FAR EAST

Natural gas use increasing

Developing countries are expanding gas power generation / supply to mitigate oil import costs. Foreign investors are being actively courted

China

Last year saw major changes in the organization of China’s petroleum industry, as some of its larger organizations initiated initial public offerings (IPOs) to allow public participation. Previously, four companies controlled the industry. China National Petroleum Corp. (CNPC) operated in the north and west, and China Petrochemical Corp. (Sinopec) in the south and east. China National Star Petroleum Corp. (CNSPC) was created to introduce competition for CNPC. And China National Offshore Oil Corp. (CNOOC) operates and participates in the country’s rapidly growing offshore oil / gas operations.

Sinopec has taken over CNSPC, opening opportunities for it in CNPC areas, such as exploration in the gas-prone Sichuan and Ordos basins and West Tarim basin. CNSPC also held some gas-prone acreage offshore near the Pinh Hu development in the East China Sya. CNPC underwent a massive restructuring, with all domestic upstream / downstream, oil / gas assets transferred to the PetroChina holding company, which will now control more than two-thirds of China’s oil / gas production and pipelines. CNOOC still controls offshore operations.

About 90% of China’s oil production is located onshore, under control of CNPC / PetroChina. Offshore activity primarily involves three areas off eastern coasts, Bohai Bay in the NE; the East China Sea, NE of Taiwan; and the South China Sea / Pearl River Mouth (PRM) basin off Hong Kong. The Yinggehi basin between Hainan Island and Viet Nam contains the Yacheng gas field. China is a net oil importer of about 1.4 MMbopd. It actually exports about 80,000 bopd to Japan from Daqing in the northeast.

Natural gas has not been a major energy source, accounting for about 3% of total energy consumption. However, consumption is expected to triple by 2010 and require increases in production and imports (by pipeline and as LNG). Total production in 2000 was estimated at 2.3 Bcfd, with reserves of 42.0 Tcf. To locate important gas producing regions, PetroChina’s top five areas contributed: Sichuan (689 MMcfd), Daqing (134 MMcfd), Changqing (89 MMcfd); Liahoe (62 MMcfd) ; and Tuha (57 MMcfd). The company’s total gas production is over 50% of China’s total output.

The country’s largest gas reserves are in Western China, with no facilities at present to transport it East. China is planning to build the 2,600-mi west to east gas pipeline from Xijiang in Tarim to Shanghai. Construction is tentatively scheduled to start in mid-2001, and cost between $12 billion and $15 billion. In late 2000, PetroChina and Sinopec announced they had discovered / proved 10 large- and medium-scale gas fields in Tarim, with reliable resource guarantees for the pipeline project. Published reserves for one large field alone are nearly 9 Tcf. And a major gas discovery by PetroChina at Sulige in Ordos basin, adjacent to Changqing oil field could add another 7 Tcf supply along the pipeline route. A second pipeline to the Beijing area is actually being proposed.

Exploration. In mostly established onshore-field areas, CNPC and Sinopec drilled an estimated 650 and 280 exploration wells in 1999, respectively, looking for new reservoirs, etc. For perspective, China actually drills more than 10,000 wells a year to maintain its massive petroleum infrastructure. Exploration drilling by foreign operators is primarily offshore and in very shallow coastal waters around Bohai Bay that are typically classified as onshore. CNOOC typically drills less than 20 offshore exploration wells a year.

   Onshore, as part of "significant completions" reported by Wood Mackenzie, barely offshore, Chevron drilled the ChevGu-1 and 2 dry hole and tight-hole appraisal. Also in the North China basin, Agip used the Shengli 3 barge to find oil in the Beipuxi-1X wildcat in 12-ft water in the far west tip of Bohai. PetroChina discovered major gas in Ordos basin with Su-6 in Sulige field with 6 Tcf recoverable reserves; some 23 wells have been drilled in the area. And in the only other reported onshore completion, Shell, the only foreign contractor in Ordos, drilled Chang 1 and 2 gas discovery / appraisal in the Changbei permit. These discoveries reportedly raised questions about necessity of the proposed West to East gas pipeline project.

In other onshore exploration activity, Eni signed a PSC with CNPC to explore in Qaidam basin. PetroChina planned to offer 11 onshore concessions in 2001, including Tarim and Ordos. In North China 141, Monde Group relinquished the Zhongyuan EOR. Agip and Texaco withdrew from T6 and T7 in Tarim after drilling the Niya-1 wildcat.

   Offshore, in Bohai Bay, Kerr McGee drilled Caofedian 11-1-3, the second appraisal on the 11-1 oil field discovery. The Bohai 6 jackup then moved into 400-ft water to drill the Caofedian 4-1-1 dry hole, then the Caofedian 12-1-2 successful appraisal of the June 2000 C 12-12-1-1 discovery in 5/36, which flowed 2,500 bopd. The Caofedian 2-1 and 11-1 fields could be developed in 2002 and 2003, respectively.

