third oil field project in China. 
The company will conduct a joint venture study of the Tuyuke oil field, near Turpan in northwestern China, together with the Tuha Petroleum Exploration & Development Bureau. Sunwing said the field has an estimated 800 million bbl of oil in place. The Tuha Bureau represents China National Petroleum Corp., with which Sunwing has two active production-sharing contracts for properties in Daqing and Dagang field areas (OGJ, Nov. 30, 1998, p. 31). December 07, 1998

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Daqing crude remain 
Japan's refiners are examining the need to boost production of low-sulfur fuel oil if supplies of China's Daqing crude remain unstable.
Japan imports low-sulfur crudes such as Daqing, Indonesia's Minas, and Viet Nam's Bach Ho for power generation. In late January, China told Japanese firms it had no Daqing available for export in February. However, sales agent Chinaoil told Japanese buyers last week that it had export availability after all and asked term lifters to submit new nominations. Chinaoil has not said whether it will have export availability for March and beyond. Petroleum Association of Japan Chairman Keiichiro Okabe, also president of Cosmo Oil, said his company weathered the supply shortage by securing spot supplies of Indonesian crude.
In the fiscal year ended March 1998, Japanese power utilities consumed 250,000 b/d of fuel oil and 206,000 b/d of crude oil. China is under contract to provide Japan 6-8 million metric tons/year of Daqing crude during 1996-2000.

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Oil price increase spurs CNPC to hike crude production level
October 04, 1999 Magazine Volume: 97 Issue: 40 
China National Petroleum Corp. plans to spend 5 billion yuan in the fourth quarter to boost its crude oil production capacity in response to higher oil prices.
      CNPC intends to add a combined 600,000 tonnes/year  (12,000 b/d) of crude production capacity in six oil producing complexes: Liaohe and Jilin, in northeastern China; Dagang and Huabei, in northern China; and Tuha and Changqing, in northwestern China. The six complexes have combined production of 35 million tonnes/year (700,000 b/d).
      Increasing crude production has proven difficult for CNPC, whose major producing fields are in decline. The state firm also has had to cope with reduced budgets for exploration and development in recent years and a marked cooling of interest from foreign petroleum companies willing to invest in China's upstream sector.
      CNPC's decision to ramp up production follows a strong rebound in earnings in the first 8 months of 1999, the result of resurgent oil prices. The price of China's main benchmark crude, Daqing, was up 75% in September from January's price, to 1,411 yuan/ tonne. The firm's earnings for the period totaled 7.153 billion yuan, up 6.783 billion yuan from the same time a year ago.      CNPC is China's largest crude producer, with production of about 110 million tonnes/year (2.2 million b/d)-about 68% of the national total.

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CHINA OIL & GAS  NEWSLETTER 
Volume-100-01-28-April-2000 
Editor: Charlie Bartholomew 
http://www.users.uswest.net/~kryopak
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China Natural gas OGJ Jan 2000
China preps to expand gas output and distribution amid challenges 
Construction of Gas Pipeline in Northwest China Xinhua Mar 30
Santa Fe Snyder Extends Oilfield Offshore China, Upgrades Reserve Estimates 
CNPC and Iran fail to strike a deal on Caspian oil swap pipeline April 07, 2000 NewsBase 
China's long-term level of oil imports will outstrip expectations April 27, 2000 AP 
China needs to build up strategic crude oil reserves April 27, 2000 AP via Newspage
China's Bohai Bay Yields Big Finds 

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China Natural gas OGJ Jan 2000

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. 

 New foreign investment opportunities will arise and spin-off industries will emerge from this scheme. 
 The rationale for optimizing gas consumption is to meet domestic energy shortfalls and to address environmental concerns. 

 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. 

