Petroleum industry in China

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Chinese oil reserves 1960-2015

The impact of the petroleum industry in China has been increasing globally as China is "forecast to overtake the U.S. as the world’s biggest crude importer in 2016"[1] and since 2012, has been the fourth-greatest oil producer in the world - surpassing the United States.[2][3] According to the Energy Information Administration (EIA) China first became the "world's largest net importer of petroleum and other liquids" by the end of 2013.[2][4] In 2009 China completed its first critical oil pipeline, the Atyrau-Alashankou oil pipeline (Kazakhstan–China oil pipeline) in Central Asia,[5][6]:2–3 as part of a larger overall trade expansion with the Central Asian region which represented a trade volume of over $US $50 billion by 2013, up from $1 billion in 2000.[6]:1 The Economist reported as recently as January 13, 2016 that "China imported a record 6.7m barrels a day (b/d) of oil in 2015."[7] They also reported that as in the United States China's storage tanks seemed to be full "with ships carrying oil spotted waiting at anchor out at sea."[7]


Chinese oil reserves as of 2009

A big role is played in China's oil endowment by its state owned oil companies, mainly China National Offshore Oil Corporation, China National Petroleum Corporation, China National Refinery Corp, and Sinopec.

According to CNOOC's 2014 annual report, from January 2013 to December 2014, CNOOC's produced 68.68 million tons of crude oil.[8]:6 State-owned CNOOC, with headquarters in Beijing, is "the largest offshore oil and gas producer in China."[8] CNOOC has been actively engaged in the development of the new One Belt, One Road[9] new Silk Road project designed to improve trade and transport links in Asia.[10][11][12][13]

In 2013 the pace of China's economic growth exceeded the domestic oil capacity and floods damaged the nation's oil fields in the middle of the year. Consequently, China imported oil to compensate for the supply reduction and surpassed the US in September 2013 to become the world's largest importer of oil.[3]

Oil drilling platforms[edit]

Haiyang Shiyou 981 in contested waters

The largest oil field in the South China Sea, the Liuhua 11-1 field - located 210 km southeast of Hong Kong in the Pearl River Mouth Basin offshore south China, was discovered by Amoco now-BP in January 1987 in typhoon alley.[14]:151 Water depth, the presence of heavy oil and a "very strong bottom-water drive" were among the technical challenges that had to be resolved before the oil could be extracted.[14] Amoco and Nanhai East engineering teams experimented with offshore drilling techniques, floating production, storage and off-loading system (FPSO) that would have drilling and production support.[15] By 2008, the FPSO had equipment capable of handling 65,000 bbl of oil and 300,000 bbl of total fluids per day and it would be loaded and shipped by shuttle tankers.[15]

China's $1 billion oil drilling rig, the Haiyang Shiyou 981 - owned and operated by the China National Offshore Oil Corporation - in the South China Sea, Ocean Oil 981 - began its first drilling operations in 2012.[16][17] Its location is contested.[18]

Energy Security[edit]

Strategic Petroleum Reserve[edit]

China has one of the world's largest strategic oil reserves. Global strategic petroleum reserves (GSPR) refer to stockpiles of crude oil held by countries (and private industry) for national security during an energy crisis. According to a 2007 article in China News, at that time China's expanded reserve would include both mandated commercial reserves and a state-controlled reserves and would be implemented in three stages to be completed by 2011.[19] The state-controlled reserves phase one consisted of a 101,900,000 barrels (16,200,000 m3) reserve to be completed by the end of 2008. The second phase of the government-controlled reserves with an additional 170,000,000 barrels (27,000,000 m3) was to be completed by 2011.[20] In 2009 Zhang Guobao, head of the National Energy Administration, announced the third phase that would expand reserves by 204,000,000 barrels (32,400,000 m3) with the goal of increasing China's SPR to 90 days of supply by 2020.[21]

The planned state reserves of 475,900,000 barrels (75,660,000 m3) together with the planned enterprise reserves of 209,440,000 barrels (33,298,000 m3) will provide around 90 days of consumption or a total of 684,340,000 barrels (108,801,000 m3).[22]


Early History[edit]

