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CHINA FOCUS

China grapples with

future energy needs
Photo: AP/SCANPIX

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22
OVERVIEW
China on the road towards ener
Government is urging change as a vital part of the country’s
future energy plan and companies are taking up the challenge
XU YIHE
Beijing
C HINA is embracing the
energy transition, work-
ing hard on structural
changes to enable an en-
ergy future featuring a low-
carbon, environmentally sound,
reliable, and affordable power sup-
ply.
Energy companies are develop-
ing strategies to offer green alter-
native solutions, including
cleaner fossil fuel such as natural
gas along with wind, solar, geo-
thermal, hydropower and nuclear
power.
Energy efficiency also consti-
tutes a vital part of this transi-
tion, with the Chinese govern-
ment now calling for what it
terms “quality” energy project
development rather than pushing
for speed and scope regardless of
intensity and environmental
impact.
A recent report by Norway’s
DNV GL said that 61% of Chinese
senior oil and gas executives it
surveyed said their organisations
were preparing for the shift to a
FOC US C H INA
lower-carbon energy mix, com-
pared with 51% globally.
The core driver for the ongoing
transition is the country’s Blue
Sky action plan, which aims to cut
emissions of sulphur dioxide,
nitrogen oxide and other pollut-
2012
2013
CHINA ENERGY CONSUMPTION
Year Energy Use*
2011 3.87
4.02
4.17
Coal
70.2%
68.5%
67.4%
2014 4.26 66.0%
ants by at least 15% in the 2015- 2015 4.21 63.8%
2020 period. 2016 4.36 61.9%
China has increased its power 2017 4.49 60.4%
generation capacity fired by 2018 4.71 59.1%
non-fossil fuel, aiming to signifi- * Billion tonnes of coal equivalent
cantly cut the use of coal in 2019. Source: China Petroleum Economics & Technology Research Institute
This year will see another 110
million kilowatts of new pow-
er-generation capacity coming hydropower has been increased to
online, including 62 million kilo- about 95% and utilisation of wind
watts powered by non-fossil fuel. and solar power has climbed by 4.3
A government official from the percentage points and three per-
National Energy Administration centage points, respectively.
told a recent industry conference in The official said that the gov-
Beijing that by the end of last year ernment will continue to promote
China had increased power genera- the consumption of clean energy,
tion capacity by non-fossil fuels to aiming to drastically reduce the
more than 770 million kilowatts, use of coal. China will continue to
including 350 million kilowatts by shut inefficient coal mines in
hydro units, 180 million kilowatts favour of renewable energy.
by wind units and 170 million by The government endorsed up to
solar units. The utilisation rate of 10 offshore wind projects last year
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Oil
16.8%
17.0%
17.1%
Gas
4.6%
4.8%
5.3%
Renewable
8.4%
9.7%
10.2%
in Fujian province and six in
Guangdong province.
China has outlined a plan to
boost wind power generation
capacity to 210 million kilowatts,
including 5 million kilowatts of
offshore wind power, by 2020. It
17.1% 5.7% 11.2%
18.0% 5.9% 12.3% also aims to generate 420 billion
18.3% 6.2% 13.5% kilowatt hours of wind power per
18.9% 7.8% 14.2% year, accounting for 6% of the total
18.9% 7.8% 14.2% power demand.
This plan is considered quite
conservative given that there is
plenty of potential to boost wind
power utilisation.
with total capacity of 2500 mega- China had earlier pencilled in
watts, in part to deliver its prom- plans to boost wind power capac-
ise to increase offshore wind ity to 250 million kilowatts by
power capacity to 5 million kilo- 2020.
watts by the end of 2020. However, that plan has been
These projects, each with a rejected by the economic deci-
capacity ranging from 200 MW to sion-making body, the National
300 MW, are located in Jiangsu, Development & Reform Commis-
Zhejiang, Fujian and Guangdong sion.
provinces in the coastal areas. Officials say that while the
Currently, there are up to 20 off- commitment to renewables is
shore wind power projects under impressive, China is far from sev-
construction or in the approval ering its ties to fossil fuels for now
process. Eight of these projects are — the country still relies on coal
 15 March 2019
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Improving economics for China’s

Winds of change: the Chinese government
is keen to promote the use of renewable
and cleaner energy sources and has set
ambitious targets, but the country is very
heavily dependent on coal and fossil fuels
Photo: REUTERS/SCANPIX
renewables sees positive rethink
CHINA’S state-run oil companies
are re-considering renewable
power, both as a profit generator
and a source of environmentally
friendly power for their upstream
operations, writes Xu Yihe.
The nation’s second-largest
energy company Sinopec is pursu-
ing geothermal heating projects
in northern China’s Hebei prov-
ince.
It now provides geothermal
heating for an area of around 50
square kilometres, a size to be
doubled by 2020.
Meanwhile, offshore operator
China National Offshore Oil Cor-
poration (CNOOC) is returning to
the offshore wind sector five years
after it shut down its renewable
business development unit.
It said earlier this year that it is
currently involved in an offshore
wind project in Jiangsu province
in east China, where the authori-
ties have so far approved 24 off-
shore wind projects with a com-
bined capacity of 6700 megawatts.
It makes sense for CNOOC to
pick up offshore wind because it
Alignment: CNOOC chief
executive Yuan Guangyu
Photo: REUTERS/SCANPIX
can tap its offshore engineering
expertise and apply the clean
energy for its offshore oil and gas
operations.
Company chief executive Yuan
Guangyu said recently that off-
shore wind in particular “aligns
with the company’s overall busi-
ness, given its resources in off-
shore engineering and experience
in offshore operations”, as part of
the company’s new strategy to
“pursue a green, low-carbon and
environment-friendly develop-
ment mode”, while still steadily
expanding its hydrocarbon
reserves and production.
CNOOC has also shown interest
in small-scale floating nuclear
power platforms as a source of
electricity for its exploration
efforts in the South China Sea.
The company and China Guang-
dong Nuclear Power Corporation
(CGNPC) have signed a strategic
co-operation agreement on
nuclear power to fuel offshore
installations.
CGNPC has been developing a
small modular nuclear reactor for
maritime use called the ACPR50S.
China National Nuclear Corpo-
ration and CGNPC announced
plans in 2016 to develop jointly the
first of 20 planned Chinese nuclear
power barges, with a view to
deploying it in the South China
Sea by 2020.
However, little progress has
been reported since the plan was
announced.

rgy transition

to meet the bulk of its massive
energy needs.  and atmospheric particulates
“The government is set to cut
coal use, but that can’t be achieved
overnight, considering that the
coal industry provides jobs to mil-
lions of its people and there is a
long way to go before other energy
forms fill the gap left over by
coal,” one official says.
Energy mix
Primary energy consumption last
year rose by 4.8% over the year be-
fore to 4.71 billion tonnes of coal
equivalent, or 3.30 billion tonnes
of oil and gas equivalent.
That total includes 625 million
tonnes of oil (up 7%), 280 billion
cubic metres of natural gas (up
18%) and 180 million kilowatt
hours of electricity generated by
renewable sources. According to
the statistics, 2018 was the first
year in which China managed to
reduce coal use below 60% of its
total energy mix.
By 2020, the State Council
wants sulphur dioxide and nitro-
gen oxide emissions to fall by 15%
known as PM2.5 to be cut by 18%,
both from the 2015 level.
Coal consumption in the cities
of Beijing and Tianjin, as well as
in the provinces of Hebei, Shan-
dong and Henan, must be reduced
by 10%, while consumption in the
Yangtze River Delta region should
be down by 5% by 2020.
The cuts require that efforts be
made to shut coal-based power
generating units with capacity
below 300,000 kilowatts, which
are deemed energy intensive,
unsafe and environmentally haz-
ardous.
A timely implementation for
the energy transition requires
multiple approaches in parallel so
that most, if not all, existing coal-
fired generation is retired and the
use of non-renewable energy
sources is reduced. The strategy
initiatives that are being pursued
are intended to lead to the crea-
tion of a new energy system based
on 60% renewable energy by 2050.
24
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ONSHORE

Wang and CNPC betting big on

Chinese giant’s
chairman — who
is expected to
retire this
year — stepping
up exploration to
tackle rapidly
declining output
XU YIHE
Beijing

F OR Wang Yilin, the future

of China’s big oil lies under
the shifting sands of Chi-
na’s far north-west.
Wang is chairman of China’s
largest oil company, China
National Petroleum Corporation
(CNPC), which supplies more than
50% of the country’s oil and 70% of
its gas.
He has come under pressure
over the past year to stem a
decline in output from mature
fields while also stepping up
exploration to identify fresh
reserves and improve the coun-
try’s energy security.
The fields in the east of the
country have seen rapid reserve
depletion and diminished produc-
tion over the past 10 years. 
Under a new strategy to employ
its workforce fully, CNPC — like
Sinopec — has started to transfer
crews from east to west.
Late in 2018, Wang, who is get-
ting close to retirement age,
increased CNPC’s exploration
expenditure to 5 billion yuan ($750
million) for 2019, five times that of
2018, hoping the fresh funding
will help the company make
major oil and gas discoveries in
the west.
The additional investment will
be spent in exploration in frontier
areas in the north and north-west
of China’s western region, where
CNPC is pinning its hopes on
major discoveries. 
Sources say that the company Expenditure: CNPC chairman Wang Yilin
has already marked targets for
drilling up to 46 wildcats in ultra- wide area covering several basins, duction to 56 million tonnes of oil southern part of the basin, and secure China’s energy self-suffi-
deep reservoirs, shale oil and fron- including Junggar, Tarim, Ordos equivalent, up from last year’s 54.7 gas reserves to 6.4 trillion cubic ciency. 
tier areas in the far north-western and Qaidam in Xinjiang, Shaanxi million tonnes. metres in the northern part of the Chinese President Xi Jinping’s
basins in Xinjiang. and Qinghai provinces, for what it Of the total production, 24.15 basin in Inner Mongolia and call for greater self-reliance and a
The latest investment is in addi- calls “carpet-style” exploration. million tonnes will be oil and 40 Shaanxi province. widening economic slowdown
tion to CNPC’s earlier plan to billion cubic metres will be natu- have provided the impetus for
invest 150 billion yuan in E&P in Boost ral gas, mostly tight gas. Wells reopened companies to start prioritising
Xinjiang by 2020 to push local pro- At the Karamay field in northern Last year, total gas output in Also last year, the company their national objectives.
duction to more than 50 million Xinjiang, CNPC plans to boost its Changqing reached 38 Bcm — reopened 1000 wells out of China last year imported 462
tonnes of oil equivalent between oil production by 1 million tonnes equivalent to a quarter of China’s 6000 shut down at Changqing million tonnes of crude — 10%
2018 and 2020. (7.35 million barrels)  this year to total gas production — comforta- when the oil price dived a few more than the previous year —
The Chinese government has about 12.4 million tonnes, and fur- bly beating an earlier target of 36.8 years ago, helping boost oil pro- which accounts for about 70% of
long wanted to turn Xinjiang into a ther to 16 million tonnes by 2025. Bcm. duction by 480,000 tonnes last the country’s total oil demand.
leading oil and gas production hub, At its largest gas field, Chang- Company officials said that year. The escalating trade war
and CNPC is now closer to turning qing, in Ordos basin, CNPC will CNPC has increased the oil The updated strategy has between China and the US has
those ambitions into reality. drill up to 3600 production wells reserves at Changqing to 5.2 bil- emerged within the context of served as a reminder to China that
The company has staked out a this year to boost oil and gas pro- lion tonnes, mostly located in the increased political pressure to energy is a key strategic commod-
ity that could be affected by the

Drilling spree aimed at prioritising domestic output ongoing dispute.

