In the past three years, Beijing’s projections for 2030 oil and gas output increased by a third to almost 700 million tons of oil equivalent, based on hopes of developing unconventional oil and gas. Production last year of oil and natural gas was 318.9 million tons of oil equivalent.
With traditional oil production practically stagnant around 4 million barrels per day – less than half of implied demand – and gas demand growing faster than production, Beijing hopes to squeeze more from unconventional sources. If feasible, this could quicken the country’s transition to natural gas and possibly dampen the growth of imports. Growth in crude imports, on the other hand, should remain robust.
The broad plans show unconventional oil and gas taking center stage, accounting for one-third total production in 2030. Conventional oil and gas projections for 2030 stay fairly steady from earlier projections: 200 million tons of oil (possibly peaking at 250) and 300 billion cubic meters of gas. (see chart)
Beijing wants an extra 50 million tons per year of unconventional oil, from almost no unconventional oil production now, according to a Singapore-based analyst. However, the real growth is an additional 150 billion cubic meters of unconventional gas, according to the Ministry of Land and Resources (MLR) China defines unconventional gas as including shale, coal bed methane and tight gas. Last year China produced 120 Bcm of natural gas with an estimated 40 billion from unconventional gas, mainly from tight gas, estimates the Singapore-based analyst.
The new, higher projections rest squarely on two factors. First, China must develop the western province of Xinjiang– far from energy demand centers – and increase production in offshore Bohai bay, the site of the 2011 CNOOC/ConocoPhillips oil spill. Second, unconventional production, particularly that in natural gas, needs to rise substantially. Both bring considerable challenges.
Take first the geography. The Ministry believes Xinjiang will contribute at least 800,000 b/d of oil by 2030. While Xinjiang is certainly closer to Shanghai and Beijing than Saudi Arabia, the province is relatively undeveloped and subject to civil unrest. Transportation of fuels to the demand centers in eastern and southern China is slow and expensive, by Chinese standards. This region will be key though, and not only with oil. The MLR predicts it will produce 70 Bcm of gas by 2030, from just 25 Bcm in 2012. To put that in perspective, China’s total natural gas production only breached 70 Bcm in 2008. Consumption is expected to reach 235 Bcm by 2015, more than two times that of 2010, according to CNPC.
The second component – successfully developing unconventional fuels – requires adopting new technologies and a willingness by Sinopec and CNPC to invest the necessary resources. In part, this led state-owned oil companies to acquire stakes in overseas companies engaged in hydraulic fracturing. It may also require a shift in regulation; critics of China’s plans say its state-dominated natural gas field and non-market prices leave little room for competition and innovation. Both were hallmarks of American success in developing shale gas.
An additional 50 million tons per year of unconventional oil may not seem like much, but Beijing is desperate to keep import dependency on oil as low as possible. Rising crude imports put pressure on China’s antiquated and opaque fuel pricing scheme, run by the country’s top economic and political body the NDRC, which sets prices of transport fuels province-by-province. It last changed the price for fuels on January 24th. The system has come under attack by those both in and outside of the country, and often squeezes refining margins into negative territory.
The modest production gains will not quell the rising tide of crude imports. Oil consumption is expected to soar to 17 mmb/d by 2030, according to BP’s 2035 Energy Outlook. That suggests at least 11 mmb/d and possibly as much as 13 mmb/d of imports.
However, 450 Bcm of natural gas production should ensure that imports remain a small portion of overall consumption. Alternatively, it could signal that Beijing wants to quicken the transition from coal to natural gas. The country’s leadership is under tremendous pressure to clean up the air in its polluted cities.
This newest projection shows Beijing’s seriousness and determination in developing unconventional resources and creating an “energy hub” in remote Xinjiang province.