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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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