CHINA National Petroleum Corporation
(CNPC) has decided to drill up to 20,000 oil and
gas wells per year through 2024, many of
which will target shale gas, tight gas and shale
oil, writes Xu Yihe.
In 2019 alone, drilling footage is expected to
rise by 20%, and the number of horizontal
wells will reach 2000, the company
said.  Sources said CNPC will carry out the
drilling spree regardless of drilling economics
and potential oil price movements, because
the operator is set to prioritise domestic pro-
duction to help meet growing oil demand
while trying to limit dependence on imports.
To support its drilling activities, CNPC will
look to increase drilling speed by 5% and frack-
ing speed by 20%. It also plans to boost rig
mobilisation to 85%. Drilling of such magni-
tude will call for CNPC to deploy up to 2200
land rigs, mostly in the Sichuan basin, Ordos
basin and basins in Xinjiang.  tonnes produced in 2015.
CNPC plans to invest more than 10 billion
yuan ($1.5 billion) to build drilling equipment,
including land rigs and fracking trucks.
Chinese production dipped to a
seven-year low last year of 189
million tonnes, or 3.8 million bar-
rels per day, which was down 1.3%
from 2017 and 24 million tonnes
lower than the peak of 215 million
CNPC has been struggling with
natural decline at mature fields in
the Songliao basin in the coun-
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n oil finds in north-west China

Strategy: a Chinese national flag flies between CNPC flags at the company’s headquarters in
Beijing, China Photo: REUTERS/SCANPIX

Photo: BLOOMBERG

try’s north-east, where the giant China needs cheap tertiary

Daqing field is located.  reserve recovery technology.
The Paris-based International
Energy Agency is less optimistic
about China’s future oil produc-
tion, and says in its latest report
that Chinese oil output will pla-
teau at around 3.8 million bpd by
2022.
Problem in common
CNPC is not the only national oil
company struggling with dwin-
dling production. Sinopec’s crude
production fell by 60,000 bpd
year-on-year in 2018.
In the eastern regions, where
production has already peaked,
China has about 30.1 billion
tonnes of available oil in place,
with only 30% of that considered
recoverable. Most new finds in the
west are difficult to explore due to
complex geology plagued by low
permeability.
Wang may not stay long enough
as CNPC’s chairman to see the
fruits of his efforts, but his strat-
egy launched late last year to
increase spending and accelerate
exploration in frontier fields is
likely to remain as a valued legacy
for his successors to build on in
the future.

CHINA’S CRUDE OUTPUT AND IMPORTS

Year Output* Imports* Import reliance
2013 209.91 280.00 57.2%
2014 211.43 310.00 59.5%
2015 215.00 335.50 60.9%
2016 199.69 378.11 65.4%
2017 190.00 420.00 68.9%
2018 189.00 462.00 70.9%
* in million tonnnes of oil equivalent
26
POLITICS
China takes a softer
tone with neighbours
Beijing’s increasing trade tariff battle with the US
has led to a more conciliatory approach with other
Asian capitals over maritime oil and gas claims
XU YIHE
Beijing
C
HINA’S endeavour to im-
prove ties with its neigh-
bours has paid off, cool-
ing down maritime
disputes in the South China Sea
and the East China Sea for the
time being.
Over the long run, China and its
neighbours, Japan, Vietnam and
the Philippines, want to manage
their disputes in what they call a
controllable manner and through
friendly consultation.
China’s softening of the rela-
tionship with its Asian neigh-
bours is partly triggered by the
ongoing trade conflicts the coun-
try is having with the US.
The two countries are locked in
an intense tit-for-tat tariff battle
that has soured the relationship
between Beijing and Washington.
As those political tensions esca-
late, China has moved to improve
previously frosty bilateral rela-
tions with Japan and even slowed
new hydrocarbon activities in the
East China Sea, where disputed
maritime boundaries are often
flashpoints for unrest.
Japan has had an ongoing dis-
pute with China over the develop-
ment of the Chunxiao gas field in
the East China Sea, with Japan
complaining that Chunxiao’s
development has already siphoned
hydrocarbons from the Japanese
side of the median line.
Sources say that the two coun-
tries will set up a mechanism to
work out a programme for joint oil
and gas development in the East
China Sea.
Sovereignty
Meanwhile, China and the Philip-
pines last year also reached an
agreement to carry out joint oil and
gas exploration and development in
disputed South China Sea waters,
setting aside their differences over
sovereignty in the region.
The agreement does not identify
specific areas for joint exploration
or detail programmes that may be
envisaged, but a memorandum of
understanding released by the
Philippines government said
co-operation between the two
countries will be in “relevant
maritime areas”.
A more formal agreement is to
be signed within 12 months. To
facilitate joint exploration, the
two countries will form special
task forces described as “an
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inter-governmental committee
and an inter-enterpreneurial
working group”.
China has appointed China
National Offshore Oil Corporation
to work with companies in the
Philippines that possess service
contracts in the areas where the
two countries want to conduct oil
and gas exploration.
During a two-day trip to the Phil-
ippines late last year — the first by a
Chinese president in 13 years — Xi
Jinping said that China and the
Philippines have many common
interests in the South China Sea.
The agreement could set a
model for oil and gas exploration
between China and other claim-
ants in the region, as Xi said that
China would work with other
South-east Asian countries to
finalise a code of conduct for
exploration work in disputed
waters within three years.
Elsewhere in the South China
Sea, China National Petroleum
Corporation (CNPC) is unlikely to
continue drilling activities at the
Zhongjian Trough disputed by
Vietnam, despite small success in
drilling a deep-water well four
years ago. The 2015 well reportedly
Probes: the Hai Yang Shi
You 981 has drilled for
CNPC in the South
China Sea
Photo: COSL
hit pay, but after studying the
data, CNPC has decided not to drill
more wells at the Zhongjian
Trough, according to an industry
official, who adds that the reser-
voirs are too small and scattered.
The CNPC drilling sparked pro-
tests in Vietnam because the site
is located in what Vietnam consid-
ers its exclusive economic zone
and on the continental shelf about
120 nautical miles (222 kilometres)
off its coast. It was the worst
breakdown in relations between
the two countries since a brief
border war in 1979.
China and Vietnam reached an
agreement in 2000 on an equal
split of their maritime boundary
in the Beibu Gulf — or the Gulf of
Tonkin, as Vietnam calls it — but
have yet to agree on demarcating
waters farther south, near the
well site.
China claims rights for most of
the potentially hydrocarbon-rich
South China Sea, where the Phil-
ippines, Vietnam, Malaysia and
Brunei also have overlapping
claims. China has been insisting
that disputes with rival claimants
to the South China Sea be handled
bilaterally.
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Foreign
players
pitch in
FOREIGN companies in
production sharing partnerships
with China National Petroleum
Corporation (CNPC) are expanding
their operations in China, cashing
in on initial successes in the
world’s largest energy-consuming
country, writes Xu Yihe.
CNPC’s production partners,
led by Anglo-Dutch supermajor
Shell, Total of France and
US giant Chevron, last year
produced more than 10 million
tonnes of oil equivalent (200,000
barrels of equivalent per day) in
China.
Of last year’s total output, oil
accounted for 2.4 million tonnes,
or 48,000 barrels per day, and
gas contributed 9.6 billion cubic
metres (169,000 boepd).
Total is producing tight gas
with CNPC at the Sulige South
gas play in the Ordos basin
in northern China, Shell is
expanding its gas operations at
the Changbei tight gas field, also
in the Ordos basin, and Chevron
is taking the Chuandongbei sour
gas field in the Sichuan basin
into a second phase.
At the Zhaodong oilfield in the
shallow water of Bohai Bay in
northern China, Australia’s Roc
Oil has extended its production
sharing contract with CNPC
from September last year until
April 2023, with Roc having a
24.5% working interest in the
block and CNPC holding the
remainder.
The companies agreed to drill
24 wells at the block, which lies
in less than 50 metres of water,
within the two years following
the agreement. Three new wells
recently brought on stream are
now producing 1500 bpd of oil.
Meanwhile, UK supermajor
BP made a shale gas find in
southwestern China’s Sichuan
basin. The discovery well Wei
206-H1, drilled at the Neijiang
Dazhu block, flowed 10,000 cubic
metres per day when drilling
reached the well depth of 4815
metres.
It is the first of four horizontal
wells BP is scheduled to drill
under a three-year production
sharing contract with CNPC,
although the drilling status of
other wells is unclear.
BP’s Neijiang Dazhu PSC
is based on a framework
agreement signed in October
2015 during President Xi
Jinping’s visit to the UK.
The Neijiang-Dazhu PSC is one
of two Sichuan basin shale gas
PSCs BP has signed with CNPC.
Another agreement signed in
September 2017 involves BP
exploring the Rongchangbei
block, which initially covered
2000 square kilometres when it
was first offered to Italy’s Eni in
2013.
Foreign companies are eager
to participtate in China’s
conventional gas sector, but for
now all the development they
are conducting in the country is
for unconventional gas.
Malaysia’s Petronas is
understood to be involved in
talks with CNPC for possibly
swapping some of its overseas
gas assets to gain access to
CNPC’s onshore oil assets in
China.
15 March 2019
UNCONVENTIONALS
Hopes that shale sector
can blossom
China aims to follow in the footsteps of the
US with unconventionals ‘revolution’ but it
faces significant drilling challenges
XU YIHE
Beijing
C HINA is hoping to repli-
cate the success of the US
in developing shale oil to
offset a production de-
cline of conventional oil, but a
number of factors will make the
task difficult.
Top onshore oil and gas operator
China National Petroleum Corpo-
ration (CNPC) has launched what
it calls a “shale oil revolution” in
China but, with different geology
and terrain from the US, it
remains uncertain whether the
country will prove to be as suc-
cessful.
In an internal meeting, CNPC
vice president Jiao Fangzhen
urged his staff to take bold moves
for what he calls the large-scale
development of shale oil.
The country’s largest oil pro-
ducer has seen its annual produc-
tion stalling at around 100 million
tonnes per annum and it has
trended down in recent years due
to natural depletion.
CNPC, which is licensed to
develop 80% of China’s oil and gas
acreage, is desperate to reverse
the sluggish pace of onshore
production, and shale oil exploita-
tion will be pivotal to the
company’s future onshore devel-
opment.
The Paris-based International
Energy Agency has pegged China’s
shale oil reserves at 4.4 billion
tonnes of technically proven
recoverable.
CNPC aims to discover 1.5 bil-
lion tonnes of tight oil reserves by
2020 and start commercial pro-
duction in up to eight years from
now.
The company just announced
that it has discovered 1.2 billion
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Ambitions: a shale
gas drilling rig in
Chongqing, China
Photo: REUTERS/
SCANPIX
CSSOPE2019-广告-146x181mm.pdf 1 2019/3/5 10:10:31
tonnes of tight oil reserves in the
Jimusal field in northwestern
China’s Xinjiang region, although
it is not clear how much of these
reserves are technically recovera-
ble.
Industry officials caution that
China cannot just copy the US
shale boom, which is largely based
on drilling intensity because of its
flat terrain.
As with shale gas, China’s shale
oil basins are in mountainous
regions in the south-west and
north-west.
“We must drill as many wells C
as possible in order to prevent
drastic production depletion,” M
says one CNPC official, adding Y
that oil price volatility could
change the mindset of many CM
champions of a possible shale MY
boom in China.
CY
Implications CMY
China’s large population and
environmental considerations K
may also have serious implica-
tions on CNPC’s shale oil ambi-
tions.
While most North American
shale plays are in sparsely popu-
lated areas, almost all of China’s
shale exploration and production
is being conducted in Sichuan, the
country’s most densely populated
province.
Hydraulic fracturing could also
prove controversial because of
concerns about water usage and
seismic activity.
Other factors that will make
China’s replication of the US shale
boom difficult include an absence
of private mineral rights and a
lack of independent service pro-
viders.
28
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NATURAL GAS