Phillips drilled the Peng Lai 25-6-1 discovery and 25-6-2 appraisal in Bohai with the Nan Hai II semi in May and September 2000, finding commercial oil. Texaco found oil in the southern Bohai Gulf in 50-ft water with Bozhong 25-1-8 in permit 11/19, using the Bohai 6 jackup. This was followed by appraisals 1-10 and 1-11, to further prove up the 25-1 structure discovered in the 1980s. ExxonMobil used the Bohai 4 jackup to drill the Jinzhou 31-2-1 tight hole wildcat in 90-ft water. And Chevron drilled LD 12-2-1 and 32-1-1 tight hole wildcats with the Sedco 602 semi in the Bohai Gulf in mid-2000.

In the East China Sea, four completions were noted by Wood Mac. Shanghai Petroleum drilled the apparently successful Chunxiao-5 appraisal. Primeline Petroleum (Primeline / CNOOC) appraised the Lishui discovery with 36-1-2. And Sinopec Star Petroleum used a semi to drill the Tianwaitian-3 gas / condensate appraisal in 230-ft water.

The other active offshore area is the South China Sea, particularly the Pearl River Mouth basin off Hong Kong. There, ACT (Agip / Chevron / Texaco) discovered oil with Huizhou 19-3-1 with the Nan Hai II semi in 300-ft water. This small field will likely be tied back subsea to nearby developments. And Devon Energy used the Nan Hai V semi to drill Huizhou 9-2-1 oil and Lufeng 13-3-1 dry hole, in PRM permits 16-02 and 16-05, respectively. Wenchang 6-1E1 was drilling in mid-2001 in the PRM.

In some notable offshore licensing, BP was awarded a geophysical survey agreement in 16/01, NW of its Yacheng field SE of Hainan Island. Kerr McGee was awarded 9/18 in Bohai, south of 4/36 and 5/36 in 65-ft water. Noble Affiliates agreed with Devon Energy to acquire a 50% interest in South China Sea 16-02, 16-05 and 26-35; CNOOC retains the right to own 51% of any developments. Santa Fe signed a PSC with CNOOC covering 27/0 in the PRM; up to $10 million in exploration costs is committed. Japan China Oil Development (JCODC) withdrew from Bozhong 28-1, 34-24(E) and Chenbgbei developments.

Burlington acquired Baker Hughes’ equity in PRM 15/34 and 26/06; the Devon-operated 15/34 includes the potentially commercial discoveries Ursa (Panyu 4-2) and Bootes (Panyu 5-1) fields. Phillips took equity in 15/23 and 15/12 in the PRM from Shell; Phillips operates the neighboring Xijiang producing oil field. Wood Mac subsequently reports that Shell / Phillips relinquished 15/23 after Shell drilled two dry holes on Xijiang. ExxonMobil relinquished 2/16 in Bohai after drilling two Jinzhou wells. Devon entered a JSA for 2/16 in Bohai.

Phillips entered a JSA for Kuihuado block in Bohai basin, one of 17 new E&P blocks offered by PetroChina’s 4th licensing round. Noble’s Energy Development Corp. (EDC) acquired 50% in 16/02, 05 and 26/35 in PRM; Devon will keep 50%; Lufeng 13-3 was the first of a three-well program. And in mid-2000, Devon signed a PSC with CNOOC for PRM 27/10, south of the Ursa / Bootes discoveries.

Development. Onshore, the country is focused on how to move needed oil from west to east. A pipeline from Kazakhstan to China was considered once. One proposal would carry 100,000 bopd from Eastern Russia’s Irkutsk to Beijing. Another would bypass Mongolia and terminate at Daqing field. Downstream development centers on upgrading existing refineries. PetroChina plans to increase production by some 10% at Liaohe field with a new facility. Yaha field in Xinjiang went on production with 22 wells and a processing center.

In May 2000, Platts reported that PetroChina had approval to open development of six gas areas in NW Tarim to foreign investors. These are Kela 2, Yinan, Yangtake, Yudong, Yingmai and Dabei, all along the West to East pipeline route. The company has invited 19 foreign consortia to bid on the pipeline and related projects. In June, ExxonMobil said it had been shortlisted for the project.

Moving more gas to eastern cities is the main theme. Besides the west to east line, and proposed projects to move Russian gas east, several major domestic lines are planned, ex. Shanxi to Beijing, Sichuan to Hubei / Hunan, and Quidam to Lanzhou city. Gas fields off the East coast are being developed. Chunxiao in the East China Sea is one of these.

Several offshore field developments are proceeding. Apache / PetroChina have agreed to develop part of the Zhao Dong block in shallow Bohai water. Noble announced that its EDC company received approval for developing Chen Dao Xi Block A in southern Bohai in 25-ft water with 16 wells and a 5-mi pipeline to Shengli field. Phillips is moving ahead with Penglai 19-3 oil field development in Bohai, with a wellhead platform producing to an FPSO.

At the Zhanhuadong Block within the Shengli oil field complex onshore China, Chevron has been exploring deeper zones for additional reserves. Two wildcats were drilled there last year. Unfortunately, neither was successful, and no further exploration is planned for this block. (Photo courtesy of Chevron Corp.)

In the East China Sea, Sinopec will accelerate utilization of oil / gas resources in Donghai, starting with five key wells this year, 18 – 22 by 2002. And Husky signed a contract with CNOOC for joint development in the South China Sea of Wenchang 13-1 and 13-2 oil fields. First production begins in 2002, utilizing two wellhead platforms.