Abstract

Recent visits to oil and gas fields in the People's Republic of China by American technical petroleum delegations have revealed a wealth of information concerning Chinese industry operations. Only three years ago, virtually nothing on this subject was known in the West. Based on first-hand observations, this paper discusses China's principal onshore and offshore producing areas and evaluates the present status of its drilling and producing technology.

Introduction

China's petroleum policies have undergone significant--indeed, unprecedented-changes in the past three years. This parallels an increasing openness and changing attitude on the part of the government, which now is emphasizing the value of technology available for purchase from abroad, rather than the previous philosophy of total self-reliance, which expended far too much effort towards reinventing the wheel.

In pursuit of its goal of markedly increasing oil output to satisfy a growing domestic demand and to establish a sizable exports business, China signed exploration contracts in 1979 with 33 foreign oil companies covering offshore areas in the South China Sea, Yellow Sea and Gulf of Bohai. And as a result of the recent signing of a contract with Japan National Oil Co., the latter acquired first opportunity at joint ventures in other parts of the relatively shallow Bohai, where most of China's offshore activity has been concentrated.

Chinese officials have emphasized that regardless of the nationality of joint interest partners. China will expect any foreign operator to utilize "latest offshore technology." In China, that translates as "American technology." Thus, directly or indirectly, the U.S. petroleum industry could find itself increasingly involved in China in coming months, presuming that the current favorable political winds continue to blow.

Whether Western oil companies are able to consummate a joint interest drilling operation in Chinese offshore waters remains to be seen. All will depend on the type deals offered and incentives involved, and different companies have different interests. For example, some have little or no refining capacity in the area and may have no interest in an oil payment deal. Too, such operations must be considered high-risk ventures, both from the political and geological standpoints. But China obviously wants and badly needs foreign offshore expertise. At this point, it is expected that several foreign companies will eventually come to terms of some sort. Too, it will not be a great surprise if foreign drilling contractors also eventually crack the Chinese market. Exploratory talks have already been held with several such firms.

CHINA'S OIL INDUSTRY

China's petroleum potential remains an unknown quantity. A number of discoveries have been announced in recent years, current oil production is near the2-million-bpd mark, and speculations on proved reserves range from a conservative guess of 18 billion barrels to the totally absurd. Many of the more absurd numbers have originated on the political or promotional level, including the U.S. Embassy in Tokyo and Washington.

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