China reaches for Blue Sky w

Government
relying on fuel as
stepping stone
to renewable
energy, with
demand set for
huge increase
XU YIHE
Beijing

B EFORE renewable energy

becomes the backbone
fuel for economic devel-
opment in China, the
country will have to lean more on
natural gas, which is cleaner than
coal and oil, to meet the bulk of its
domestic energy demand.
Chinese efforts to engineer a
“switch-to-gas” and curb coal use,
in line with its much-vaunted
Blue Sky policy, will alter the
country’s energy outlook. 
China wants gas to account for
10% of the energy mix by 2020, up
from around 7.8% in 2018, before
rising to 15% in 2030.
China’s largest gas provider,
China National Petroleum Corpo-
ration (CNPC), will boost gas pro-
duction to account for 56% of its
total output by 2030, up from 45%
now. 
This upwards climb is bound to
continue, given government
usage targets.
The country is running flat out
at its major gas producing fields in
the north-west of China, includ-
ing Tarim in Xinjiang and Chang-
qing in Shaanxi province.

Gas grids Key location: work under way at CNPC’s Tarim field
These two fields provide the bulk
of the feed to the country’s multi-
ple gas grids linking to markets in Infrastructure key to increasing Chinese supplies
the east, south and north. WHILE China explores ways to develop agreement on the project, which will have construction of gas storage tanks with
In Chongqing of south-western natural gas supply diversity through capacity of 30 billion cubic metres per capacity of 16 Bcm by the end of last year, but
China’s Sichuan basin, CNPC is domestic production, pipeline gas or annum.  sources say little has so far been achieved in
investing 54 billion yuan ($8 bil- liquefied natural gas imports, it has When the pipelines are complete, Russia this regard. 
lion) between now and 2025 for also picked up the pace on building will deliver up to 68 Bcm per annum of gas to At the end of last year, China owned and
gas development.  infrastructure to deliver volumes to the China via overland routes. operated 26 gas storage tank farms, with a
In the overall Sichuan basin, market, writes Xu Yihe. CNPC has just announced that it will capacity of 13 Bcm.
gas production is forecast to The government has realised that without invest in 23 gas storage tank farms to The country’s 13th five-year plan for
increase to 30 billion cubic metres infrastructure, any additional gas supply augment the existing 10 by 2030, increasing natural gas industry development calls for
by 2020, including 10 Bcm of shale will mean nothing to consumers, especially gas storage capacity by 15 Bcm. building several underground gas storage
gas. those in remote areas. This is line with the government’s call for tanks by using salt caverns or depleted
Unconventional gas will have a In addition to expanding the country’s gas suppliers and producers to build storage oil and gas reservoirs with a capacity of
major role to play in the country’s multiple West-East gas pipeline grids, China facilities with a total capacity representing 14.8 Bcm, a volume which will be further
plan to increase gas throughput.  also plans to add a new line linking Russia’s 10% of their annual sales by 2020, up from expanded to 35 Bcm by 2030. 
Sources say that, while it will be West Siberia region to the north-western about 5% now. These facilities will be built for peak
a few more years before shale gas Chinese border. Sources say Chinese energy companies, shaving purposes when gas demand rises in
production ramps up, tight gas This is in addition to a gas pipeline linking including town gas distributors, are the winter season.
will make a significant contribu- Russia’s Eastern Siberia to north-eastern reluctant to build gas storage tanks in part Apart from storage tanks, China is also
tion this year.  China, which will be in operation by the end due to slow returns on investment and high keen to expand LNG import handling
In the Ordos basin, CNPC and of this year. operational costs. capacity either through newbuild initiatives
production sharing partner Total In 2014, China and Russia signed an The government hoped to complete or expansion of existing LNG terminals.
have made major headway to
boost tight gas operations.
CNPC has forecast that national will grow by 14% to 104 Bcm.  Gas come by pipeline from North-East Bcm from Myanmar.  Pipeline gas Bohai rim in northern China hit
gas demand will rise 11% on year for power will increase by 9.8% to Asian countries and Myanmar, up imports will likely increase this 59 Bcm, while that in the Yangtze
in 2019 to 308 Bcm, less than pre- 67.5 Bcm and gas for chemicals 11.5% on year.  year as the Power of Siberia pipe- River Delta in the east reached 48
vious growth forecasts of 16%.  will rise by 2% to 25.5 Bcm. About 62.5 million tonnes, or 85 line from Russia to northern Chi- Bcm, and mid-southern Chinese
More than half of that demand Domestic gas production will Bcm, will be liquefied natural gas, na comes online in December. provinces was recorded at 29 Bcm,
is anticipated to be covered by increase by 8.6% on year to 170.8 up 15.7% on year. In 2018, China consumed 280 up by 6.7% on the previous year.
domestic production, forecast to Bcm in 2019, which accounts for Bcm of natural gas, up 18% on the
be 171 Bcm in 2019, a rise of 6% 53.5% of demand.  Pipeline supplies year, accounting for 7.8% of the
from last year. Gas imports will rise by 143 Last year, China received 47.4 Bcm total energy use mix. 
Town gas demand will increase Bcm, which accounts for 46.4% of of gas from Turkmenistan, Uzbek- Hebei, Jiangsu and Guangdong
by 12% this year to 111 Bcm, while total demand.  istan and Kazakhstan via the provinces each increased demand CNPC
demand from industrial utilities Of total imports, 58 Bcm will Trans-Asia Gas Pipeline and 3.1 by 3 Bcm last year. Demand in the
 15 March 2019
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Shell and Total looking to boost

with gas drive tight gas output in Ordos basin
INTERNATIONAL supermajors
Shell and Total hope to boost tight
gas production in the Ordos basin
despite complex geological chal-
lenges in the northern China
region, writes Xi Yihe.
France’s Total has been working
with PetroChina since 2011 to
develop the Sulige South tight gas
field, where the challenges
include changing dip, significant
back pressure from the horizontal
wells and possible leaks from the
target reservoir, which have sig-
nificantly slowed drilling speeds.
Total has completed 560 wells at
Sulige South, most of which are
directional wells with depths
ranging from 3700 to 4200 metres
and a kick-off point at around 800
metres.
PetroChina and Total signed a
production sharing contract in
2010, with PetroChina as operator,
to develop the area.
Production started in 2012 and
registered 2.24 billion cubic
metres last year, an 11% increase
on the field’s output in 2017.
The PetroChina-Total joint ven-
ture now operates 594 gas wells
with an output of 6.5 million cubic
metres per day.
In the north of Sulige South,
CNPC is operating the giant Sulige
tight gas field, which produced 24
Bcm of gas last year from 2042
wells, 1.2 Bcm above the target.  area of 1690 square kilometres in
CNPC is building ground facili-
ties to further boost Sulige’s pro-
duction by 7.6 Bcm this year.
Including production from
other regions, CNPC plans to raise
tight gas production to 32 Bcm by
2020 and further to 35 Bcm by
2025.
Anglo-Dutch supermajor Shell,
meanwhile, has just begun to
develop the second phase of the
Changbei tight gas field in the
Ordos basin, which is technically
On site: drilling in Shell’s
Changbei gas field
Photo: SHELL
more challenging due to the lower
permeability of its tight sand-
stone reservoirs.  call for increasing China’s tight
The second phase, called New
Changbei, will tackle secondary
reservoirs with hydraulic fractur-
ing technology and horizontal
wells.
At the end of last year, China’s
Ministry of Environmental Pro-
tection endorsed Shell’s environ-
mental impact assessment, clear-
ing the way for development of
the field, which has estimated
reserves of 117 Bcm.
New Changbei, which covers an
northern China’s Shaanxi prov-
ince and Inner Mongolia region, is
planned to be developed in two
phases from 2018-2021 and 2022-
2024.
The development involves
expanding the existing gas plant
and building 28 well pads.  The company has been calling
Drilling plans call for 310 pro-
duction wells, eight appraisal
wells and two injection wells.  its development eligible for gov-
Other offsite facilities include
three gas pressure stations and
export pipelines spanning 190
kilometres.
The facilities will reach peak
production capacity of 2.36 Bcm in
2024, with 470 million cubic
metres per annum of production
capacity to be established this
year.
The first bilateral horizontal
well with two 1800-metre exten-
sions was completed late last year.
The well has a designed well depth
of 6811 metres.
Changbei’s first phase, where
commercial operations started in
2007, is now producing from 45
wells. 
Production at the 1693-square
kilometre field with 96.1 Bcm of
proven reserves has reached a pla-
teau of 3 Bcm per annum. Produc-
tion will start to decline this year.
The latest government plans
gas production to 37 Bcm by 2020. 
PetroChina’s Changqing oil and
gas field in Ordos basin, where
Changbei and Sulige are located,
accounts for about 80% of China’s
tight gas production.
China has an estimated 3.5 tril-
lion cubic metres of tight gas in
place, accounting for about 40% of
the country’s total gas reserves. 
About 1.8 Tcm is considered
recoverable, which is about 30% of
total recoverable gas reserves in
China.
Tight gas refers to gas with per-
meability lower than 0.1 milli-
darcy. One CNPC official says that
development costs for tight gas
are higher than those of coalbed
methane and up to four times the
cost of conventional gas.
for tight gas to be considered an
unconventional resource to make
ernment tax breaks and other
financial incentives.