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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
Keun-Wook Paik  Royal Institute of International Affairs  London 
Quan Lan  Xinhua News Agency  Beijing
Correction

                  The source of the data shown in maps and tables featured in the third
                  part of the series on Northeast Asian Gas was listed incompletely as: Royal
                  Institute of International Affairs (OGJ, July 20, 1998, pp. 27-30). The
                  complete source listing should have read: China Natural Gas Report, jointly
                  published by China OGP Newsletter, Xinhua News Agency, and the Royal
                  Institute of International Affairs.
China's Natural Gas Resources [148,017 bytes]       China's Natural Gas Pipelines [177,203 bytes]       Northeast Asia Gas Options [154,372 bytes]       China's Proposed LNG Projects [285,443 bytes]       China's Gas Producing Areas [59,575 bytes]       China's Gas Production Forecast [22,553 bytes]       China's Gas Import Outlook [55,863 bytes]       China's Gas Demand By End Use [43,391 bytes]       Power-Generation Emissions In China [85,942 bytes] 

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
China's energy sector faces a number of problems. Among the most difficult and burdensome to tackle are an energy supply shortage and environmental degradation.

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? 

CNPC's view

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.

These were:
1. Development of China's gas industry will be accelerated, while development of the oil, industry will be stabilized. Special attention will be paid to gas exploration in the Xinjiang area, the Shaan-Gan-Ning basin, and the East Sichuan area. 
2. Cooperation with Russia and other neighboring countries will be strengthened. A detailed preparation plan for gas imports will be arranged. 
3.A natural gas transmission and distribution network-including pipelines, gas supply and distribution networks, and large-scale underground gas storage-will be developed. 
4. In parallel with upstream gas development, downstream gas facilities, including a number of large gas-fed fertilizer and chemical plants, will be built. 
5. Natural gas's share in the energy mix used in big cities such as Beijing, Tianjin, Shenyang, Nanjing, Shanghai, Xi'an, Zhengzhou, Lanzhou, and Urumqi, will be increased to improve the energy      infrastructure and protect the environment. 
6. In certain areas, natural gas will be used for power generation. 
7. The gas-fueled vehicle industry will be developed, not only for environmental protection but also for alleviating oil product shortages in certain areas. 

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.

Gas supply/demand
China's current gas production is inadequate to support rapid expansion of its gas sector. So importing substantial volumes of both LNG and pipeline gas is inevitable.    Although China's total estimated gas resource is about 38 trillion cu m, its proven reserves are only 1.5 trillion cu m.

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.

Gas distribution
Development of a comprehensive transportation and distribution network is another essential factor in China's increased gas use.

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.

LNG plans
As has been mentioned, China's gas demand is large enough to absorb both LNG and pipeline gas options.
Although the final decision has not yet been made, eastern coastal provinces are certain to implement an LNG import plan. Guangdong province is expected to be the first, followed by Fujian province, and the Yangtze River delta area, which includes the Shanghai region and Jiangsu and Zhejiang provinces (see map, p. 29).

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.

Foreign investment
The potential for foreign participation in China's gas business is enormous. China's upstream, midstream, and downstream gas sectors all are aiming to attract foreign investment.

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.

Gas outlook
The Xinhua-RIIA study revealed a number of important implications for China's gas industry.

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.

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Construction of Gas Pipeline in Northwest China Xinhua Mar 30
 Xining,  - The construction of a major natural gas pipeline linking Qinghai and Gansu provinces in northwestern China started today. The pipeline is an important part of the Chinese government's plan to send the rich natural gas resources in the northwest to the eastern parts of China. 

 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.

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Santa Fe Snyder Extends Oilfield Offshore China, Upgrades Reserve Estimates 

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.

    SOURCE Santa Fe Snyder Corporation Web Site: http://www.santafe-snyder.com 
 

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CNPC and Iran fail to strike a deal on Caspian oil swap pipeline April 07, 2000 NewsBase 
http://www.gasandoil.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. 

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China's long-term level of oil imports will outstrip expectations April 27, 2000 AP 

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."

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China needs to build up strategic crude oil reserves April 27, 2000 AP via Newspage

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. 

