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Oil and Gas China: Seventy Years of Development and Indispensable Energy Security Concerns

Oil and Gas China: Seventy Years of Development and Indispensable Energy Security Concerns

(Summary description)Petroleum is the blood of industry. The development of China's petroleum industry mirrors the course of China's economic rise and integration into globalization.

Oil and Gas China: Seventy Years of Development and Indispensable Energy Security Concerns

(Summary description)Petroleum is the blood of industry. The development of China's petroleum industry mirrors the course of China's economic rise and integration into globalization.


  Petroleum is the blood of industry. The development of China's petroleum industry mirrors the course of China's economic rise and integration into globalization.


  Since the founding of New China 70 years ago, China has taken off the hat of the oil-poor nation and has become the world's largest oil producer. At the same time, China has also become the world's largest oil consumer and the largest oil and gas importer.


  During the first peak period of China's petroleum industry, oil output exceeded 100 million tons. Not only meet domestic demand, but also export to Japan to earn foreign exchange. After the reform and opening up, China's economy took off, and the petroleum industry entered its second peak period, with output exceeding 200 million tons.


  But since China became a net oil importer in 1993, its dependence on foreign oil has increased year by year. As of the first half of this year, the external dependence of oil has exceeded 70%, and the external dependence of natural gas has exceeded 45%. What is worrying is that after the domestic oil production exceeded 200 million tons, it fell to less than 200 million tons, entering a bottleneck period for increasing production.


  Ensuring energy security is undoubtedly a top priority. In the short term, it is difficult to reduce the external dependence, increasing the source of imports, adjusting the energy structure, and encouraging Chinese companies to go global are all ways to ensure the safety of oil and gas supply.


  However, decision-makers believe that increasing domestic oil and gas production is the most important way to ensure supply security. Although traditional theory believes that China ’s energy resource endowment is “lean, low gas, and rich in coal,” history has repeatedly proven that the theory of oil and gas exploration and development is constantly being updated, and every time new technologies emerge, they can boost oil and gas production. Leap. The United States has gone through a trajectory change from an oil exporter to an importer and then to an exporter. The resource endowments of China and the United States are different and may not be able to repeat the trajectory of the United States. However, judging from the growth of China's shale gas production, China currently has a large potential for unconventional oil and gas production.


  Some insiders also argue that there is no need to panic about external dependence. The oil and gas industry is an industry with extremely developed international trade. There are many oil and gas exporting countries in the world. Some developed countries have a higher dependence on foreign oil and gas than China. In addition, Chinese oil companies are also cooperating in the development of oil and gas resources in multiple regions around the world, with overseas equity oil and gas production approaching 200 million tons. By discounting overseas equity oil and net exports of refined oil products, China's oil dependence on the outside world will decline significantly.


  Looking to the future, we need not worry too much about the dependence of oil and gas on foreign countries. According to the National Bureau of Statistics, the total national energy consumption in 2018 was 4.64 billion tons of standard coal, of which coal accounted for 59.0% of energy consumption, non-fossil energy accounted for 14.3%, and oil and gas accounted for 18.8% of total consumption, respectively. % And 7.8%. Based on this calculation, China's overall self-sufficiency rate of primary energy is about 80%. As the energy transition continues to advance, the proportion of non-fossil energy will continue to increase, and the primary energy self-sufficiency rate will not decrease significantly in the long run.


However, the energy transition is a long-term process. The industry believes that in 10 to 15 years, renewable energy will mainly replace coal in the energy structure, and the proportion of oil and gas will continue to rise. Therefore, while we look at the external dependence of oil and gas, we still need to protect and increase the domestic oil and gas supply.


  Daqing "Battle"


  The second half of the 19th century of the modern oil industry has sprouted in China. Little known is that China was an outright net oil importer at that time, and its dependence on foreign countries was higher than it is now.