PetroChina and Sinopec remain

leaders in drive for shale gas
Photo: REUTERS/SCANPIX

CHINA GROWTH IN GAS USE BY REGION

CHINA will continue to rely on kilometres, with 10 of those could be years before first gas is
Region 2015 2017 2018 the country’s top two energy com- licences located in south-west produced.
Yangtze River Delta 17% 18% 17% panies, PetroChina and Sinopec, China’s Sichuan basin. The country faces challenges in
Bohai Rim 16% 19% 21% to boost shale gas production to a Company chairman Wang Yilin boosting shale gas production
Southwest 15% 14% 13% target of 80 billion to 100 billion said recently that his company because of natural declines at
Southeast 14% 13% 13% cubic metres per annum by 2030, will boost shale gas production to existing fields, complex geology
Mid Central 10% 10% 11% following the government’s lack 12 Bcm by 2020. and limited water supplies.
Northwest 10% 10% 9% of success in attracting private In addition to shale gas-prone Much of China’s shale gas is
Central West 10% 10% 10% and independent companies to blocks, Sinopec and PetroChina trapped in deep reservoirs, often
Northeast 8% 6% 6% the sector, writes Xu Yihe. hold most of the country’s conven- below 3000 metres, and located in
Source: National Statistics Bureau Some are questioning the gov- tional gas blocks, some of which small pockets. This, combined
China Petroleum Economics & Technology Research Institute ernment’s commitment to the have overlapping unconventional with the rugged terrain in many
initiative, given there have been gas reserves. places, makes recovery difficult.
CHINA GAS CONSUMPTION MIX no discoveries of note in five years PetroChina’s target of produc- Despite the challenges, Pet-
of exploration. ing 12 Bcm of Sichuan shale gas by roChina plans to increase Weiyu-
Year 2015 2016 2017 2018 In 2013 and 2014, the Ministry of 2020  — and growing that to 24 an-Changning’s shale gas produc-
Residential use 39.7% 40.3% 37.6% 36.0% Land & Resources launched two Bcm by 2025 — could involve drill- tion to 6.5 Bcm through drilling
Industry fuel 30.2% 29.8% 30.9% 33.8% nationwide shale gas auctions ing more than 300 wells per year. 229 wells.
Power gen 15.3% 15.6% 19.9% 21.9% covering 21 blocks, which Future shale gas exploration Government subsidies are key
Chemical feed 14.8% 14.3% 11.6% 8.3% attracted 17 independent compa- and production efforts will con- to making current shale gas pro-
Source: Chinese Customs nies to participate.  tinue to focus on Sinopec’s Fuling duction profitable. 
China Petroleum Economics & Technology Research Institute However, no discoveries have play and PetroChina’s Weiyu- PetroChina and Sinopec are
yet been reported. an-Changning fields, which calling for an extension of exist-
CHINA’S NATURAL GAS OUTPUT The independents have com- together produced 11 Bcm last ing subsidies until 2025. 
plained about a lack of data on the year, up 22.2% from 2017, account- The current subsidies, which
Year: 2013 2014 2015 2016 2017 2018 acreage offered and limited guid- ing for almost all the country’s are due to cease next year, amount
Output*: 121.0 123.4 127.1 136.9 147.4 161.8 ance on where wells should be shale gas output. to about $0.045 per cubic metre.
* Billion cubic metres drilled. Data wells drilled in the west- Even though PetroChina and
Other industry officials have ern part of Hubei province have Sinopec have said their drilling
GAS SUPPLY MIX CHINA’S PIPELINE GAS said the blocks had limited upside turned up 11.68 trillion cubic and well production costs have
IMPORTS IN 2018 potential because all the prospec- metres of shale gas in place, fallen dramatically since 2014,
2017 2018
Domestic Output 60.6% 58.5% Turkmenistan 67% tive shale gas blocks were held by according to the Ministry of Nat- with drilling costs cut 50% to
Pipeline Gas Imports 17.7% 18.5% Uzbekistan 13% PetroChina or Sinopec. ural Resources (MNR). about 50 million yuan per well,
LNG Imports 20.8% 27.1% Kazakhstan 12% PetroChina now owns and oper- The MNR claims the discovery they admit that without subsi-
Syngas 0.9% 0.9% Myanmar 6% ates 11 shale gas exploration has potential production capacity dies, most of their output would
Source: Chinese Customs, CPE& TRI licences covering 51,000 square of 10 Bcm per annum, although it be uneconomic.
30
LIQUEFIED NATURAL GAS
China set to dock as world’s
Country aims to capitalise on growing availability of sales and purchase
agreements as political drive and demand for cleaner fuel spreads
XU YIHE
Beijing
C HINA is poised to surpass
Japan as the world’s larg-
est liquefied natural gas
importer by 2022, with
imports expected to reach 73 mil-
lion tonnes per annum, according
to industry forecasts.
The demand is driven by the
government’s efforts to shift fuel
for power from coal to cleaner gas,
the growing availability of LNG in
both long-term and short-term
sales and purchase agreements
and an increase in gas infrastruc-
ture in China.
China National Petroleum Cor-
poration (CNPC) has forecast that
the country’s LNG imports this
year will increase by 16% to 62.5
million tonnes compared with
2018.
In January, LNG imports
reached a record monthly high of
6.55 million tonnes, outpacing the
previous record of 6.29 million
tonnes in December 2018. In early
February, the country’s top
LNG importer, China National
Offshore Oil Corporation (CNOOC),
signed a 13-year deal with Ameri-
ca’s Anadarko Petroleum to import
1.5 million tpa from its 12.88
million tpa Mozambique LNG pro-
ject.
Australia is now China’s main
source of LNG, with a nameplate
production capacity of 83 million
tpa, followed by Qatar at 77 mil-
lion tpa.
China has prioritised improv-
ing pipeline connectivity and
storage capabilities, which will
reduce distribution bottlenecks
and the type of seasonal demand
shortages seen in the 2017-2018
winter season.
Industry officials are not wor-
ried about possible capacity con-
straints at China’s LNG terminals,
noting that the country’s 21 LNG
receiving terminals with total
import handling capacity of 75.5
FOC US C H INA
million tonnes are operating well
under capacity.
The latest on stream is a termi-
nal operated by town gas distrib-
utor ENN on Zhoushan Island in
eastern China’s Zhejiang prov-
ince. 
The terminal has three jetties
for unloading and loading and off-
site facilities that include two LNG
tanks each with capacity of
160,000 cubic metres.
Future development plans
involve six more tanks with sim-
ilar capacity.
The project’s first phase has
import capacity of 3 million tpa of
LNG.  sites for new terminals, including
The capacity would be doubled
in a second phase to 6 million tpa,
while further expansion to 12 mil-
lion tpa would depend on local
demand.
CNPC plans to build eight
more terminals to receive LNG
imports to increase the number of
We are planning to build up to
eight terminals by 2030 and
are now in the middle of site
selection.
LNG terminals it operates to 11 by
2030.
A company official says that
when completed, the 11 terminals
will have a total LNG import han-
dling capacity of 80 million tpa.
CNPC has already selected a few
one in Fuqing, in the south-west
province of Fujian.
“We are planning to build up to
eight terminals by 2030 and are
now in the middle of site select-
ing,” the official says.
The company now owns and
operates three terminals in
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15 March 2019today.
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CNPC official
Rudong of Jiangsu province,
Dalian of Liaoning province and
at Tangshan of Hebei province,
with LNG handling capacity of 19
million tpa, or 25% of the coun-
try’s total.
While national oil companies
are comfortable with their plans
to expand LNG terminals, thanks
to the ability to secure long term
supply contracts and accessibility
to the local gas market, independ-
ent producers find it very hard to
move such projects forward.
They have tabled plans to build
more than a dozen LNG terminals,
 15 March 2019
largest LNG importer
but none has materialised, partly
due to a lack of take-or-pay con-
tracts and insufficient customer
bases.
To get a foothold in the busi-
ness, independents must reach
terminal usage agreements with
the national oil companies that
operate existing terminals.  National Development & Reform
However, efforts to open the
LNG terminals for third party use
have moved slowly as the national
oil companies fear losing market
share to the independents.
Industry officials say CNOOC
plans to open the Jinwan LNG
terminal, in Zhuhai city of south-
ern China’s Guangdong province,
and the Shenzhen Dapeng termi-
nal, also in Guangdong, but
imports will be limited to compa-
nies that have shares in the facil-
ities.
CNOOC operates the Jinwan
terminal with a 30% interest,
with the remaining stakes held by
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Dispute
casts a
shadow
UNCERTAINTY
OVER US TRADE
Row over tariffs may have
effect on LNG imports
TRADE friction between
China and the US has added
uncertainties about China’s ability
to rely on North America for a
portion of its liquefied natural gas
imports, writes Xu Yihe.
Officials on both sides are
hopeful that ongoing, intense
negotiations between the two
countries will sort out the
dispute.
LNG exports could help the
US reduce its trade deficit with
China and at the same time
allow gas-hungry China to build
its LNG import portfolio.
The US has announced tariffs
on $34 billion worth of Chinese
goods. China announced plans
to retaliate against this move by
slapping a 10% tariff on US LNG
imports. US President Donald
Trump proposed additional
tariffs on another $200 billion in
products.
As negotiations between
the two countries have moved
towards a solution acceptable to
both sides, the US has decided to
postpone the fees, which were
initially scheduled to start on 1
March.
Last year, China imported 2.26
million tonnes of LNG from the
US, accounting for 4% of China’s
total LNG imports and 12% of the
US LNG export total.
With US export capacity now
ramping up to 66.2 million
tonnes and set to nearly double
Hunger: an LNG carrier arrives at a to 120 million tonnes by 2030,
gas terminal owned by Chinese US gas producers are keen to
energy company ENN Group in increase exports to China, while
Zhoushan, Zhejiang province, China growing volumes and a lack of
Photo: REUTERS/SCANPIX destination clauses make US
cargoes attractive to Chinese
buyers.
Sources say Chinese demand
has driven recent liquefaction
capacity increases in the US
and that a halt in LNG trade
between the two countries
could push Chinese buyers to up
their imports from traditional
suppliers such as Qatar, Papua
seven local companies, mostly New Guinea and Australia.
municipal town gas distributors. Meanwhile, US suppliers will
CNOOC owns and operates four also seek new export markets in
LNG terminals in Guangdong — other Asian countries and even
Jinwan, Dapeng, Diefu in Shen- Europe.
zhen and Yuedong terminal in Many fear the dispute
Jieyang city. between the US and China could
In the meantime, the powerful lead to project delays and higher
supply costs.
Commission is providing finan- Others are downplaying the
cial incentives for investors to possible negative effects of a
build additional LNG storage trade war, believing that supply
capacity, seen as necessary to and demand will allow projects
cushion gas supply crunches in to move forward.
peak winter seasons. Two years ago, Alaska
The NDRC decreed that local Gasline Development, which
governments provide subsidies of is developing the $43 billion
up to 30% of the cost, or 2500 yuan Alaska LNG export terminal
($368) per cubic metre of storage and pipeline project, signed an
capacity. The three-year cam- agreement with Sinopec, China
paign will run until 2020. Investment Corporation and the
Bank of China for the sale of up
Different viewpoints: China’s national oil and gas companies to 75% of its capacity to Sinopec
are comfortable with plans to expand LNG facilities, but in exchange for a similar
CNPC
independents face challenges to making progress in the percentage of development
market Photo: REUTERS/SCANPIX financing.
32
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FABRICATION