"Before 1937, Chinese oil production was measured in quarts and, in its crude condition, was used solely as a lubricant. This first well, developed under the most primitive of conditions and with relatively untrained personnel, began to produce over twenty barrels of oil a day. In time, with equipment brought in from Szechuan and elsewhere and the development of several distillation plants, nine more wells were drilled in the immediate area. A letter from my father to T. E. Mobley of Standard Vacuum in June 1942 . . . reported that the Yu Men wells then had a capacity of about 1,000 barrels of oil and 10,000 gallons of gasoline a day, except in winter when cold weather caused the oil to congeal. This was the first major oil field in China. In 1956 a rail link was built to Lanchow; until then, the oil was transported out by truck. A pipeline was constructed in 1957. The Yu Men refinery was enlarged and modernized, and by the late 1960s it was reported that production from that area was "about two million tons"."[23]


By 2014 China was importing approximately 7 mil. barrels of oil per day. Three state-owned oil companies – Sinopec, CNPC, and CNOOC – dominate its domestic market.

The energy policy of China is a policy decided on by the Central Government with regard to energy and energy resources. Ensuring adequate energy supply to sustain economic growth has been a core concern of the Chinese government since 1949.[24]

According to a 1987 study, prior to the 1950s China imported all its oil.[25] In 1959, large reserves were discovered in Songhua Jiang-Liao basin in northeast China.[citation needed] The Daqing oil field in Heilongjiang

Although China is still a major crude oil producer, it became an oil importer in the 1990s. China became dependent on imported oil for the first time in its history in 1993 due to demand rising faster than domestic production.[24] In 2002, annual crude petroleum production was 1,298,000,000 barrels, and annual crude petroleum consumption was 1,670,000,000 barrels.

In 2006, it imported 145 million tons of crude oil, accounting for 47% of its total oil consumption.[26][27]

By 2008, much of China's oil imports derived largely from Southeast Asia, but its growing demand forced it to import oil from all over the globe.[28]


According to a 2005 study, In 1973, as production increased, China began exporting crude oil to Japan, and began offshore exploration. Exports increased to 20 million tons in 1985, before internal consumption began increasing faster than production. By 1993, internal demand for oil exceeded domestic production, and China became a net oil importer.[29]

Domestic production[edit]

In 2002, annual crude petroleum production was 1,298,000,000 barrels.[26]

By 2009 China's oil supply was 4,855 TWh which represented 10% of the world's supply.[30]

Province started producing in 1960, and by 1963 was producing nearly 2.3 million tons of oil. Production from Daqing declined, but in 1965, oil fields in Shengli, Shandong, Dagang, and Tianjin yielded enough oil to nearly eliminate the need of importing crude oil. In 2002, annual crude petroleum production was 1,298,000,000 barrels, and annual crude petroleum consumption was 1,670,000,000 barrels.[26]

According to a 2008 study, although Chinese crude oil production continued to increase rapidly since the 1970s. By 2012 China was the world's fourth-greatest oil producer. Since 1993 China was a net importer of petroleum. As of 2012 China was the world's second-largest oil-consuming nation and second-largest oil-importing nation, second in both only to the United States.[28]

In 2008 China had a growing population of over 1.3 billion people and relied on other states for resources, such as oil. The Chinese government is taking diplomatic action to improve their relationship with ASEAN states. According to a 2008 report, the Chinese government had to take extra strides to secure good relationships with its neighbors. Malaysia is a neighbor state that was often seen as in contention with China because of political differences. Yet, the relationship with Malaysia was symbiotic because of their large supply of oil and their need for security assurances from China. In 2008 Malaysia was the number one producer of petroleum in the South China Sea, and they account for over one half of the production in the region.[31]

According to a 2005 article in Washington Post, China's oil relationship with other countries shifted from that of a world exporter to that of a world importer. This shift to dependence on foreign oil has changed the exploration and acquisition policies of China. China's oil need overwhelmed its internal capabilities. According to an article published in 2005, oil acquisition was a process of investment in foreign lands and a creation of an internal oil reserve in case of emergency.[32] According to a 2008 article China took steps to alter its security policies in places in the world that were rich in oil. By 2008 China National Petroleum Corporation had invested in producing, marketing, and supplying oil in China.[33] According to a 2005 study, this company supports internal sources of oil production and reserves.