  In 1867, the United States and other countries began to export oil to China. At that time, oil in China was called "foreign oil", and its import volume was second only to opium and cotton yarn. It was China's third largest importer of commodities. In the 45 years from 1904 to 1948, the old China produced a total of 2.785 million tons of crude oil, while importing “foreign oil” 28 million tons. It can be seen that the degree of dependence on foreign oil at that time was high.


  When the People's Republic of China was founded, the infrastructure of the oil industry, which had experienced years of war, was broken. In 1949, the national crude oil output was only 120,000 tons. After three years of recovery, by the end of 1952, the country ’s crude oil output had grown to 435,000 tons, 3.6 times that in 1949 and 1.3 times the highest annual output in old China. Among them, 195,400 tons of natural oil, accounting for 45% of total crude oil production, and 240,000 tons of artificial oil, accounting for 55%.


  Oil production has increased significantly, but still cannot meet the needs of the time. In order to increase oil production and the level of the petroleum industry as soon as possible, in August 1952, the CPC Central Committee ordered the 57th Division of the 19th Army of the Chinese People's Liberation Army to be transformed into the first division of petroleum engineering. The petroleum division has contributed a new force to the petroleum industry, but petroleum exploration and development is a technology-intensive and capital-intensive industry. More capital and technology investment are needed to make a qualitative leap in the then weak oil industry.


  Since 1955, the Ministry of Geology and the petroleum industry have cooperated to conduct comprehensive comprehensive geological surveys in the North China Plain and Songliao Basin. In January 1956, the Ministry of Petroleum held the "First National Petroleum Exploration Conference", which proved the direction for the initial development of China's petroleum industry. The meeting recommended "to make a comprehensive plan for oil-bearing areas across the country, starting from solving fundamental problems, and carrying out exploration step by step."


  By the end of the 1950s, four oil and gas bases in Yumen, Xinjiang, Qinghai, and Sichuan had initially formed in the country. In 1959, the national crude oil output reached 3.733 million tons. The four bases produced a total of 2.763 million tons of crude oil, accounting for 73.9% of the country's total crude oil output. Sichuan's natural gas output increased from more than 60 million cubic meters in 1957 to 250 million cubic meters.


The discovery of Daqing Oilfield was also in the late 1950s. On September 26, 1959, the Songji 3 well in the Songliao Basin produced oil, marking the birth of the Daqing Oilfield. But at that time, China was in a difficult period of three years. With the lack of money and technology, the development of the Daqing Oilfield was very difficult. The Central Committee decided to launch various forces across the country to develop and construct the Daqing Oilfield in the form of a "contest battle."


  In March 1960, the oil battle that had a bearing on the fate of China's oil industry kicked off in Daqing. The Central Military Commission dispatched more than 30,000 returning officers and soldiers to participate in the battle. There are more than 5,000 factories and enterprises producing electromechanical products and equipment for Daqing, 200 scientific research and design units technically support the battle, the elites of 37 factories and mining colleges in the petroleum system and a large number of materials have been concentrated in Daqing.


  At the end of 1963, the Daqing Oilfield Convention ended. Over the past three years, Daqing Oilfield had accumulated 15 million tons of crude oil, which made China lose its "lean oil country" hat. In December 1963, Premier Zhou Enlai announced at the fourth meeting of the Second National People's Congress that China's oil needs are now basically self-sufficient, and the era of "foreign oil" by the Chinese people will soon be gone.


  Based on the Daqing Oilfield, the Chinese oil industry has truly ushered in the first round of rapid development. In 1964, China launched another oil battle in North China. In less than two years, a large 460 million-ton oilfield was discovered.


  Since 1976, Daqing Oilfield has achieved annual crude oil output of more than 50 million tons for 27 consecutive years, creating a miracle in the history of development of similar oilfields in the world. By 1978, the national crude oil output had exceeded 100 million tons. In addition to the half-walled mountains and rivers contributed by Daqing Oilfield, the Bohai Bay Basin produced 43.4 million tons of oil, which was another major oil-producing region at that time.


During the 13 years from 1966 to 1978, China's crude oil production increased at an annual rate of 18.6%, the annual output exceeded 100 million tons, and the crude oil processing capacity increased by more than five times. Since 1973, China has also started exporting crude oil to Japan in exchange for a large amount of foreign exchange for the country.