State-owned rig
outfit offers lifeline
to Chinese yards
New management company
looking to monetise abandoned
offshore units via sales or leases

XU YIHE
Beijing

T HE Chinese government’s
decision to establish a
state-owned offshore
drilling rig management
company — Beijing Guohai Off-
shore Engineering Assets Man-
agement Company — may provide
a lifeline for domestic offshore
fabrication yards by allowing
them to get out from under debt
that piled up during the oil price
crash.
Big questions still hang over
the industry, however — will
the rigs find ready buyers, be
leased at market rates, or just end
up being unloaded at a steep
discount?
The order spree for offshore rigs
by speculators at Chinese yards a
few years ago brought disaster to
the yards, which initially hoped
to improve their books and gain
experience.
Instead, they found themselves
saddled with huge debts after the
speculators cancelled contracts,
leaving the yards to pay for con-
struction of the rigs as offshore
drilling activity nosedived.
The yards have been struggling
to survive since the oil price col-
lapsed five years ago, taking the
shine off China’s emergence as the
world’s leading offshore rig
builder.
At the worst of the crisis, more
than 80 offshore rigs were stacked
at Chinese yards without employ-
ment.  Shrinking margins
Most were built by the country’s
top seven state-owned yards —
CIMC Raffles, Shanghai Zhenhua
Heavy Industries, Cosco Qidong
Shipyard, Shanghai Waigaoqiao
Shipbuilding, China Merchant
Heavy Industry (CMHI), Dalian
Shipbuilding Industry Offshore
(DSIC Offshore) and Cosco Nan-
tong Shipyard. Chinese yards won
the contracts by offering low
prices and easy terms, elbowing
out rival yards in Singapore and
South Korea. 
The strategy backfired when the
yards were hit hard by plummet-
ing rig demand and shrinking
margins.
In February, jack-up specialist
DSIC Offshore, which is owned
by China State Shipbuilding Indus-
try Corporation, filed for court
receivership because of unpaid
debts. Its business suffered from
debt incurred by heavy losses on
more than a dozen abandoned drill-
ing rigs, including eight jack-ups
ordered by London-based rig giant
Seadrill.
The seven yards formed a coali-
tion two years ago and set out to
convince the government to
encourage Chinese rig operators
China National Offshore Oil Cor-
poration, PetroChina and Sinopec
to take over abandoned rigs to
replace their ageing units.
Their proposal was turned

OFFSHORE DRILLING RIGS SOLD OR LEASED SINCE 2018

No. Rig Type Contract signed Ordered by Rig name Design Water depth (ft) Delivery Status
COSCO Shipping Heavy Industry
2 Jack-up 2012-08 Foresight Drilling Vivekanand 3 LeTourneau Super 116-E 350 2018 11 Chartered
China Merchants Heavy Industry
14 Jack-up 2014-06 China Merchants Capital Well Target 3 CJ46-X100D 375 2018 8 Chartered by COSL
15 Jack-up 2014-06 China Merchants Capital Well Target 4 CJ46-X100D 375 2018 11 Chartered by COSL
2 Jack-up 2013 Bestford Offshore Bestford JU Tbn 1 CJ46-X100D 350 2018 3 Chartered by ADNOC
3 Jack-up 2013 Bestford Offshore Bestford JU Tbn 2 CJ46-X100D 359 2018 6 Chartered by ADNOC
4 Jack-up 2013-03 Bestford Offshore Bestford JU Tbn 3 CJ46-X100D 350 2018 9 Sold to Shelf Drilling
5 Jack-up 2013-03 Bestford Offshore Bestford JU Tbn 4 CJ46-X100D 350 2018 12 Sold to Shelf Drilling
6 Jack-up 2013-03 Bestford Offshore Bestford JU Tbn 5 CJ46-X100D 350 2019 3 Chartered by Shelf Drilling
7 Jack-up 2013-03 Bestford Offshore Bestford JU Tbn 6 CJ46-X100D 350 2019 6 Chartered by Shelf Drilling
8 Jack-up 2013-03 Landmark CDIG Oriental Dragon JU 2000E 400 2018 2 Chartered by COSL
9 Jack-up 2013-03 Landmark CDIG Oriental Phoenix JU 2000E 400 2018 2 Chartered by COSL
China Petroleum Liaohe Equipment Company
1 Jack-up 2012 CPTDC DSJ 300 L1 DSJ 300 300 2018 Sold to CPOE
2 Jack-up 2013 CPTDC DSJ 300 L2 DSJ 300 300 2018 Sold to CPOE
15 March 2019
down, as the three Chinese
national oil companies were oper-
ating on tightened budgets and
were in no shape to launch rig
replacement programmes.
Brokers and middlemen have
stepped in, hoping to pick up the
rigs cheaply, but they have come and
gone without deals being concluded.  facility in north-east China for
State assets
Yard officials in China have shown
a marked reluctance to sell off at
any price the rigs they have under
their charge for fear that they
could be accused of selling state
assets cheaply, helping to explain
the limited turnover in such
units.
CMHI is an exception. Since last
year, the yard has either leased or
sold up to 10 jack-up rigs, including
eight with CJ46 design and two with
JU2000E design, out of 19 abandoned
by foreign rig owners.
Additionally, Liaohe Petroleum
Equipment Company a subsidiary
of China National Petroleum Cor-
poration (CNPC) in north-east Chi-
na’s Liaoning province, sold two
jack-up rigs out of five being fin-
ished at the yard to its sister com-
pany China Petroleum Offshore
Engineering, which is CNPC’s off-
shore drilling contractor.
Last November, UK-based rig
owner Foresight Group won a
charter from Abu Dhabi National
Oil Company for a newbuild
jack-up rig completed by Cosco.  Beijing Chengtong Technology and Innovation Investment
The jack-up Vivekanand 3, a
LeTourneau Super 116-E design
with capacity to operate in water
depths of 350 feet and drill to
30,000 feet, has left Cosco’s Dalian
employment in the Middle East
under a firm charter of three years
with a two-year extension option.
With 13 jack-up rigs removed
from the backlog, China now has
75 offshore rigs stacked in yards,
including 53 jack-ups.
Yards that have not fared as
well may soon see some relief in
Beijing Guohai Offshore Engineer-
ing Assets Management Com-
pany, the single-purpose outfit
created by the government last
year to absorb abandoned rigs in
state-owned yards.
New business
The creation of Guohai Offshore
leaves yards free to pursue new
business such as orders for float-
ing production, storage and off-
loading vessels, liquefied natural
gas units and floating storage and
regasification units.  25%, and China State Shipbuilding
While the state-owned yards
can lean on the government for
help, private yards have suffered
more, with some being forced to
FOC US C H INA
GUOHAI OFFSHORE STAKEHOLDERS
CNOOC Investment Holding
China State Shipbuilding Corporation
COSCO Shipping Heavy Industry
China Shipbuilding Industry Corporation
China Merchant Group Offshore Engineering Investment
China Communications Construction Corporation
shed their offshore engineering
businesses or simply going bank-
rupt.
Guohai Offshore, which comes
under the auspices of the State
Council’s Assets Supervision &
Administration Commission, must
now decide whether to seek custom-
ers to lease the rigs or to sell off the
assets at a steep discount.
“It will be very challenging to
incorporate such a scheme, espe-
cially due to the difficulty of con-
solidating assets with a mutually
agreeable pricing,” says one indus-
try official.
Guohai Offshore is incorporated
by seven stakeholders — Beijing
Chengtong Technology and Inno-
vation Investment with 25%,
CNOOC Investment Holding with
Corporation, COSCO Shipping
Heavy Industry, CSIC, China Mer-
chant Group Offshore Engineering
Investment and China Communi-
Challenges: the CIMC
Raffles yard in Yantai, in
China’s Shandong province
Photo: CIMC RAFFLES
25%
25%
10%
10%
10%
10%
10%
cations Construction Corporation
each with 10%.
The new corporation will be
registered with 200 million yuan
($30 million) and each stakeholder
will contribute based on the
equity it holds in the company.
Beijing Chengtong Technology
and Innovation Investment spe-
cialises in asset management and
investment, while CNOOC Invest-
ment Holding will represent
CNPC, China’s largest offshore
operator, and its drilling contrac-
tor, China Oilfield Service Ltd.
CSSC, COSCO Shipping Heavy
Industry, CSIC, China Merchant
Group Offshore Engineering
Investment and China Communi-
cations Construction Corporation
will each represent the yards
under their ownership.
Offshore Drilling Rig Backlog
at Chinese Yards:
Page 34
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Venture
for CMIC
Ocean
CHINESE drilling equipment
package provider CMIC Ocean
En-Tech Holding, formerly known
as TSC Group, is expanding into
marketing and management of
offshore drilling rigs through its
joint venture with China Mer-
chants, writes Xu Yihe.
Hong Kong-listed CMIC Ocean
refocused its business operations
in late 2017, when China Mer-
chants, via its subsidiary China
Merchants & Great Wall Ocean
Strategy & Technology Fund,
bought 765 million shares for a
majority stake in the company.
China’s semi-submersible drill-
ing rig specialist CIMC has a 6.3%
stake in CMIC Ocean through its
wholly owned subsidiary CIMC
(HK).
China Merchants’ investment
takes CMIC Ocean from drilling
equipment solution provider to
offshore rig asset management
company, according to a company
official.
Late last year, CMIC Ocean
acquired 50% equity in Wealthy
Marvel Enterprises (WME), a com-
pany set up by China Merchants &
Great Wall Ocean Strategy & Tech-
nology Fund, which holds the
other 50%. 
The WME joint venture will
market and manage offshore rigs
completed by China Merchant and
CIMC Raffles.
WME bought two jack-ups from
China Merchants — the SMS Mar-
iam and SMS Faith, both CJ46-
X100-D designs, that have been
chartered to Selective Marine Ser-
vice for operation by Abu Dhabi
National Oil Company off the
United Arab Emirates.
Both rigs are on firm charter for
three years with one option for
extension for two years. 
These are the first two of the six
rigs under the same design
ordered by Singapore’s Bestford in
2013 for construction at China
Merchant.  Sources believe that
Bestford has already abandoned
the rigs.
In late February, China Mer-
chants & Great Wall Ocean Strat-
egy & Technology Fund via WME
agreed to sell two of CM’s new-
build jack-up rigs and charter a
similar pair to Oslo-listed drilling
contractor Shelf Drilling.
The CJ46-design newbuilds will
be sold for $87 million apiece,
while Shelf would also enter into
bareboat charter agreements for
the two other CJ46 newbuilds
with options to purchase one or
both rigs with step-up pricing.
The initial term of the bareboat
charters is three years, starting in
August this year, with an option
to extend it for a further three
years. 
The charter dayrate would be
$10,000 in the first year, escalat-
ing to $15,000 and $20,000 in the
two subsequent years of the firm
period.
Shelf would have an option to
purchase the chartered rigs at a
price of $90 million per rig in the
first year, rising to $92 million and
$95 million in the two subsequent
years.
Company officials said that
CMIC Ocean hopes to bring more
rigs into work this year and start
accumulating a track record as
market utilisation rates improve.
34
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OFFSHORE DRILLING RIG BACKLOG AT CHINESE YARDS (2019)

