People's Republic of China - Oil
Runaway growth in energy consumption poses a real threat to China's energy security. The era of Chinese energy independence ended in 1993 when the country due to its economic growth and subsequent increased oil consumption.
China's net oil imports exceeded those of the United States by October 2013 on a monthly basis and by 2014 on an annual basis, making China the largest importer of oil in the world. The emergence of China as the world's largest net oil importer was driven by steady growth in Chinese demand, increased oil production in the United States, and a flat level of demand for oil in the U.S. market. US total annual oil production rose by 28% between 2011 and 2014 to nearly 13 million barrels per day, primarily from shale oil, tight oil, and Gulf of Mexico deepwater plays.
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China is the world's most populous country and has a rapidly growing economy, which has driven the country's high overall energy demand and the quest for securing energy resources. China was a net oil exporter until the early 1990s and became the world's second largest net importer of oil in 2009. China's oil consumption growth accounted for half of the world's oil consumption growth in 2011. Coal supplied the vast majority (70 percent) of China's total energy consumption of 90 quadrillion British thermal units (Btu) in 2009. Oil is the second-largest source, accounting for 19 percent of the country's total energy consumption.
According to Oil & Gas Journal (OGJ), China holds 20.4 billion barrels of proven oil reserves as of January 2012, up over 4 billion barrels from three years ago and the highest in the Asia-Pacific region. China's largest and oldest oil fields are located in the northeast region of the country. China produced an estimated 4.3 million barrels per day (bbl/d) of total oil liquids in 2011, of which 95 percent was crude oil. China's oil production is forecast to rise by about 170 thousand bbl/d to nearly 4.5 million bbl/d by the end of 2013. Over the longer term, EIA predicts a flatter incline for China's production, reaching 4.7 million bbl/d by 2035.
China's national oil companies (NOCs) wield a significant amount of influence in China's oil sector. Between 1994 and 1998, the Chinese government reorganized most state-owned oil and gas assets into two vertically integrated firms: the China National Petroleum Corporation (CNPC) and the China Petroleum and Chemical Corporation (Sinopec). These two conglomerates operate a range of local subsidiaries, and together dominate China's upstream and downstream oil markets. CNPC is the leading upstream player in China and, along with its publicly-listed arm PetroChina, accounts for roughly 60 percent and 80 percent of China's total oil and gas output respectively. CNPC's current strategy is to integrate its sectors and capture more downstream market share. Sinopec, on the other hand, has traditionally focused on downstream activities, such as refining and distribution, with these sectors making up nearly 80 percent of the company's revenues in recent years. The company seeks to acquire more upstream assets gradually.
Additional state-owned oil firms have emerged over the last several years. The China National Offshore Oil Corporation (CNOOC), which is responsible for offshore oil exploration and production, has seen its role expand as a result of growing attention to offshore zones. Also, the company has proven to be a growing competitor to CNPC and Sinopec by not only increasing its exploration and production (E&P) expenditures in the South China Sea, but also extending its reach into the downstream sector, particularly in the southern Guangdong Province. The Sinochem Corporation and CITIC Group have also expanded their presence in China's oil sector, although they are still relatively small.
Whereas onshore oil production in China is mostly limited to CNPC and CNOOC, international oil companies (IOCs) have been granted greater access to offshore oil prospects and unconventional gas fields, mainly through production sharing agreements and joint ventures. IOCs involved in offshore E&P work in China include: Conoco Phillips, Shell, Chevron, BP, Husky, Anadarko, and Eni, among others. China's NOCs must hold the majority participating interest in a production sharing contract (PSC) and can become the operator once development costs have recovered. IOCs offer their technical expertise in order to partner with a Chinese NOC and make a foray into the Chinese markets.
China's increasing dependence on oil imports, the need to secure and diversify energy supply, the need to develop technical expertise in unconventional resources, and attempts to capture value upstream are factors driving Chinese NOCs to invest in international projects and form strategic commercial partnerships with IOCs. China is taking advantage of the economic downturn to step up its global acquisitions and use its vast foreign exchange reserves (estimated at over $3 trillion in 2012) to help purchase equity in projects or acquire stakes in energy companies. Since 2009, the NOCs have purchased assets in the Middle East, North America, Latin America, Africa, and Asia. The NOCs invested $18 billion in overseas oil and gas assets in 2011. The NOCs increased their natural gas purchases abroad and invested $12 billion in 2011, out of a total $18 billion of oil and gas purchases, to gain more access to LNG and unconventional gas.
China's overseas equity oil production grew significantly over the past decade from 140,000 bbl/d in 2000 to over 1.5 million bbl/d of oil production in 2011. CNPC has been the most active company, while Sinopec, CNOOC, and other smaller NOCs have also expanded their overseas investment profile. CNPC, holding hydrocarbon assets in 30 countries, produced a record 1 million bbl/d from overseas oil equity by the end of 2011, up from 865,000 bbl/d in 2010. CNPC also produced 4.9 Bcf/d of natural gas in 2010. Sinopec's overseas equity oil output reached 400,000 bbl/d in 2011, and the NOC targets producing 1 million bbl/d from overseas oil equity by 2015. CNOOC produced about 150,000 bbl/d in 2011 and is swiftly increasing oil and gas purchases in 2012 in attempts to gain technical knowledge and acreage in unconventional gas and deepwater hydrocarbon resources. CNOOC signed an agreement in 2012 to purchase Canadian oil company Nexen for over $15 billion.
China's crude oil imports have grown robustly in the past several years, and reached a record-high 6 million bbl/d by May 2012. China imported nearly 5.1 million bbl/d of crude oil on average in 2011, rising 6 percent from 4.8 million bbl/d in 2010. In the first half of 2012, imports rose even higher to 5.6 million bbl/d. Crude imports now outweigh domestic supply, consisting of over half of total oil consumption in 2011. EIA expects China to import about 75 percent of its crude oil by 2035 as demand is expected to grow faster than domestic crude supply.
The Middle East remained the largest source of China's crude oil imports, although African countries, particularly Angola, began contributing more to China's imports in recent years. As part of China's energy supply security policy, the country's NOCs are attempting to diversify supply sources in various regions through overseas investments and long-term contracts. In 2011, the Middle East supplied 2.6 million bbl/d (51 percent). Other regions that export to China include Africa with 1.2 million bbl/d (24 percent), Asia-Pacific region with 173,000 bbl/d (3 percent), and 1.1 million bbl/d (22 percent) from other countries. Saudi Arabia and Angola ranked as China's two largest sources of oil imports, together accounting for almost one-third of China's total crude oil imports. Sudan and South Sudan became significant oil exporters to China until production was shut in at the start of 2012, following political conflicts between the two African nations over their oil resources. Exports from Sudan and South Sudan to China dropped from 260,000 bbl/d in 2011 to zero by April 2012.
China reduced imports from Iran, historically the third largest exporter to China, by 34 percent in the first quarter of 2012 to 345,000 bbl/d, in light of a contract dispute between Sinopec, China's key oil importer, and Iran's state oil company. China replaced the lost share of oil from Iran and Sudan and South Sudan with imports from other Middle Eastern countries, Venezuela, Russia, and Angola. The contract dispute with Iran was settled in early 2012, and oil imports from the country rebounded by May 2012 to prior-year levels. However, most analysts expect that China will continue to diversify import sources to reduce risk of further global supply disruptions and uncertainty surrounding oil supplies from Iran as a result of U.S. and EU sanctions.
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