  The oil output exceeded 100 million tons, which laid the energy foundation for the subsequent reform and opening up of the economy and also laid the theoretical and technical foundation for the development of China's petroleum industry.


  215 million tons, historical peak


  After China's oil output reached 100 million tons in 1978, the petroleum industry did not continuously maintain an upward arrow, and experienced many twists and turns in the middle. After some policy adjustments and explorations in the early 1980s, China ’s oil production began a period of 30 years of steady increase from the late 1980s.


  In 1979 and 1980, China's oil production stagnated for two consecutive years. By 1981, the country's crude oil output had fallen by nearly 6 million tons during peak years.


  In 1979, the Bohai Sea No. 2 shipwreck, which shocked the entire oil industry, also occurred. This accident is the most serious fatal accident in the oil system since 1949, and it is also rare in the history of world offshore oil exploration. On November 25, 1979, the “Bohai 2” drilling vessel of the Offshore Oil Exploration Bureau of the Ministry of Petroleum sank during the towage of the Bohai Bay migration wells, killing 72 people and economic losses of more than 37 million yuan.


  In addition to the huge loss of personnel and property, the Bohai No. 2 shipwreck also hit the morale of the petroleum industry nationwide. Low morale, reduced investment in exploration and development, decline in resource reserves, decline in production ... Multiple negative factors are alerting the then oil and gas authorities to make reforms.


  Combining the macroeconomic environment and the situation of the petroleum industry at that time, the Ministry of Petroleum put forward a reform idea of ​​100 million tons of crude oil output contracting. On June 3, 1981, the General Office of the State Council issued the "Notice on Forwarding the Report of the National Energy Commission on Coordinating and Organizing the Export Arrangement of the Ministry of Petroleum for Overproduction of Crude Oil and Finished Oil". The notice proposed that the former Ministry of Petroleum Industry contracted an annual output of 100 million tons of crude oil, and the excess was allowed to be exported by the former Ministry of Petroleum Industry. 85% of the income difference was used as a fund for oil exploration and development, and 15% was used as a collective welfare and personal bonus fund for employees. The foreign exchange amount is reserved for imported equipment and technology.


  After the implementation of the 100 million ton crude oil output contracting policy, the oil industry has increased its enthusiasm. From 1981 to 1985, the average annual investment in exploration funds increased by 19.5%. At the same time, oil production stopped falling and rebounded, rising from 101 million tons in 1981 to 125 million tons in 1985.


  The transformation of Shengli Oilfield was the most obvious during this period. The oilfield's crude oil production in 1978 was 19.45 million tons, and in 1981 it fell by more than 3 million tons to 16.11 million tons. During that period, some petroleum experts believed that the exploration in the Jiyang Depression had entered a "no-repair phase", and that the annual output of Shengli Oilfield had to be reduced to 11 million tons to stabilize it. However, after the implementation of the production contracting policy, Shengli Oilfield reorganized its leadership team, mobilized the enthusiasm of its employees, and worked hard to explore the complex oil and gas accumulation zone. Crude oil output gradually rose to 33.55 million tons in 1991 and maintained an output of more than 24 million tons 30 years.


  In the 1980s, the oil industry also gave birth to the Tarim Campaign, which was no less influential than the Daqing Campaign. In 1984, Shashen 2 in the Ministry of Geology and Mineral Resources of the Tarim Basin produced oil. In 1989, China National Petroleum Corporation launched the Tarim Oil Campaign under the policy of "two new and two high" (that is, adopting new process technology and new management system to organize a high-level and high-efficiency oil exploration and development battle). On the other hand, the Ministry of Petroleum hired 10 earthquake teams directly from abroad in 1983 to use the world's most advanced technology and equipment to conduct exploration in China, of which 3 were deployed to the Tarim Basin.


