Oil, gas production helping strengthen energy security

China has made progress in increasing domestic oil and gas production over the past five years, while the country vows to continuously step up construction of storage facilities and accelerate building trunk oil and gas pipelines to further ensure domestic energy security.

The National Energy Administration said the country produced 173.3 billion cubic meters of natural gas and 191 million metric tons of crude oil in 2020. It is the first time that oil production picked up momentum after production dropped for three consecutive years.

Major progress has been achieved in oil and gas exploration in terms of reserves, the number of oil and gas fields and discoveries of large oil fields. Significant results have been seen in terms of global oil and gas exploration as well as unconventional gas including shale gas and coal bed methane, it said.

China National Petroleum Corp, the country's largest oil and gas producer by annual output, reported significant additions of shale gas and oil reserves in China's Ordos Basin and the Sichuan Basin last year, with the discovery of 358 million tons of newly certified reserves at Qingcheng oilfield in the Ordos Basin. The firm also unveiled 741 billion cu m of shale gas in the Sichuan Basin.

China Petroleum & Chemical Corp, better known as Sinopec, Asia's biggest refiner, said its Shuibei oilfield, a new discovery in the Tarim Basin, has oil reserves of 1.2 billion tons and 500 billion cu m of natural gas deposits.

China National Offshore Oil Corp, China's largest producer of offshore oil and gas, has also made more than 70 commercial discoveries related to oil and gas exploration during the past five years, including its newly discovered Kenli 6-1 oilfield in Bohai Bay, which has potential oil reserves of more than 100 million tons and helps ensure oil production in the eastern part of the country.

Exploration of the Kenli 6-1 oilfield has not been an easy task, according to CNOOC, as oil reserves discovered in the past had been of small scale and scattered. The company added that it has drilled 42 wells in the oilfield in the past two years.

However, efforts are finally paying off. According to the company, the Kenli 6-1 oilfield has large oil reserves of high quality and an oil-bearing area of more than 100 square kilometers, sufficient to provide fuel for 1 million vehicles for 20 years. The oilfield is accelerating its evaluation process so as to put it into operation soon.

Insiders said China's achievements in oil and gas exploration in recent years and efforts by the oil majors in the upstream sector significantly help the country's energy security efforts despite current low oil prices.

Li Li, research director at energy consultancy ICIS China, said that compared with other global players, who are cutting capital expenditures and even filing for bankruptcy, Chinese companies－which see little expenditure reductions in the upstream sector－are showing strong resilience.

Li added that China covered 73.4 percent of its oil demand by imports in the first half.

Figures from the General Administration of Customs show that China's crude oil imports exceeded 500 million tons in 2019, up 9.5 percent on a yearly basis. China's crude oil production increased 1.7 percent year-on-year in the first six months of 2020, said the National Bureau of Statistics. However, higher domestic production did not meet the rise in the country's oil and gas demand.

Li Ziyue, an analyst with BloombergNEF, said investment in exploration and production in China picked up after 2017 when oil prices recovered and the government pushed for oil and gas production hikes.

"China's natural gas output has grown strongly during the 13th Five-Year Plan period (2016-20), reaching above 800 billion cu m, 35 percent higher than the 12th Five-Year Plan period (2011-15)," Li said.

"Conventional gas production doubled in the past five years while unconventional gas more than quadrupled, driven by surging shale gas production," she added.

China's gas production growth had been declining from 2013 to 2016, mainly due to low gas demand. Other factors also include shrinking exploration and development investment and poor quality of newly discovered gas resources.

Growth has picked up since 2017 and reached 8 percent in 2018. In 2019, due to higher exploration and production investment, domestic production increased by 10 percent.

Gas production used to struggle to keep up with demand growth, said Li. According to the Ministry of Natural Resources, existing oil and gas wells have entered mid-late life stages, and new gas discoveries have become harder to exploit, most of which are buried deep in geological formations with low to extra-low permeability.

However, with improving investment driven by oil price recoveries and government encouragement, domestic gas production is forecast to maintain steady growth. Unconventional gas, despite its impressive growth, might fall short of the 13th Five-Year Plan period goal. But Li said that with more investment and technological progress, the segment represents the biggest hope for China to ramp up domestic production.

The government has introduced a series of reforms to open up upstream operations and encourage participation of private and foreign oil companies, she said.

Official statistics revealed that China's crude oil production reached 146.25 million tons during the first nine months, up 2.4 percent year-on-year. Natural gas production reached 137.1 billion cu m, up 8.7 percent year-on-year.