Statistics of recent years show that the production-consumption structure of China is characterized by the dominance of coal (74%), electric power comprising about 6%, natural gas as low as 2%, and oil accounting for some 18%. Oil is the second important energy resource in China, and variations of its production will have a profound effect on national economy. Details are shown in Table 2.3.10.

Table 2.3.10Total production/consumption of primary energy in China and its composition

2.3.3.1 Supply and Demand of Oil

In 1998, China's total supply of oil was 187.516 million tons, including 160.176 million tons produced domestically, 49.063 million tons imported (27.323 million tons of crude oil and 21.740 million tons of petroleum products), and 19.843 million tons exported (15.600 million tons of crude oil and 4.243 million tons of petroleum products). At the end of that year, there was a balance of-1.88 million tons (0.5 million tons of crude oil and 1.38 million tons of petroleum products) (Table 2.3.11). The total import value was 3,199.24 million  US dollars, 41.4% lower than that of 1997 (5,456.69 million US dollars). Both the import and export values saw an overall reduction (Table 2.3.12).

Table 2.3.11 Situation of supply and demand of oil (¡Á103 t)

Notes: Production refers to that of crude oil; both imports and exports include crude oils and petroleum products; Imports include the amount of oil supplied to China's planes and ships outside China; exports include that supplied to foreign planes and ships within China.

In the same year, the total supply of petroleum products amounted to 83.31 million tons, the actual consumption was 91.33 million tons. It was the first decline in a decade for the demand for petroleum products in the domestic market. The total export value was 1,527.45 million USdollars, 44.1% lower than that of the year before (2,734.13 million USdollars). The net import of oil in 1998 saw a decrease of 14% as compared with that in 1997 (Table 2.3.12).

The country's stock of oil in 1998 was not high: at the end of that year, there were 8 million tons of crude oil, 0.5 million tons (or 6%) lower than that in 1997; 7.25 million tons of petroleum products, 1.38 million tons (or 15%) lower than that in 1997. It was suggested by departments concerned that strategic petroleum reserves should be set up in the country.

Table 2.3.12 Imports and Exports of Petroleum of China in 1998 (¡Á103 t)

¢Ù Petroleum products also include liquid wax and lubricating oil and grease besides gasoline, naphtha, kerosene, diesel and fuel oil£»¢Ú Crude oil plus petroleum products.

Compared with 1997, the production of oil in 1998 decreased by 168,000 tons, a decrease less than 2%. But the import for crude oil and petroleum products still surpassed the export. In the past ten-odd years, the export of crude oil has decreased by an annual percentage of 4% since the peak of 30.03 million tons in 1985. By 1998, it was 15.6007 million tons, the lowest in the past 15 years. Meanwhile, the import of crude oil amounted to 27.3226 million tons, down 23% as compared with 1997. This was because the domestic economic development was slowing down and the low returns of industrial enterprises resulted in the decline of demand for oil. As a matter of fact, as early as 1993, the import of petroleum (33.84 million tons) already surpassed the export (24.03 million tons). But the export of crude oil still exceeded the import until 1996 when there occurred an obvious turn of the situation of supply and demand, i.e., not only the total import (45.37 million tons) exceeded the export (26.96 million tons), but also the import of crude oil (22.61 million tons) also surpassed than the export (20.32 million tons). Thus China turned into a net petroleum import country from a net export country, which lasted for more than 20 years. This fact reflects the rapid economic development of China on the one hand, and on the other hand, it shows that the speed of our development in petroleum production is lagging behind that of its consumption, that is to say, the production of petroleum in China falls short of demand.

Nevertheless, from a macroscopic view, China's oil production is still at a stage of stable development. It is estimated that the annual production will be fixed at around 160 million tons in recent years, and possibly a little higher.

2.3.3.2 Supply and Demand of Natural Gas

The data of supply and demand of natural gas in 1998 are as follows:

Domestic production: 22,321 million cubic meters of natural gas produced by the various oil-gas fields (as high as that in 1997). The 66 refineries supplied to the market 5,804,800 tons of LPG (5,807,300 tons in 1997), and used 1,940,000 tons themselves.

Imports: 4,770,000 tons of LPG (3,580,000 tons in 1997).

Exports: 2 billion cubic meters of natural gas and 502,200 tons of LPG (392,200 tons in 1997).

In 1998, China became the third largest consuming country of LPG in the world, only next to the USA and Japan. In the imported and domestically produced LPG, 4,805,000 tons were used as industrial and civil fuels, the others used in chemical industry. The natural gas produced in China was consumed domestically. Except that exported to Hong Kong from the northern South China Sea, the remaining natural gas was used for industrial and civil consumption.