  The Tarim oil battle not only opened the door to oil development in the Tarim Basin, but also became a pilot test point for foreign investment in the petroleum industry after reform and opening up. After that, in 1985, the State Council decided to open up the petroleum resources of 11 provinces and autonomous regions in the south to foreign capital and carry out foreign cooperation. In 1993, the field of foreign cooperation was further expanded to 10 northern provinces and autonomous regions, forming a pattern of comprehensive opening up of land-based petroleum resources to the outside world.


  The opening up of offshore oil resources is also going on simultaneously. On January 30, 1982, the "People's Republic of China Regulations on Foreign Cooperation in Exploitation of Offshore Oil Resources" and its supporting more than 30 general laws and regulations were promulgated. On February 8th of that year, China National Offshore Oil Corporation was established in Beijing and began to exercise the exclusive right of offshore oil exploration, development, production and sales in accordance with the regulations and supporting laws and regulations.


  After 1981, China's petroleum industry has achieved a growth cycle of more than 30 years. At the same time, the natural gas industry has also accelerated its development since the 1990s. In 2010, China ’s oil production jumped to 200 million tons. Since then, oil production has continued to grow for five years. By 2015, the total domestic crude oil output will reach a record high of 215 million tons.


  Era of Energy Transformation: Reduce or Increase?


  After 2015, international oil prices fell from a high level, and the overall supply of the world oil market was loose. Against this background, domestic oil companies have implemented a production restriction policy. In 2016, domestic oil production fell below 200 million tons, and 199.6 million tons of oil were produced throughout the year. This is the largest annual reduction in output since the founding of New China. That year, the national natural gas output also fell by 1% year-on-year.


  Beginning in 2016, the three major domestic oil companies reduced the amount of investment in upstream exploration and development plans and proactively reduced the development of low-efficiency oil fields. PetroChina sets a hard index for the rate of return on internal investment and reduces ineffective production in multiple oil fields such as Liaohe and Xinjiang. Shengli Oilfield, Sinopec's main oilfield, also shut down several inefficient blocks.


In 2017 and 2018, domestic oil production continued to fall to 192 million tons and 189 million tons, respectively.


  In these three years of reduction of domestic crude oil production, a new period of active energy transformation has begun globally and domestically. Low-carbon, clean energy products are seen as the main energy source of the future. Oil is a high-carbon fossil energy, and consumption should be controlled to reduce the proportion of energy.


  At the same time, the objective conditions of Chinese oil fields are also difficult to support the continued growth of oil production. A number of major oilfields, such as Daqing Oilfield and Shengli Oilfield, have entered the mid-to-high water cut stage. The difficulty of exploitation has been increasing, and resources have deteriorated and production has naturally declined.


  However, based on the trend of clean energy transition, unlike oil, natural gas is regarded as clean energy and is still actively promoted. In the past few years, China has made great progress in the development of unconventional natural gas, mainly shale gas, and its total natural gas production has increased significantly.


  After a slight drop of 1% in 2016, natural gas production quickly returned to the rising channel. In 2017, the national natural gas output was 133.007 billion cubic meters, an increase of 8.0% year-on-year. In 2018, the national natural gas output was 141.152 billion cubic meters, a year-on-year increase of 6.4%. Consumption is growing faster than output. In 2018, national natural gas consumption reached 280.8 billion cubic meters, a year-on-year increase of 17.7%. An annual increase of 42.2 billion cubic meters, a world record growth rate.


  Wang Zhen, chief expert of the National High-end Think Tank of the China Petroleum Institute of Economics and Technology, told reporters in Caijing that there is no major controversy in the global energy transition trend, but the pace of transition in each country depends on economic development levels, energy infrastructure, and policy support Strength and speed of technological breakthroughs. In China, within the next 10 to 15 years, fossil energy will remain the main force, and fossil energy consumption will account for about 80% of the overall. The increase in the scale of renewable energy is mainly due to the decrease in the proportion of coal, and it is difficult to achieve large-scale replacement of oil and gas structurally in the short term. Despite the rapid growth of new energy vehicles, oil consumption will remain stable after peaking, and natural gas consumption will increase significantly.

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