By 2004 China was investing in its first national oil reserve base to avoid foreign dependence. There are three different provinces in which they are focusing. The first Zhoushan, Zhejiang Province, was built by Sinopec, China's largest oil refining company. The storage space is 5.2 million cubic meters says the National Development and Reform Commission.[34] Zhejiang was originally a commercial oil transfer base. Its coastal position makes it convenient for movement purposes, although it is at the same time vulnerable to offshore violence. The next reserve of interest In Huangdao or Qingdao, Shangdong Province and the final Dalian, Liaoning Province. All of these reserves are coastal and with their creation comes vulnerability to possible coastal attacks. These stockpiling strategies, as well as the international acquisition companies, are state-run initiatives to combat supply disruption. In 1993 (after China became a net importer of oil) China projected that these stockpiling sites would be filled and provide for 90 days of oil. This goal, however, is yet to be fulfilled.[35]

In 2005 China began to take drastic measures with its internal oil reserve programs as domestic oil production in China supplied only two thirds of the its needs and the estimated consumption requirement by 2020 was about 600 million tons of crude oil.[32]

Along with an emphasis on defensive oil stocks, there is a significant push to create an offensive oil acquisition program.

By 2007, the oil stocks and offshore reserves have tidewater access. It is also a weakness because, as mentioned before, the stocks and reserves are not protected by land. In 2007, United Press International journalist questioned energy security, as all three of the stock oil bases were within range of Taiwanese cruise missile attacks.[36]

In 2004, China had to import 100 million tons of crude oil to supply its energy demand, more than half of which came from the Middle East. China's oil output was far lower than its domestic need as its growing economy demanded greater and greater amounts of crude oil every year.[37] It is a possibility that high oil prices could quell global economic growth in China. This is one of the reasons why it no longer exports oil to Japan who formerly depended heavily on Chinese oil. They had major disagreements on prices and China decided to cease the trade agreement. China is attempting to secure its future oil share and establish deals with other countries. Chinese President Hu Jintao has proposed to build a pipeline from Russian oil fields to support China's markets as well as other billion-dollar arrangements with Russia, Central Asia, and Burma.[38]

By 2008, China owned less than 1 percent of the oil company BP, worth about $1.97 billion.[38]

China's oil industry is dominated by its state owned oil companies, in particular three major players: China National Offshore Oil Corp, China National Petroleum Corp, and Sinopec. In 2004, these companies had largely invested in exploration and development in countries that had oil fields but do not have funds or technology to develop them. in 2004 CNOOC signed a deal to extract a million barrels of oil a day in Indonesia as well as other projects with Australia.[39] In addition, an oil reserve that would theoretically fill with 30 days worth of oil has begun construction in China. However, their oil policy on the world oil market was not completely clear as to how they would deal with the situation as a whole.

According to an article published in 2006 by the Carnegie Endowment, as China's economy increased seven times between 1980 and 2004, and its total energy consumption merely doubled.[40] In order to obtain oil, China had to import from states that can be considered unstable. China's need for oil may outweigh the costs of importing from a conflict-laden Middle East. China is striving to diversify their energy sector by seeking imports from other regions of the world and by starting alternative energy programs such as nuclear.

As reported in 2011, as of 2010 China consumed 455 million tons oil of which over 200 million tons were imported. China's oil demand was expected to increase by 6% in 2011 according to PetroChina.[41]

See also[edit]