2.3.3.3 Situation of Supply and Demand of Oil and Gas     

The amount of supply and demand of petroleum has been increasing in the last 50 years (Table 2.3.11). After having undergone the three stages of import (1949~1962), self-sufficient (1963~1973) and both import and export (1974~1995), China entered in 1996 the stage in which import exceeded export. To balance the supply and demand, such situation will continue for a long time. The supply of natural gas will be expanded and the amount of supply will also increase year by year.     

China's production and consumption of petroleum have the following characteristics: First, oil and gas have a relatively low proportion in the total energy structure, which accounted for only 20% (Table 2.3.10), while coal has been dominating for a long time. This structural feature will not change radically for a long time to come. It means that China's economy is less dependent on petroleum resources than other countries. Second, its per-capita consumption of petroleum is low, e.g., in the year 1998, the world production of petroleum was 3.3 billion tons, and the per-capita consumption was 560 kg, while the figures for China were 0.16 billion tons and 123 kg respectively, only 22% of the world average. The per-capita consumption of natural gas was even lower. Third, the rate of energy consumption/production value is as high as 1.66 kg standard oil/US dollar GNP as compared with 0.42 kg standard oil/US dollar GNP of the world average. Therefore, there is a great potential for saving energy, including petroleum. Along with the advances in technology and readjustment of industrial structure, the energy consumption rate will be lowered, thereby reducing the gap between supply and demand. For example, in 1994, the losses were 4.42 million tons for petroleum production and 4.45 million tons for refinery, which were lowered to 1.61 million tons and 2.71 million tons respectively in 1996. In view of the above features, to raise the proportion of petroleum in the energy structure and the per-capita consumption, we should enhance exploration to produce more oil and gas, and strive to minimize the gap between supply and demand.

(1) Situation of the petroleum market

The main source of oil supply is the crude oil produced domestically. Although in recent years, the increase of production is lagging behind that of demand, it will maintain the development trend that the supply of petroleum in China will be "dominated by domestic production while supplemented by foreign sources" in the 20 years to come. That is because we still see good potential in increasing oil production. In the past 10-odd years, the production of crude oil had continuously increased (Table 2.3.9), generally 0.45%~2.71% per year, and reached 4.9% in 1996. Although that in 1998 was at the same level as in 1997, a number of new oilfields in the South China Sea and Bohai Sea will start operation in 1999, which will increase the CNOOC's oil production. In 1998, CNPC saw an increase in the production, and CNSPC also planned to increase the output through putting the two new oilfields in Tahe (Tarim) into produciton. It is thus expected that the oil production in China will have some increase.

At the same time, efforts have been made in cracking down smuggling of petroleum products, so the domestic production of petroleum products will be expected to increase.

In the past 10-odd years, the annual consumption of crude oil and petroleum products had been increasing by 4%~12%, exceeding the annual ncreasing rate of oil production (0.5~4.9%), and, beginning from 1996, the supply fell short of demand (especially in 1997, when the consumption reached 482,000 t/d, up 10.8% as compared with 1996). In 1998, the daily consumption reduced to 2.3% (471,000 t/d) owing to the efforts made in the readjustment of the industrial structure, the economic development speed etc. However, in view of the long-term economic development, the domestic supply of oil and gas will still be short of demand.

It is estimated that owing to the enhanced infrastructure construction, the demand for petroleum will rise in 1999 at a rate of 4.9% calculated on an economic development rate of 7%. The gap between the growth rate of annual production of crude oil and that of demand in the market will be widened, and import will continue to increase. The situation of supply and demand of natural gas will remain at the same level as in 1998. Although it cannot fully satisfy the demands in the developed areas, the annual production will increase, mainly owing to the development of the Pinghu gasfield in the East China Sea, which is expected to supply 400 million cubic meters of gas a year. The gasfield in central Ordos will also increase its production after completion of the gas piping networks in Beijing, Xi'an and other cities, thereby improving the framework of the gas-consuming areas.

Based on the comments from the departments concerned in production and sales, the research institutions and the governmental energy sector, it is anticipated that China's demand for oil in the year 2000 will be 200 million tons, in which 165 million tons of oil is planned to be produced domestically, with a gap of 35 million tons; the demand for natural gas will be 25 billion cubic meters and 9 million cubic meters for LPG, in which 6.3 million cubic meters will be produced domestically and 2.70 million cubic meters be imported.

(2) Guarantee of resources for oil production in 2000

The plan to produce 165 million tons of crude oil in 2000 is a feasible target based on full considerations of the actual situation of China's petroleum resources and the potential productivity as well as data from various departments.

