China is looking to greatly increase oil and gas production to meet climbing domestic demand and reduce the record-high share of imports in its oil consumption.
China is looking to greatly increase oil and gas production to meet climbing domestic demand and reduce the record-high share of imports in its oil consumption.
A Rystad Energy report projects a surge in spending, which will be accompanied by a drilling spree totalling 118,000 wells that will create ‘significant opportunities’ for geoscience companies offering seismic data services.
‘With China focused on maintaining or increasing production levels, service companies that bring innovative technology solutions to the table are likely to get a warm welcome in the Chinese drilling and well services market in the years to come, whether the field developments are conventional or unconventional, onshore or offshore,’ says the energy research company’s latest report.
China’s national oil companies (NOCs) are expected to spend more than $120 billion on drilling and well services in 2021-2025. At the same time, the country aims to supply more of its oil demand from domestic sources, after the share of imported crude oil rose steadily from 2014 to a high of almost 75% last year.
CNPC, CNOOC and Sinopec are expected to spend about $123 billion on drilling and well services in the coming five-year period, up from a total $96 billion between 2016 and 2020.
The number of development and exploration wells drilled between 2021 and 2025 is expected to reach 118,000. Development wells will account for 88% of the total and exploration wells will make up the remaining 12%.
‘Despite a strong policy push to electrify transport, China is still expected to use oil products to fuel its hundreds of millions of cars, buses and trucks for the next five years at least. Although the country’s electric vehicle market is projected to achieve a 20% market share by 2025, internal combustion engine vehicles are expected to account for most of China’s transport needs and to provide a backbone for oil demand through to 2025,’ said Peng Li, energy research analyst at Rystad Energy.
Chinese oil production has fallen from 1.55 billion barrels in 2014 to 1.43 billion barrels in 2020. Domestic oil production was able to meet 26% of China’s domestic oil needs in 2020, with the remaining 74% met by imports, the highest level on record. Given that just 2.4% of the world’s proven oil reserves are located in China, the scope for dramatically increasing domestic production is limited.
China’s reliance on imports – and associated energy supply security concerns – has led the government to push its domestic E&P companies to find new reserves and increase domestic output.
Domestic natural gas production remains modest compared to overall demand, but has grown from approx. 120 billion cubic metres (Bcm) in 2014 to around 190 Bcm last year. This is still well short of 2020’s total demand of 330 Bcm, meaning the nation remains reliant on imported piped gas and shipped liquefied natural gas (LNG) for more than 40% of its needs.
With gas consumption on the rise – especially as China looks to use more gas in place of coal in power generation to reduce short-term emissions – the pressure to boost domestic gas production is an overarching imperative.
China’s 14th five-year plan for 2021- 2025 emphasizes the importance of increasing oil and gas production, alongside increasing the share of non-fossil fuels to 20% by 2025.
‘As state-owned entities, China’s major operators are not solely profit-driven. So even in a less-favourable oil price environment, we expect Chinese NOCs to perform in line with government expectations and to continue to make an effort to shore up domestic supply,’ Li added.
China has managed to maintain overall oil production while increasing gas production, despite drilling notably fewer wells in 2020 as a result of the pandemic. One of the main contributing factors has been advances in drilling and well services techniques, which is enabling China to drill an increasing number of deep and horizontal wells.
Improved well planning and advanced enhanced oil recovery (EOR) methods are also helping China to increase its recovery rate, even at giant mature fields such as Daqing. Another game-changer has been the rising use of fracturing services, which has boosted development of unconventional oil and gas resources, said Rystad.