No. Rig Type Contract Ordered by Rig name Design Water Delivery Status
Signed depth (ft)

DSIC Offshore
1 Jack-up 2012-07 CPTDC. PG 111 DSJ300 300 TBA Warm Stack
2 Jack-up 2012-07 CPTDC. PG 112 DSJ300 300 TBA Warm Stack
3 Jack-up 2013-03 Sunbelt Group Ltd. Ayu DSJ400 400 TBA Warm Stack
4 Jack-up 2013-02 Seadrill West Titan JU 2000E 400 TBA Warm Stack
5 Jack-up 2013-02 Seadrill West Proteus JU 2000E 400 TBA Warm Stack
6 Jack-up 2013-03 Seadrill West Rhea JU 2000E 400 TBA Warm Stack
7 Jack-up 2013-03 Seadrill West Tethys JU 2000E 400 TBA UC
8 Jack-up 2013-06 Seadrill West Hyperion JU 2000E 400 TBA UC
9 Jack-up 2013-06 Seadrill West Umbriel JU 2000E 400 TBA UC
10 Jack-up 2013-08 Seadrill West Dione JU 2000E 400 TBA UC
11 Jack-up 2013-08 Seadrill West Mimas JU 2000E 400 TBA UC
12 Jack-up 2013-06 DSIC Dalian Tender THB 656 TBA UC
13 Semisub 2013-08 China Oilfield Service Ltd HYSY 982 A 5000 4800 Cancelled Warm Stack
14 Semisub 2014-03 LWO BV BT 4000 BT 4000 7680 Cancelled Warm Stack
CIMC Raffles
1 Jack-up 2014-01 (CSM) Central Shipping Cerberus JU 2000E 400 Cancelled UC
2 Jack-up 2014-01 (CSM) Central Shipping Phoneix JU 2000E 400 Cancelled UC
3 Jack-up 2012-04 Coastal Contracts Bhd Coaster Driller 400-2 JU 2000E 400 Cancelled Warm Stack
4 Jack-up 2014 Ocean Challenger Gulf Driller 4 Super M2 300 TBA Warm Stack
5 Jack-up 2015 Ocean Challenger Gulf Driller 5 Super M2 300 TBA Warm Stack
6 Semisub 2013 Bluewhale Offshore Blue Whale 1 D 90TM 12000 TBA Warm Stack
7 Semisub 2013 Bulewhale Offshore Blue Whale 2 D 90TM 12000 TBA UC
8 Semisub 2013 North Sea Rigs North Dragon GM4-D 500-12000 TBA Warm Stack
9 Semisub 2013 North Sea Rigs Beacon Atlantic GM4-D 500-12000 TBA UC
10 Semisub 2014 North Sea Rigs Beacon Pacific GM4-D 500-12000 TBA UC
11 Drillship 2014 Norshore Holdings Norshore Pacific MT 6028 9600 TBA Cancelled
Shanghai Waigaoqiao Shipbuilding
1 Jack-up 2013-03 Prospector Offshore Drilling Prospector 6 JU 2000E 400 TBA Warm Stack
2 Jack-up 2013-03 Prospector Offshore Drilling Prospector 7 JU 2000E 400 TBA Warm Stack
3 Jack-up 2013-03 Prospector Offshore Drilling Prospector 8 JU 2000E 400 TBA Warm Stack
4 Jack-up 2014-01 CSSC Leasing CSSC JU Tbn 1 JU 2000E 400 TBA Warm Stack
5 Jack-up 2014-09 CSSC Leasing CSSC JU Tbn 2 JU2000E 400 TBA UC
6 Jack-up 2013-08 ESSM ESSM 1 CJ46-X100D 375 TBA Warm Stack
7 Jack-up 2013-08 ESSM ESSM 2 CJ46-X100D 375 TBA Warm Stack
8 Jack-up 2014-04 Blue Ocean Drilling Energy Emerger CJ46-X100D 375 TBA Warm Stack
9 Jack-up 2014-04 Blue Ocean Drilling Energy Embracer CJ46-X100D 375 TBA Warm Stack
10 Jack-up 2014-10 Blue Ocean Drilling Energy Edge CJ50-X120-D 400 TBA UC
11 Jack-up 2014-10 Blue Ocean Drilling Energy Enticer CJ50-X120-D 400 TBA UC
COSCO Shipping Heavy Industry
1 Jack-up 2011-05 KS Drilling KS Orient Star 2 LeTourneau 240-C Workhorse Class 400 TBA Warm Stack
2 Jack-up 2013-08 Dynamic Drilling Dynamic Momentum LeTourneau Super 116-E 350 TBA UC
3 Jack-up 2013-10 Northern Offshore Energy Encounter LeTourneau Super 116-E 350 TBA UC
4 Jack-up 2013-10 Northern Offshore Energy Engager LeTourneau Super 116-E 350 TBA UC
5 Tender Rig 2013 Energy Drilling Edrill 3 Ocean 500-TD 6561 TBA Warm Stack
6 Semisub 2011 Seadrill Sevan Developer Sevan 650 10000 TBA Warm Stack
7 Drillship 2010 Dalian Deepwater Dalian Developer N/A 10000 Cancelled Warm Stack
China Merchants Heavy Industry
1 Jack-up 2013-11 Vanda Offshore CMHI 146 Vanda JU 2000E 400 TBA Warm Stack
2 Jack-up 2013-10 PolyNorDrilling CMHI 136-1 Poly-1 CJ50-X120-G 375 TBA Warm Stack
3 Jack-up 2014-06 PolyNorDrilling CMHI 136-1 Poly-2 CJ46-X100D 375 TBA Warm Stack
4 Jack-up 2014-09 Hongmao Shipping CMHI 158-1 Haiheng 6 NA 375 TBA Warm Stack
5 Jack-up 2014-09 Hongmao Shipping CMHI 158-2 Haiheng 7 NA 375 TBA Warm Stack
6 Jack-up 2014-01 Tianjin Haiheng Haiheng CJ50-1 CJ50 400 TBA Warm Stack
7 Jack-up 2014-01 Tianjin Haiheng Haiheng CJ50-2 CJ50 400 TBA Warm Stack
8 Tender Rig 2015-03 Mermaid Drilling MTR-3 NA 800 NA Warm Stack
9 Tender Rig 2015-03 Mermaid Drilling MTR-4 NA 800 NA Warm Stack
Shanghai Zhenhua Heavy Industries (ZPMC)
1 Jack-up 2014-02 Hailling Offshore Jap Driller 1 JU 2000E 400 TBA Warm Stack
2 Jack-up 2014-02 Lovanda Offshore Lovanda JU 2000E 400 TBA Warm Stack
3 Jack-up 2014-02 Lovansing Offshore Lovansing JU 2000E 400 TBA Warm Stack
4 Jack-up 2014-06 KS Energy KSJU Tbn 2 JU 2000E 400 TBA Warm Stack
Shanghai Shipyard
1 Drillship 2011 Opus Offshore Tiger 1 Tiger 5000 TBA Warm Stack
2 Drillship 2011 Opus Offshore Tiger 2 Tiger 5000 TBA Warm Stack
3 Drillship 2014 Opus Offshore Tiger 3 Tiger 5000 TBA UC
4 Drillship 2014 Opus Offshore Tiger 4 Tiger 5000 TBA UC
5 Tender Rig 2014 Upstream Drilling Compact TAD 1 NA 6000 TBA Stopped
6 Tender Rig 2014 Upstream Drilling Compact TAD 2 NA 6000 TBA Stopped
Shanhaiguan Shipbuilding Industry
1 Jack-up 2013-07 FTS Derricks TS Coral CJ50-X120-D 400 Cancelled UC
2 Jack-up 2013-07 FTS Derricks TS Emerald CJ50-X120-D 400 Cancelled UC
3 Jack-up 2014-01 FTS Derricks TS Jade CJ50-X120-D 400 Cancelled UC
4 Jack-up 2014-01 FTS Derricks TS Opal CJ50-X120-D 400 Cancelled UC
China Petroleum Liaohe Equipment Company
1 Jack-up 2013 Taiyuan Heavy Industry(HK) CP 400 CP 400 400 TBA UC
2 Jack-up 2013 CPLEC CP 300 -2 CP 300 300 TBA Warm Stack
3 Jack-up 2013 CPLEC CP 300 - 3 CP 300 300 TBA Warm Stack
Huangpu Wenchong Shipbuilding (CSSC)
1 Jack-up 2013-05 Alliance Offshore Drilling Harmoni Victory Zentech R-550D 400 TBA Warm Stack
2 Jack-up 2014-09 Alliance Offshore Drilling AOD-2 H6006 Zentech R-550D 400 TBA Stopped
3 Jack-up 2015-06 Alliance Offshore Drilling AOD-3 H6007 Zentech R-550D 400 TBA Stopped
Wuchuan Shipbuilding Industry
1 Jack-up 2013-11 ES Holding Blue Ocean 1 CJ46-X100D 375 TBA UC
Yangzijiang Offshore
1 Jack-up 2012-11 Mena Offshore Explorer Jackup TBN 01 LeTourneau Super 116E 350 TBA Warm Stack
Taizhong Binhai Heavy Machinery Company
1 Jack-up 2012-02 TZ Binhai TZ400-1 TZ400 400 TBA UC
Source: Upstream, SinorigOffshore
15 March 2019
FOREIGN ASSETS
Overseas
upstream
strategy is
changing
Government now sees quality as
the priority rather than quantity
XU YIHE
Beijing
C HINESE oil companies
have expanded rapidly
overseas, helped by in-
centives from the gov-
ernment that are intended to
boost energy security.
However, China’s overseas expan-
sion plans for upstream oil and gas
assets hit a snag in 2018 as its
national oil companies halted a buy-
ing spree and paused to look at the
profitability of existing projects.
A recent report published by
China National Petroleum Corpo-
ration (CNPC) says that China’s
spending last year on foreign
upstream assets dived to $1.2 bil-
lion, about 10% of what was
invested in 2017.
The overseas strategy encour-
aged by the Chinese government
more than a decade ago sent Chi-
nese national oil companies on an
international buying binge,
scooping up oil and gas assets
they deemed worthwhile in every
corner of the world.
Xu Jianshan, director of the
Overseas Oil & Gas Investment
Environment Research Institute
of CNPC Economic & Technology
Research, says that Chinese com-
panies now operate 210 oil and gas
projects outside China.
The equity oil last year reached
200 million tonnes of oil and gas
equivalent, or 4 million barrels
per day last year, up by 3.7% from
2017.
China’s foreign expansion could
help ease the government’s con-
cern about energy security amid
dwindling domestic production.
However, little of China’s equity
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oil produced outside the country
has been shipped back for domes-
tic consumption.
The disparity between domestic
production capacity and demand
growth has reached an alarming
point.
Last year, of China’s 651 million
tonnes (4.78 billion barrels) of oil
consumption, only about 30% was
from domestic production, with the
remainder coming from imports.
The government has begun to
realise that the country must rely
primarily on domestic resources
to meet oil demand growth, sup-
plemented by imports.
Energy security
From the oil companies’ perspec-
tive, if they have overseas produc- Spreading its wings: China owns the operating
tion, they can sell the barrels in a stake in the North Sea Buzzard field off the UK
nearby market and then purchase through CNOOC International subsidiary Nexen
similar volumes in more suitable Photo: NEXEN
locations for import into China.
However, some observers argue
that this relationship is not direct ciency rather than buying assets CHINA’S OVERSEAS OIL & GAS EQUITY OUTPUT
enough to meet the energy secu- for the sake of buying,” says one
rity concerns and that some form official. Year: 2010 2011 2012 2013 2014 2015 2016 2017 2018
of oil trading mechanism needs to Chinese investment in overseas Output*: 70 85 90 110 130 150 155 190 200
* million tonnes of oil equivalent
be part of the solution. upstream assets peaked at $43.2
As part of an economic restruc- billion in 2010. Investment has
turing, the government now puts ebbed in recent years, reaching vate sector has come to a halt tional Company, a subsidiary
more emphasis on the quality only $4.5 billion in 2016 in a low oil amid the government’s investiga- of China’s Zhenhua Oil, last
rather than quantity of overseas price environment — a time when tion of CEFC China, a Shang- year acquired a 4% stake in an
assets. state-owned oil companies were hai-based conglomerate, over onshore Adnoc asset in Abu
China’s national oil companies, preoccupied with anti-corruption irregularities in international oil Dhabi previously held by CEFC
now required to audit their over- campaigns and image rebuilding. and gas merger and acquisition China.
seas assets, have found that many Last year CNPC only made one activities, dampening enthusi- CNPC’s Xu says that up to 27
of them are losing money, partly acquisition — the $1.2 billion pur- asm by private investors to con- Chinese oil companies, including
caused by complex tax regimes, chase of a 10% stake in Adnoc’s tinue looking abroad for business 23 independents, are now produc-
project delays and payment terms. Lower Zakum, Umm Shaif and opportunities. ing oil and gas outside China,
“We have to prioritise the Nasr fields. Under a government arrange- though the independents rarely
improvement of operational effi- Overseas investment by the pri- ment, North Petroleum Interna- act as operators.
36
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FABRICATION

