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Tim Daiss

China has been making noteworthy offshore oil discoveries recently. Earlier this month, state-run China National Offshore Oil Corporation (CNOOC), the country’s largest offshore driller, announced a breakthrough in its exploration of the Mesozoic volcanic rocks in Bohai Bay.
The discovery well produced about 210 cubic metres (55,476 gallons) of crude oil and nearly 1 million cubic metres (35 million cubic feet) of natural gas a day, a record for a gas productivity test in Bohai Bay, CNOOC said.
This comes after CNOOC launched crude oil production at its Enping 21-4 project in the South China Sea in June. Production is expected to peak at about 5,300 barrels of oil equivalent a day by 2025.
Since the start of the year, CNOOC has announced two other significant discoveries and each is expected to add over 100 million tonnes of oil equivalent – one in the deepwater Kaiping South oilfield in the Pearl River Delta, near Guangdong province, and the other in the Qinhuangdao oilfield in the Bohai Sea.
These reflect China’s push in recent years to tap more deepwater oil as its onshore oilfields mature and near the end of their productive life. Last year, China produced 208 million tonnes of crude oil – a robust 4.18 million barrels per day (bpd), but still below the 2015 record of 4.3 million bpd.
Though it surprises some, China ranks among the world’s largest producers of crude oil. Last year, it came in at sixth place, after the United States, Russia, Saudi Arabia, Canada and Iraq. But this considerable output is still not enough to meet China’s insatiable thirst.


China remains the world’s largest crude oil importer, taking in 11.3 million bpd last year, a 10 per cent increase over the previous year, according to Chinese customs data. This over-reliance on crude oil imports, mostly from the Middle East, keeps the country’s foreign oil dependency at precarious levels. At the same time, the options to ramp up domestic oil production are limited.
Thus, it continues to develop offshore oil resources despite the inherent dangers. Offshore drilling comes with greater environmental risks and a score of technical issues, along with the need to grapple with remote and harsh deepwater conditions.
Last December, China launched the drilling ship Mengxiang for ultra-deep-sea operations. The ship’s drilling power has been described as top of the line – it can reach 10.94km below the sea’s surface, which is no small feat. But there is a caveat.
Drilling for oil and gas in ultra-deep waters can cost hundreds of thousands of dollars a day, substantially driving up production costs. In China, such costs sometimes have to be absorbed by the oil companies instead of being passed on to consumers, thus eating into profits. Moreover, during lower global oil price cycles, high production costs are a disincentive for production.
It will not be a surprise that major oil companies prefer cheaper ways to explore for, extract and produce hydrocarbons. At the end of the day, it is also unlikely to be China’s preferred method of oil and gas development.


China is also trying to jump-start its shale oil and gas sector, watching the US – perhaps with some resentment – morph over the past 10 years to become the world’s top crude oil producer and liquefied natural gas (LNG) exporter due to its shale oil revolution. As result, the US has become a major seller of LNG to China, in a dicey game of geopolitical brinkmanship that has yet to fully play out.
However, the difference between the shale formations in the US and China could not be more acute. China’s shale formations are usually deeper, harder to develop and more varied. The Chinese shale sector also faces the challenge of inadequate infrastructure in the remote mountainous areas where most of the country’s shale resources lie, making it harder to find and identify the exploration sweet spots. China’s shale formations also hold heavier, waxy oils that are more difficult to recover.
To help offset these hurdles, China’s energy sector has called for more support from the central government. In March, Ma Yongsheng, chairman of state-run China Petroleum & Chemical Corporation (Sinopec), China’s largest energy company, noted that even though China has abundant shale oil reserves, extraction is more complex than in the US due to geological constraints. The government should boost financial support for research and development for the drilling and extraction of shale resources, he added.
There is simply no easy answer for Chinese government energy planners who need to find ways to increase oil production.
Some analysts are projecting a slowdown in China’s oil demand growth, and that should help alleviate the supply problem. Risk consultancy Eurasia Group says that China is unlikely to return to the pre-Covid-19 model of oil-intensive economic growth, and projects the country’s incremental demand at about 250,000-350,000 bpd of oil this year, less than half of the 2019 growth level.
That may be welcome news for China but the country’s appetite for oil is still expected to grow, albeit not as quickly. China will remain the world’s largest crude oil importer for now. To rid itself of its oil habit – and correspondingly high carbon dioxide emissions – China needs to go further than slowing down oil demand growth. It needs its oil use to drop significantly. But, for that to happen, the country has a lot more difficult work ahead.
Tim Daiss has been an energy markets and geopolitical journalist and analyst in the Asia-Pacific region for the past 15 years


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Opinion

China Opinion

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China Economy

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China Business

Drilling for deep-sea, offshore oil entails high costs and fracking carries unique challenges. Ultimately, China must drastically cut oil use


Drilling for deep-sea, offshore oil entails high costs and fracking carries unique challenges. Ultimately, China must drastically cut oil use.


China National Offshore Oil Corporation

China energy security

Energy

Commodities

South China Sea

Sinopec

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Expresses the views, ideas and conclusions of the author. (Eg. Enough of Crazy Rich Asians, think of crazy poor Hongkongers.)


No easy answers to China’s raging thirst for oil

.css-1mniedq{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;}Drilling for deep-sea, offshore oil entails high costs and fracking carries unique challenges. Ultimately, China must drastically cut oil use

Drilling for deep-sea, offshore oil entails high costs and fracking carries unique challenges. Ultimately, China must drastically cut oil use