At the end of 1997, the remaining recoverable reserves of petroleum were 2,327 million tons, with a reserves/production ratio of 15. With the potentially added recoverable reserves, the ratio may keep at the level or even higher so as to fully meet the needs for petroleum in the year 2000.

The planned 165 million tons of crude oil for 2000 mainly comes from the following sources: 100 million tons from the already developed oilfields, 25 million tons from production of the unused reserves, and 40 million tons from production of the newly-developed reserves. In other words, 149 million tons will be produced on land (123 million tons from the eastern regions, 26 million tons from the western regions), and 16 million tons offshore.

It is foreseen that during the Ninth Five-Year Plan period, a total of 3,500 million tons of geological reserves for petroleum will be explored (2,000 million tons from the east, 1,000 million tons from the west, 500 million tons from offshore). This will provide reliable back-up reserves for the growth of petroleum production in the early 21st century.

(3) Trends of supply and demand of oil for 2010

A number of departments and individuals have made researches and prediction on the mid-term and long-term demands for petroleum resources in China. The data predicted vary greatly. This lies on the different growth rates of China's GNP (gross national product) taken for the period of prediction. The average of the predicted figures for 2010 is 250 million tons, which is closest to the 253 million tons predicted by the Institute of Petroleum Geology, MGMR at a GNP growth rate of 8% (Table 2.3.13).

Table 2.3.13Prediction of demand for petroleum

In consideration of the fact that China's energy consumption structure in the coming years will still be coal-dominant (about 75%), the development of private cars (the largest component in the demand for petroleum in developed countries) will still be constrained by a number of factors, and the traditionally low dependence of national economy on petroleum, the averaging 250 million tons is a desirable figure of the predicted demand for petroleum in the year 2010. It is higher than the predicted figure 212.7 million tons by the World Bank in 1990.

How much petroleum, then, can China produce by 2010 to meet the demand? There are various sources of prediction. Here we shall discuss only two sets of predicted figures. One predicts that 165~225 million tons of oil may be produced in China by 2010, based on integrated statistics of mid-term and long-term plans of China's petroleum enterprises; the other gives a macroscopic prediction of 160~211 million tons by using the gray system theory (Guo Baoshen et al., 1995). These two figures are close and credible. By taking the arithmetic mean, 190 million tons may be taken as a representative figure for the petroleum production, 120 million tons for the east, 50 million tons for the central and west, and 20 million tons for the sea areas.

From the above figures, it is clear that by 2010 the supply of petroleum will still be short of demand, with a gap of 60 million tons. This will depend mainly on import, besides taking some energy-saving measures. The key problem in implementing "rely mainly domestically" is how to guarantee the targeted output of petroleum in 2010 so as to minimize the import. The following is a discussion of China's petroleum resource potential for such a target.

In the first decade of the 21st century, from the annual production of 165 million tons in 2000 to 190 million tons by 2010, the accumulative oil production will be 1,788 million tons, with an average increment of over 2.5 Mt/a. This requires an increase of 100 million tons of oil productivity, and correspondingly 7 billion tons of explored geological reserves are needed. Whether this can be realized depends on the situation of petroleum resources in China.

The petroleum exploration degree (percentage of the explored reserves over the resources) of the country is averaged at 20%, and that of the ultimate recoverable reserves is 38%. However, it varies from place to place.

The eastern regions have the highest average degree of 58%, 65% for the Songliao Basin, 42% for the Bohai Bay (North China) Basin, 94% for the Nanxiang Basin, and 80% for the Jianghan Basin.

The central regions: Sichuan Basin, 10%; Ordos Basin, 24%; Erlian Basin, 15%.

The western regions: Tarim Basin, 3%; Junggar Basin, 18%; Tupan-Hami Basin, 15%; Qaidam Basin, 30%; averaging 12%.

The offshore shelf basins have the lowest degree of about 3%.

The past decade's exploration practice shows that wherever substantial exploration is made, there will be discoveries. New oilfields have been found continuously in the western regions and sea areas, and even in the well-explored eastern regions there are great potentials. The increase in the explored geological reserves in recent years has been mainly attributed to the eastern regions (at an average of 350 Mt/a).

