China Oil and Gas Market Review
China’s Fuel Mix
− China’s fuel mix is dominated by coal - accounting for 70% of total fuel consumption, as the serious environmental problems caused by coal as an energy source coming to the surface, China has outlined a revamped energy strategy, highlighting alternative energy sources and calling for shifting the primary focuses to oil and gas
− As a top energy user and the world’s fourth-largest consumer of gas, China’s high dependency on overseas oil and gas has brought grave energy security concerns, prompting China to increase supply of cleaner-burning fuels by boosting domestic exploration and extraction.
Chart 1 China Fuel Consumption Mix, Share %, 2012-2020
Source: Statistic Bureau of China, BP World Energy Projection 2030, Ministry of Land and Resources of China, PIM analysis
China’s Oil and Gas Market
− Oil industry
○ China is highly reliant on imported oil energy, which jeopardizes national energy security
In 2013 China consumed 498 million tons oil of which 58% was imported, with projections of 66% and 75% by 2020 and 2030 respectively.
○ It is China’s strategy to encourage development of domestic oil,as domestic onshoreand near offshoreproduction has flattened out in recent years, there is a push to explore and develop deeper water production, to decrease the security risk
Chart 2 Natural Gas Production by Source (bcm)
Source: Statistic Bureau of China, Ministry of Land and Resources of China, PIM analysis
− Gas market
○ China produced 121bcm of natural gas last year, while consuming 168bcm of which 28% was imported. This percentage is projected to hit 33% by 2020.
○ It’s China’s second leg to increase the share of natural gas in the energy mix, with movements to expand the gas supply under way
− Unconventional Oil and Gas Market: As conventional oil and gas production have flattened in recent years , offshore oil and unconventional gas have the potential to be the game-changers
○ China produced 48 million tons offshore oil in 2012, accounting for 23% of domestic production. Planners project offshore drilling production up to 37% in 2015. The extraction of tight and shale oil are in initial stages, due to the lack of advanced technologies.
○ Unconventional gas, including CBM, shale gas and tight gas, accounted for 40% of production in 2012 and is projected to reach 80% by 2020
Although China’s oil and gas industry has been dominated by the state owned enterprises (SOEs), many foreign players, such as Shell, Chevron, BP, TOTAL , Schlumberger, Halliburton and Baker Hughes, have engaged in this emerging unconventional market
− E&P Section
China’s 3 big giants- PetroChina, CNOOC and Sinopec, dominate China’s oil and gas industry. Due to lacking of domestic advanced technologies, China’s offshore oil and unconventional gas sectors are open to foreign investment
− Oil Field Services Section
China’s oil field service market size is estimated to be around 40 billion USD, attracting over 1200 OSCs*, in which, foreign invested companies accounted for 5% of the total market
− General Tone
China is very young in developing deep water oil and unconventional gas resources, thus state planners are encouraging and favoring foreign technology vendors to enter China, rather than protecting local industry in these fields. It is believed that aggressive players will take actions to consolidate industry resources, such as acquisition to accelerate the growth.
− Sample Opportunities Are Opening To…
Equipment and services regarding deep-water and unconventional gas wells drilling, horizontal well drilling, geo-steering, cementing, logging, well stimulation, environmental management related products and technologies are highly needed in China. M&A consulting services will be needed.
For more details, please visit China Oil and Gas Market Review-PIM-201404