On top of the world for bu

All 12 floater
orders placed
last year went to
Chinese yards
- but owners are
not popping the
champagne
corks just yet
XU YIHE
Beijing

C HINA has emerged as the

world’s top fabricator of
floating production, stor-
age and offloading ves-
sels, with the 12 orders placed last
year — for full construction or
hulls only — all going to Chinese
yards.
“Think of building FPSOs, think
of China,” says an official with a
major floater contracting com-
pany in Singapore.
However, it is not clear if China
will remain content with the cur-
rent business model of serving as
the subcontractor for leading
FPSO players such as Japan’s
Modec and SBM Offshore of the
Netherlands, which run their own
FPSO fleet and lease the units to
oil and gas companies for opera-
tion in international waters.
The industry does not expect
Chinese yards to diversify into
FPSO operation, although CNOOC
Energy Technology & Services
(CNOOC EnerTech), which is 98%
owned by China National Offshore
Oil Corporation, once held ambi-
tions to become an international
FPSO player.
The company is China’s largest
operator and owner of FPSOs,
with four units at Bohai Bay in
northern China and another four
in the South China Sea.

Leasing deals
CNOOC Enertech’s attempt to woo
international operators was short-
lived, with a handful of tenders
offered but no leasing deals com-
pleted, in part due to its limited
operational and management ex-
perience.
The company has recently
offered a new scheme to state-
owned Nigerian Petroleum Devel-
opment Company (NPDC) to
replace its ageing Mystras FPSO
with another floater by integrat-
ing the hull of the Changqing
FPSO and the topsides of the Min-
gzhu FPSO.
Mystras, a converted tanker
built in 1976, has been producing
oil from NPDC’s Okono and
Okpoho fields in shallow-water
OML 119 since 2004 and is said to
be in poor physical condition.  SBM and Modec that have long-
Changqing’s topside facilities
are said to be too small to handle
production from the OML 119
fields, while there are questions
about the age of the Mingzhu hull,
built in 1993.
Even with so many orders com-
ing their way, Chinese yards are
reluctant to pop the cork on the
champagne just yet after the
tough times they have gone from Brazil’s Petrobras to build FPSOS BEING BUILT OR CONVERTED AT
through in the offshore drilling the Buzios-5 FPSO. CHINESE YARDS
rig market. However, Chinese financial
However, the biggest problems institutions found the project too FPSO Operator Yard
in the rig market came when com- challenging to support and the Fast4Ward 1 ExxonMobil SWS
panies that placed orders walked deal was not finalised, prompting Fast4Ward 2 ExxonMobil SWS
away from them after the oil price Petrobras to call Modec back for P-70 Petrobras COOEC
crash, leaving yards with rigs re-negotiation to find a solution to P-71 Petrobras CIMC Raffles
under construction but no cus- a long-running contracting saga. MV31 Petrobras DSIC
tomers. In some cases, jobs also come to MV30 Petrobras COSCO Dalian
In the FPSO market, while Chinese yards when fabrication Helang JX Japan COSCO Qidong
yards may be pursuing a low- economics do not work for foreign Karish Energean COSCO Zhoushan
margin strategy in tenders their yards. Liuhua 16-2 CNOOC Beihai Shipbuilding Heavy Industry
customers are players like Last year, Cosco Shipping Heavy Penguins Shell COOEC
Industry was subcontracted by Tortue BP COSCO Qidong
term contracts of their own Singapore’s Sembcorp Marine Amoca Eni COSCO Shanghai
with major operators like Exxon- (SembMarine) to build the hull for
Mobil in Guyana and Petrobras in an FPSO to be used by Greek player
Brazil. Energean Oil & Gas at its Karish the hull will travel to Semb- Cosco another sub-contract to
There is also a more cautious and Tanin gas field development Marine’s yard in Singapore, where work on the conversion of an FPSO
attitude to taking on work at any off Israel. the topsides will be installed for Italian operator Eni’s $2 billion
cost. Last year, Belgium’s Exmar SembMarine offered the deal to under a contract awarded by Ener- Amoca-Mizton-Tecoalli project off
and subcontractor, China Mer- Cosco after it found it uneconom- gean’s main project contractor Mexico.
chant Heavy Industry, offered the ical to build the floater’s hull TechnipFMC. The FPSO will be converted
lowest price to win a contract itself. Once completed in China In February, Modec awarded from the Suezmax crude carrier
 15 March 2019
uilding FPSOs
Felicity Modec, which was
recently acquired by Modec from
Belgian shipowner Euronav.
Out of 12 FPSOs being built or
converted in China, five have
been awarded to Cosco, with the
jobs being carried out at four of its
seven facilities, in Dalian, Shang-
hai, Qidong and Zhoushan.
Building on its success in deliv-
ering cargo ships, China is com-
fortable building FPSO hulls, leav-
ing the more sophisticated job of
topside construction to yards
mostly in Singapore.
Most of the five Cosco FPSO
newbuilds or conversions were
awarded by Modec, acting as the
lead contractor for operations in
Brazil.
One Modec award was for the
conversion of a very large crude
carrier hull at Cosco’s Dalian facil-
ity into the Carioca FPSO for
Petrobras’ Sepia field off Brazil.
FOC US C H INA
Success story: Out of 12
FPSOs being built or
converted in China, five have
been awarded to Cosco
Keppel Offshore & Marine
recently won the deal for the top-
sides.
Chinese yards are eyeing more
orders to come before 2020 and
they have lined up with lead
floater players to participate in up
to 10 projects, including floating
liquefied natural gas vessel new-
build or conversion jobs.
In China, CNOOC is working on
plans to deploy new FPSOs in
the South China Sea for further
development of the Liuhua 11-1
and Enping North fields, and a
floating storage and offloading
vessel for the Lufeng 13-1 and 13-2
fields.
CNOOC has already completed
conceptual design for the poten-
tial construction of a Magnora
(formerly Sevan Marine) style
cylindrical floating drilling, pro-
duction, storage and offloading
vessel to re-develop the Liuhua
Photo: COSCO
11-1 field and other new discover-
ies nearby.
The company has also finalised
a plan to replace the existing Nan-
hai Kai Tuo FPSO at the Lufeng
13-1 and 13-2 fields in the South
China Sea with a new FSO, which
is to be converted from the crude
carrier Fenghuangzhou.
Meanwhile, new discoveries in
the Enping 15-1/18-6/10-2 oil clus-
ter, located to the north of the pro-
ducing Enping field, have led
CNOOC Ltd to consider building a
second FPSO for the area.
China’s Offshore Oil Engineer-
ing Corporation is building a new
FPSO for use on the Liuhua 16-2
oilfield development in the South
China Sea, with the hull subcon-
tracted to Qingdao Beihai Ship-
building Heavy Industry. 
The Hai Yang Shi You 119 has
been designed to handle 50,000
barrels per day of oil production.
Stepping into the
offshore spotlight
THE head of French classification
society Bureau Veritas (BV) in
China believes the country has
stepped into the offshore engi-
neering and fabrication spotlight
by drawing on its strong ship-
building industry and is steadily
coming into its own as a provider
of services and products, includ-
ing subsea systems, writes Xu Yihe.
Claude Maillot, senior vice pres-
ident and chief executive of BV’s
marine and offshore North Asia
and China business, says that
most Chinese yards understand
well that the offshore market and
the shipbuilding markets are
completely different in terms of
project management.
“If you don’t adopt the right way
to manage the project, you can
easily get delay, unable to cope
with deadlines, and suffer penal-
ties,” he tells Upstream.
Another challenge Chinese
yards face is qualifying and train-
ing the workforce.
“In a couple of years, it happens
that you will have to renew all the
workers. As a consequence, things
which may seem basic, such as
welding, may create problems and
delays in execution if not properly
controlled,” he says.
However, Maillot is confident
that China is eager to learn, and
learn fast.
“I have no doubt that, like ship-
building, China will be a major
player in offshore,” he says.
Recent repeat orders by major
offshore players, including Modec
of Japan and SBM of the Nether-
lands, are indicative of China’s
improved profile, helped by com-
petitive pricing and the relative
ease of project financing.
“China is able to provide ser-
vices which are competitive,”
Maillot says.
Classification societies are help-
ing China improve its offshore
culture, he adds.
SBM’s second order of a Fast-
4Ward floating production, stor-
age and offloading hull at Shang-
hai Waigaoqiao Shipbuilding is
classed with BV and uses its ser-
vices, Maillot says.
BV has introduced management
tools such as its asset integrity
management (AIM) solution to
help shipping and offshore opera-
tors reduce capital and opera-
tional expenses.
The solution combines a digital
twin of any marine or offshore
asset and is meant to be used from
the design and construction
Confident: Claude Maillot, head of French classification
society Bureau Veritas
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stages throughout the asset’s
life-cycle.
The solution supports risk-
based inspection and condi-
tion-based maintenance, and pro-
vides asset management
dashboards for individual rigs,
facilities or entire fleets, Maillot
says.
Classification societies such as
BV must maintain a commitment
to safety and independence.
“Classification is first of all for
safety,” he says.
“I ask my people what ships
carry. They say minerals, oils and
containers. I say, no, no, first of
all, they carry people,” Maillot
says.
BV has 80 audits per year to look
into its business, something not
seen in other industries, and is
“under continuous scrutiny” of
regulators, he says.
The organisation has put in
place multiple systems to ensure
quality, safety and independence,
he says, adding: “We care for
safety.” 
BV employs more than 400 peo-
ple in the country, about 98% of
them Chinese nationals. In 2014,
it set up a technology and research
centre in China covering offshore
and maritime to encourage its
Chinese staff to embrace innova-
tion.
BV has classed China’s first
floating storage and regasification
unit, built and delivered by Chi-
nese yard Wison Offshore and
Marine.
Six years ago, BV put offshore
under its marine division to better
integrate its classification, certifi-
cation and verification services for
floaters and topsides marine
equipment.
As the largest such service in
China, BV has classed almost all
of the production units operating
in the South China Sea and is
working with five of the seven