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China's Bohai Bay Yields Big Finds 
 When international oil companies were finally allowed to operate in China not so very long ago it was touted as the biggest development in years. The industry was excited by the prospect of finding enormous reserves in a vast region that had been closed for years. 

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 Bay. 
In December the Oklahoma City-based firm announced a discovery on its Block 04/36. At year-end the CFD 11-1-1 well was testing five zones with more than 280 feet of oil pay. The 4,789-foot discovery well is in about 80 feet of water on a four-way dip structure with more than 5,000 acres of closure. 

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 Petroleum 
Bohai Bay in China's South China Sea doesn't grab as many headlines as it once did, but work there continues -- as do many stories of exploration and drilling success. 

Sparking Their Interest 
This is Kerr-McGee's second discovery in Bohai Bay. In June 1996, the company drilled the CFD 2-1-1 discovery that on tests flowed about 7,000 barrels of oil a day. The well is in approximately 40 feet of water and was drilled 11,750 feet. 

Three appraisal wells have been drilled: 
The CFD 2-1-2 appraisal was drilled to 13,210 feet and tested 4,100 barrels of oil.  The CFD 2-1-3 went to about 13,000 feet but was not tested.  The CFD 2-1-4 well went to 13,120 feet and tested around 3,000 barrels of oil daily.  No reserve figures have been released on this new field but Kerr-McGee is currently working with the Chinese national oil company and the government to pursue an economic plan for development. 

So what's attracted Phillips and Kerr-McGee to this part of the world? 
"We've had a presence in China for years, mainly in the South China Sea, that has allowed the company to develop a good working relationship with the Chinese National Oil Company and gain an understanding of how to work within the Chinese culture," said Brad Patton, a senior geologist and former lead geologist on the Bohai Bay project for Phillips. "It's been this knowledge that's allowed us to move into other areas of China. 

"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 basin. 
"There are some very large fields onshore to the south operated by the Chinese," he said. "For example, one onshore field complex called Sheng-li has about six billion barrels of recoverable oil. To the north of our offshore block the Liahoe complex has over two billion barrels of recoverable reserves. "That sparked our interest," he said. "While several relatively small discoveries were found in the bay prior to the 1990s, the offshore region was underexplored. Only five wells had previously been drilled on our block, which covers an area roughly the size of 460 Gulf of Mexico blocks." 

Valuable Data 
The Chinese had acquired 1970s vintage 2-D seismic data over the area, which was good enough for Phillips to get a feel for the structures in the block. "The area is structurally complex with multiple prospects and play types," Patton said. "Seismically, we could see several large structures and 20 to 30 smaller structures within this one block. "These structures are developed on the flanks of a large sag (Bozhong sag)," he added, "and should be well-positioned to capture hydrocarbons migrating out of the sag." 

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 stratigraphic information that led to reprocessing of the 2-D seismic data and developing a better correlation to the entire region. "Bohai Bay is a lacustrine basin with complex stratigraphy and high variable reservoir quality," he continued. "Our initial plans were focused on the deeper syn-rift reservoirs, analogous to the large onshore fields -- but much of this section was of poor quality within our block, due to the increased depth of burial around the Bozhong sag. "This understanding focuses our efforts on better reservoir quality," he said, "which directed us to shallower depths and post-rift fluvial sediments." 
 

Encouragement 
Based on the reprocessed 2-D seismic, Phillips drilled two additional exploratory wells in 1997. Both were discoveries. 

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 Sought 
Last year Phillips drilled the first well on the PL 19 prospect and made a discovery. The PL 19-3-1 was drilled to 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. The discovery was made on a large anticline that is about six miles long. Testing was deferred to the PL 19-3-2-appraisal well that was drilled immediately following the discovery. 

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 
Phillips plans to drill two additional appraisal wells on the PL 19-3 field by the first quarter of this year to delineate the productive area of the southern portion of this large feature. The firm currently is evaluating the commercial potential of the discovery and a team is pursuing various potential development scenarios. 

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." 

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6/2003