Where Will China’s Exploration and Development of Oil/Gas Go Next?

By Zhang Kang, Sinopec Petroleum Exploration & Development Research Institute

Since 1985, China’s exploration and development of oil/gas has followed the development strategy of simultaneously promoting the development of oil/gas, consolidating the east, developing the west and developing the ocean floor. Since 1985, China’s production pattern of oil/gas has changed greatly, and in the east, the proportion of reserves and output of oil/gas in the national total has declined from around 95% to around 50% in 2013. Oil/gas industrial bases have been built in Northwest China and in the sea, and the distribution of oil/gas has shifted toward a new equilibrium. Achieving sustainable development of China’s oil/gas industry has become a topic of concern.

Promoting the production of petroleum/natural gas

In 1985, China’s output of gas and oil was 12.833 billion cubic meters and 130.37 million tons, respectively, the output of gas was equivalent to 8.9% of oil output (10 thousand cubic meters of gas is equivalent to 9 tons of oil), and China’s oil/gas industry strongly preferred oil to gas. In 2013, China’s proven reserves, output and remaining reserves of natural gas were equivalent to 50.7%, 52.7% and 119.1% to those of oil, respectively. In terms of equivalent value, the proven reserves and output of gas are around 50% of those of oil, and in terms of future potential (remaining reserves), the amount of gas is greater than that of oil.
China’s production of petroleum has entered the late mature stage, and typical performance is as follows:
The annual growth of the remaining reserves and output is very low, being 0.17% and 1.74% in 2000 and 2013, respectively.
The reserves/production ratio is low and has decreased constantly, being 15.75 and 12.87 in 2000 and 2013, respectively.
In China, many oil/gas fields developed earlier have entered the stage of tapping potential, mainly increasing the recovery rate. In 2013, China’s average oil recovery rate was 24.37%, the average oil recovery rate was 36.95% and 54.22% in Songliao Basin of China and Sartu, respectively, and the old oil fields in eastern China still continued to obtain benefits from enhancing the recovery rate. At present, a 1% growth of recovery rate in China’s proven geological reserves is equivalent to increasing 350 million tons of recoverable reserves, being 1.99 times newly added recoverable reserves in 2013. The tapping potential of increasing reserves and production is an indispensable part of the development strategy for the oil/gas industry.
There have been notable changes in the development of natural gas: (1) the annual growth of the remaining reserves and output began to gradually decrease from two-digit in the late 20th century to one-digit, being 8.90% and 7.25% in 2010 and 2013, respectively. (2) The reserves/production ratio has reduced drastically, being 56.06 and 29.06 in 2000 and 2013, respectively. Natural gas has rapidly gone through its rapid growth period of reserves and output. The shift preferring oil to gas to a relatively balanced development of oil/gas through simultaneously promoting the production of oil and gas has been completed. The successful development of natural gas is especially shown in the gas zones of central China, the proven reserves, remaining reserves and output of natural gas in the Erdos and Sichuan Basins account for 55.18%, 59.53% and 53.70% of the national total, and the two basins have become China’s primary natural gas industrial base.

Development of low grade oil and unconventional oil/ gas

The heavy oil in the Tarim and Junggar Basins, the natural gas with high content of hydrogen sulfide in marine carbonate rocks in the Sichuan Basin, and tight oil/gas deeply buried in the main basins are low grade oil/gas. The abundance of Tahe and Halahatang that rank at the forefront of large oil fields in the Tarim Basin is 72.0 thousand cubic meters/ km2 and 41.1 thousand cubic meters/ km2, respectively, and Tahe and Halahatang belong to special low abundance zones. The abundance of Jiyuan and Ansai that rank at the forefront of large oil fields in the Erdos Basin is 102.9 thousand cubic meters/ km2 and 109.6 thousand cubic meters/ km2, respectively, being close to the lower limit of low abundance. Jiyuan and Ansai also belong to low permeability oil fields, and are developed mainly using unconventional technical methods such as horizontal well and staged fracturing.
According to the exploration in recent years, the proportion of mid and low grade reserves in the newly added geological reserves of petroleum climbed from less than 50% during 2005-2010 to over 90% in 2013, and the special/ultra low permeability resources accounted for 81% of the low permeability resources. The remaining reserves after the long-term development of mid and high grade oil/gas fields proven earlier, and the undeveloped reserves that have yielded little in the long term mostly belong to low grade reserves. In future exploration and development, players should pay attention to the cost reduction and economic benefits during the development of this kind of resources.

Players should prepare for a new round of strategic deployment

In recent ten years, China’s growth of energy has slowed down. For petroleum, China’s average growth of the remaining reserves and output in the last 13 years was only 0.17% and 2.15%, respectively, and the reserves/production ratio was only 12.87 in 2013. Especially in Northwest China and in the sea, which were the focus for development, the rapid growth of new zones seemed to be passed through quickly, growth declined substantially, and the reserves/production ratio of those two regions was only 13.01 and 11.41, respectively. Natural gas development has followed a similar trend. In the development of new zones and the development of natural gas, production zones began ”age.” China’s oil/gas needs the strategy from a new round of oil/gas producing zones for replacement to offer new development impetus.

Simultaneously promoting the conventional and unconventional oil/gas

In the near and medium term, China’s development of oil/gas will still mainly include conventional oil/gas. Investment in conventional oil/gas should be for increased reserves and production of developed reserves in old oil/gas fields, development of undeveloped reserves, and development of new oil/gas fields and producing zones.
For unconventional oil/gas, based on the actual situation, China will focus on developing tight oil/gas, shale oil/gas and coalbed gas. Development of tight oil/gas and heavy oil has already been pursued at a fairly high level. Coalbed gas development has also been pursued, but the development momentum is weaker than that of tight oil/gas, especially shale oil/gas. In China, shale oil/gas, another new type of unconventional oil/gas, will probably develop rapidly and become a strong growth point of unconventional oil/gas.

Development of marine oil/gas

In recent years, it has been confirmed that there is a large area of contiguously distributed Mesozoic marine layer in China’s seas (especially the East China Sea and the north of the South China Sea), and this is a new field containing oil/gas that is worth long-term exploration.
The common problem of China’s marine layers with oil/gas prospects lies in their great depth. This not only puts higher requirements on drilling technology, but also makes exploration and development costly. Reducing costs and increasing benefits have become the key for the exploration and development of marine layer.

Development of new gas producing zones

In petroleum geology, explorers have discovered a great gas field group with an early Carboniferous marine layer as source rocks in the northeast of the Junggar Basin and the Santanghu Basin, and it has been listed among new oil/gas zones worthy of development.