floaters that Chinese yards were
contracted to build or convert last
year.
Maillot says he is confident in
China’s capacity to attract off-
shore orders even during sluggish
times.
Although oil price volatility will
bring uncertainties when it comes
to investing in capacity, industry
activity has restarted and is pro-
gressing, he says.
“I understand we have about 20
to 30 production units from now
until the 2021-2025 period to come
to the market.”
Photo: BV
38
OFFSHORE
CNOOC Ltd sets course
to double its reserves
Company will need to make huge
new discoveries to hit ambitious
seven-year target and take on more
expensive and riskier projects
XU YIHE
Beijing
C NOOC Ltd, the explora-
tion and production divi-
sion of China National
Offshore Oil Corporation,
is poised to double its proven oil
and gas reserves within seven
years — a target that will require
the company to make massive dis-
coveries similar to its Lingshui
gas find in the South China Sea,
with proven reserves of more than
100 billion cubic metres.
To achieve this, the company
will have to take on riskier and
more expensive exploration work,
going into deeper waters farther
from shore to tap complex reser-
voirs with extremely high tem-
peratures and pressures.
Based on the latest surveys car-
ried out by China’s upstream
watchdog, the Ministry of Natural
Resources, the deep-water areas of
the Qiongdongnan and Pearl River
Mouth basins hold 3.05 billion
tonnes (22.4 billion barrels) of oil
in place and 6.1 trillion cubic
metres of gas in place.
This is out of a total of 35 billion
tonnes of oil and gas in place, of
which gas accounts for 83%, in the
South China Sea.
CNOOC Ltd recently made two
major deep-water gas discoveries
— Yongle and Baodao in the
Qiongdongnan basin, east of the
Lingshui gas field. The two fields,
each believed to hold 100 Bcm of
gas, are hoped to be the basis for a
new gas production hub.
CNOOC Ltd has aligned with
nine major foreign operators,
including Chevron and Cono-
coPhillips of the US, to explore
offshore basins in the South China
Sea.
Agreements were signed late
last year covering blocks in the
Pearl River Mouth, Yinggerhai
and Qiongdongnan basins.
However, without production
sharing contracts to back them
up, the agreements are mostly
symbolic of China’s growing
openness to outside investment in
its upstream industry.
While China may not be desper-
ate for foreign investment to help
it boost offshore exploration and
development, it does need tech-
nology to help it tap heavy oil at
Bohai Bay and to tackle high-tem-
perature, high-pressure reservoirs
in the South China Sea.
The country lacks the sophisti-
cated engineering and fabrication
expertise needed to build and
install subsea equipment for
deep-water operations.
CNOOC Ltd will launch a fresh
bid at the end of March for a sub-
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15 March 2019today.
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sea production system for its
Lufeng 22-1 oilfield redevelop-
ment, part of a new overall devel-
opment plan targeting a cluster of
South China Sea fields.
Expected contenders include
UK-based TechnipFMC, Aker Solu-
tions of Norway, GE-controlled
Baker Hughes, Schlumberg-
er-owned OneSubsea and possibly
privately owned Chinese subsea
equipment manufacturer MSP-
Drilex.
The fields lie north-west of the
existing Lufeng oil complex that
comprise Lufeng 7-2 and Lufeng
13-1.
Most of the fields set to start
production, including the
Huizhou 32-5 oilfield in the South
China Sea’s Pearl River Mouth
basin, Caofeidian 11-1/11-6 in
Bohai Bay and Wenchang 13-2 in
the Beibu Gulf, are what CNOOC
Ltd calls “comprehensive adjust-
ment projects”, meaning redevel-
opments of existing fields.
In Qiongdongnan basin, the 22
billion yuan ($3.1 billion) Lingshui
17-2 development is in full swing,
with first gas scheduled in 2020
and output increasing to 3.5 Bcm
per annum at peak.
CNOOC Ltd already produces 6
million cubic metres per day of gas
from shallow waters in the South
China Sea and aims to boost output
by another 9 MMcmd from the
western area covering the Yingge-
hai and Qiongdongnan basins.
Start-up
The company is currently develop-
ing two projects in the Pearl River
Mouth basin — the Liuhua 29-1 gas
field and the Liuhua 16-2 oil com-
plex.
The two fields are scheduled to
start production from July 2020 to
March 2021.
At the Liuhua 29-1 deep-water terminal for processing and 500 million boe for 2020 the com- slightly higher than last year’s $2
field, CNOOC Ltd and operator condensate will be moved to the pany envisaged two years ago. billion.
Husky Energy of Canada will drill Hai Yang Shi You 13-1 floating pro- Production in 2019 is targeted to More than 75% of the sum is
seven subsea wells at water duction, storage and offloading reach 480 million to 490 million scheduled for domestic activities,
depths between 520 and 1150 vessel. boe, up from an earlier anticipated including 173 conventional explo-
metres. First gas at the field is Bozhong 19-6 is believed to hold 475 million boe. ration wells, 73 unconventional
expected at the end of 2020. 100 Bcm of probable and possible Of the total, 63% will come from wells and the acquisition of 28,000
At Bohai Bay, CNOOC Ltd is put- gas reserves. domestic fields, up from the 58% square kilometres of 3D seismic
ting the giant Bozhong 19-6 gas Based on the latest development CNOOC Ltd expected two years data.
play, a 2017 discovery, under trial schedule, CNOOC Ltd has revised ago. Last year, CNOOC Ltd’s domestic
development. upwards its oil and gas production The company plans to bring six output increased almost 3% year-
Located 145 kilometres north- target by 2020, expressing confi- oil and gas fields on line this year, on-year to 845,000 barrels of oil
west of Tianjin in water depths of dence in healthy production from of which the Shell-operated Appo- equivalent per day following the
22 metres, the field will be devel- domestic and overseas fields. mattox project in the US Gulf of ramp-up of the Dongfang and
oped with a wellhead platform Projects in development will Mexico, where subsidiary CNOOC Panyu gas fields and the start-up
and an export pipeline to the help the company boost net pro- International holds a 21% stake, is of several oilfields.
existing Bozhong 19-4B platform. duction to between 515 million perhaps most prominent.
Another line will link the plat- and 535 million barrels of oil CNOOC Ltd will invest between
form with the existing Bozhong equivalent in 2020, rising to 14 billion and 16 billion yuan
13-1 field. between 535 million and 545 mil- (between $2 billion and $2.3 bil-
CNOOC Ltd
Gas will be sent to an onshore lion boe by 2021, higher than the lion) this year in exploration,
15 March 2019
FOC US C H INA
Production objectives: CNOOC Ltd is aiming
to add significantly to its offshore oil and gas
output over the next decade
Photo: REUTERS/SCANPIX
Additions: CNOOC Ltd sees
scope for expansion into
deep water
Photo: DSIC
Future opportunities: CNOOC chairman Yang Hua
CNOOC to plug in
to digital revolution
IN a recent open letter to employ-
ees at China National Offshore Oil
Corporation (CNOOC), chairman
Yang Hua expresses a degree of
frustration with a major chal-
lenge facing the oil and gas indus-
try, writes Xu Yihe.
He highlights the challenges
facing industry to adapt to the
changing operating environment
brought about by advances in dig-
ital technology.
Yang tells employees that the
digital world is no longer a fiction
as some have imagined. “It is so
real that it is confronting me with
great pressure,” he writes.
The fact that hydrocarbons will
remain the world’s main source of
energy for at least the next decade
does not mean that CNOOC can go
about its business for another 10
years content it will survive as an
oil company, he says.
Oil companies all face the same
challenge to cut costs to remain
competitive, but conventional
thinking will result in only lim-
ited success, Yang says.
Digital technology has a large
role to play in the next stage of
structural cost reduction.
“The application of digital tech-
nology will define the future
energy landscape,” he says.
CNOOC will promote the trans-
formation and restructure its
operations — and mindset —
around digital technology, he
says.
Digitalisation has the potential
to unlock reservoir information,
boost oil recovery and improve
worksite safety and cost efficiency
through unmanned platforms,
Yang writes.
The technology, he adds, could
provide CNOOC with solutions to
unlocking previously off-limits
resources, including development
of heavy oil deposits trapped in
Bohai Bay, tight gas in eastern
China and hydrocarbons in the
South China Sea.
Yang says CNOOC will likely
transform into a service-geared
company, or a broad energy solu-
tions provider, though it is capable
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Photo: REUTERS/SCANPIX
of providing more energy prod-
ucts.
He cites a report showing that
the oil and gas industry is less
knowledgeable about digitalisa-
tion compared with other indus-
tries, with only 40% of operations
involving digital technology,
much lower than the average 49%
seen in other industries.
The letter urges employees to
think about what changes should
be made in terms of organisation,
research and goals, as they relate
to digitalisation.
CNOOC will help by providing
digital training for current
employees and employing more
people who are skilled in digital
technologies.
Yang calls on employees to help
develop a “digital roadmap” to
guide the company’s transforma-
tion as it uses technology to main-
tain high-value creation, to
improve operating efficiency and
to increase production.
There is no guarantee that
Yang’s initiative will help CNOOC
recover resources that currently
are not profitable to develop. But it
should help the company work
smarter, safer and more effi-
ciently.
As its South China Sea explora-
tion goes deeper and farther from
shore, CNOOC is keen to produce
oil and gas from unmanned and
remotely controlled installations.
However, as the company
embraces digitalisation it is likely
to find that it lacks some of the
skills and know-how needed to
make the most of digital opportu-
nities — bringing in the right spe-
cialist service providers will be
critical for a successful outcome.
Digitalisation does bring some
increased risk, such as exposure
to power interruptions and poten-
tial hacking, but it is set to be a
key way that the oil and gas
industry can stay competitive in
a challenging exploration and
development environment
marked by rising costs, oil price
volatility and competition from
other energy sources.