  1. ^ "Meet the Chinese Newcomers Staking a Claim to Global Oil Trading". Bloomberg News. 12 January 2016. Retrieved 14 January 2016. 
  2. ^ a b "International energy data and analysis" (PDF). U. S. Energy Information Analysis. May 2015. p. 36. Retrieved 14 January 2016. 
  3. ^ a b "China overtakes US as the biggest importer of oil". BBC News. 10 October 2013. Retrieved 11 October 2013. 
  4. ^ "CNPC announces Kenkiyak-Kumkol section of Kazakhstan-China Oil Pipeline becomes operational" (Press release). China National Petroleum Corporation. 2009-07-15. Retrieved 2009-07-15. 
  5. ^ "Kazakhstan-China oil pipeline opens to operation". Xinhua. 12 June 2006. Retrieved 15 March 2008. 
  6. ^ a b Cooley, Alexander (18 March 2015). "China's Changing Role in Central Asia and Implications for US Policy: From Trading Partner to Collective Goods Provider" (PDF). U.S.-China Economic and Security Review Commission. p. 8. Retrieved 14 January 2016. 
  7. ^ a b "$20 is the new $40; The oil market", The Economist via Gale, 418, 15 January 2016, retrieved 15 January 2016 Gale number:8972
  8. ^ a b "2014 Annual Report" (PDF). China National Offshore Oil Corporation. 2014. p. 84. Retrieved 14 January 2016. 
  9. ^ One Belt, One Road
  10. ^ "Sri Lanka Supports China's Initiative of a 21st Century Maritime Silk Route". 
  11. ^ Shannon Tiezzi, The Diplomat. "China Pushes 'Maritime Silk Road' in South, Southeast Asia - The Diplomat". The Diplomat. 
  12. ^ "Reflections on Maritime Partnership: Building the 21st Century Maritime Silk Road". 
  13. ^ Jeremy Page (8 November 2014). "China to Contribute $40 Billion to Silk Road Fund". WSJ. 
  14. ^ a b Heubeck, C.; Story, K.; Peng, P.; Sullivan, C.; Duff, S. (2004), "An integrated reservoir study of the Liuhua 11-1 field using a high-resolution three-dimensional seismic data set" (PDF), Seismic imaging of carbonate reservoirs and systems: AAPG Memoir, Houston, Texas, 81: 149–168 
  15. ^ a b "Liuhua 11-1, South China Sea, China", Offshore-Technology, 30 March 2008 
  16. ^ 11 May 2012, 南海钻井平台上工人直升机上下班, NetEase News
  17. ^ "Not the usual drill: Tensions mount dangerously in contested waters". Singapore: The Economist. 10 May 2014. Retrieved 14 January 2016. 
  18. ^ "The Operation of the HYSY 981 Drilling Rig: Vietnam's Provocation and China's Position", Ministry of Foreign Affairs, the People's Republic of China, Beijing, 6 August 2014, retrieved 15 January 2016 
  19. ^ "Suggested title: oil reserves (China)". China News. 19 July 2007. 
  20. ^
  21. ^ "suggested title: Chinas Energy Security Strategy". China Sourcing Blog. October 2009. 
  22. ^
  23. ^ Marvin Weller (1984), pp. 393-394.
  24. ^ a b Andrews-Speed, Philip (November 2014). "China's Energy Policymaking Processes and Their Consequences". The National Bureau of Asian Research Energy Security Report. Retrieved December 5, 2014. 
  25. ^ The Library of Congress Country Studies, "China Oil and Natural Gas," July 1987
  26. ^ a b c "China's oil imports set new record". Bloomberg BusinessWeek. Retrieved 2011-02-02. 
  27. ^ "China's 2006 crude oil imports 145 mln tons, up 14.5 pct – customs", Forbes, archived from the original on November 19, 2007 
  28. ^ a b "Central Asia: Regional Development", State Department, United States Government, 2 April 2008 
  29. ^ King, Byron (June 2005), "Investing in Oil: A History", The Daily Reckoning 
  30. ^ Energy in Sweden 2010, Facts and figures Table 47 Global supply of oil, 1990–2009 (TWh)
  31. ^ "South China Sea and Natural Gas." Global Security. 2 April 2008 <>
  32. ^ a b Goodman, Peter S. (13 July 2005), "Big Shift in China's Oil Policy", Washington Post 
  33. ^ China National Petroleum Corporation." Business Week. 8 April 2008
  34. ^ Chang, Andrei. "Analysis: China's Fuel Oil Reserves." United Press International 21 December 2007
  35. ^ Nieh, Daniel, comp. The People's Republic of China's Development of Strategic Petroleum Stockpiles
  36. ^ Chang, Andrei (21 December 2007), "Analysis: China's Fuel Oil Reserves", United Press International 
  37. ^ "China suspends crude oil exports to Japan,", 21 February 2004
  38. ^ a b Ponikelska, Lenka; Subrahmaniyan, Nesa (15 April 2008), "China Buys Stake in BP; Investment Is 'Welcomed' (Update2)", Bloomberg 
  39. ^ Hoffmann, Fritz (18 October 2004), "China's Quest for Oil", TIME 
  40. ^ Pei, Minxin (13 April 2006), "China's Big Energy Dilemma", Carnegie Endowment for International Peace, retrieved 15 January 2016 
  41. ^ "China's Demand for Oil to Grow 6.2% in 2011: PetroChina", The China Perspective, 24 January 2011 


  • Weller, J. Marvin. Caravan Across China: An American Geologist Explores the Northwest 1937-1938. (1984). March Hare Publishing, San Francisco. ISBN 0-918295-00-9.

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