The eastern regions, as the old petroliferous regions, are China's main bases, with 1/3 of the resources, 80% of the explored geological reserves and 75 % of the remaining recoverable reserves. The output of crude oil in 1998 made up 75% of the total production of the country. The recoverable resources to be proved are predicted to comprise also one third of the whole. The mid-term recoverable resources are estimated to reach 1,500 million tons, and it is believed that "a stable production will continue up to 2005~2010", and that "the eastern regions will hold their position as the ¡®main forces' and ¡®bases' for a long time". Not long ago, the Daqing Oilfield declared that it will maintain its stable production of 50 million tons up to the year 2010. That radically assures the stable production in the eastern regions. A number of new favorable zones have been discovered through exploration in recent years, e.g., Sanzhao in Songliao; Lishu, Liaoxi and Kailu in the Songhuajiang-Nenjiang area; Linyi in North China; the shoal of the Bohai Bay; and the Jinhu depression in northern Jiangsu. Taking into consideration also the discoveries in the peripheral areas of old oilfields and new oil reservoirs within the oilfields, it is expected that additional 4~5 billion tons of geological reserves may be explored in the coming years, which, plus the recoverable reserves obtained by increasing the recovery rate in the development, will be able to guarantee the stable production up to the year 2010.

In the western regions, the Tarim, Junggar and Turpan-Hami basins in Xinjiang and the Qaidam Basin in Qinghai are most prospective and will become the strategic back-up oil bases. Their resources are predicted to exceed 1/4 of the total. Presently, their explored reserves and crude oil production account for 13% and 12% respectively of the total. Northwest China is very promising in petroleum resources. Besides the three large basins in Xinjiang, there are discoveries from time to time in some medium-sized and small basins such as Qaidam, Jiudong, Yanqi and Santanghu. It is estimated that the oil production in Xinjiang in the year 2010 will approach 25 million tons, and the newly added geological reserves will be around 2,000 million tons, half of which lie in the Tarim basin. With the already explored reserves and those of the medium-sized and small basins, it is possible to produce 30 million tons of crude oil in the region by 2010. If there will be another large oilfield discovered in the Tarim Basin, the production may rise up to 40~50 million tons, making the Northwest and the central (the Ordos, Erlian, Sichuan basins etc.) regions China's strategic back-up bases.

From a long-term view, China's shelf region is another strategic back-up petroleum base. The marine carbonate rock areas in southern China and Tibet, and the Cenozoic basins in the Nansha sea areas are also petroliferous regions of strategic significance. Since the opening-up of the shelf areas, foreign investments of some 6 billion US dollars have been attracted for the exploration and development. Massive exploration and development have also been carried out by domestic companies, so that the petroleum resources in the region are basically known. China's offshore oil makes up one fourth of the total, but the exploration degree is only 3%. Up to the end of 1998, the total explored geological reserves amounted to 1,500 million tons, and the annual oil production accounted for 10% of the total. Presently, large oilfields with oil potentials exceeding 100 million tons have been discovered in five rises in the Bohai Sea, i.e., Shijiutuo, Shalei, Chengbei, Bonan and Bodong. New oilfields are also expectable in the Pearl River Mouth Basin, the Beibu Gulf Basin and the East China Sea Shelf Basin. Therefore, it is possible to add up 1,000 million tons of explored geological reserves in the coming ten-odd years, so as to increase the production to 20 million tons by 2010.

To sum up, China is endowed with rich petroleum resources. The situation of petroleum exploration is also favorable, so it is possible to realize the targeted petroleum output for the year 2010. The key problem is to find in the sea areas and the western regions some large oilfields that are concentrated in location, high in reserves and ready for exploration and development.

(4) Trends of supply and demand of natural gas for 2000 and 2010

The prediction for the demand of China for natural gas is made by using the method "according to the demands by the end-users" calculated at the average GNP growth rate of 8% before 2000 and 6% before 2010, and that for the production of natural gas is based on the gray system prediction theory. The results are shown in Table 2.3.14 and Table 2.3.15.

Table 2.3.14 Demand for natural gas (¡Á109 m3)

Table 2.3.15 Prediction of supply and demand of natural gas (¡Á109m3)

As shown in the above table, China will keep a good balance between supply and demand in 2000. In 1995, the explored geological reserves amounted to 192.6 billion cubic meters (equivalent to 123.8 billion cubic meters of recoverable reserves), which are sufficient for exploitation up to 2000 if counted on the production rate of 1996. The production of natural gas includes that of gas-reservoir gas and dissolved gas. According to the analysis, in the 30 billion cubic meters of natural gas produced in 2000, 25.5 billion cubic meters are produced onshore and 45 billion cubic meters offshore.

The prediction for 2010 shows a basic balance between supply and demand, and also guarantee for sufficient resources. The geological reserves already explored exceed 1.6 trillion cubic meters, those supplemented during the Eighth Five-Year Plan period alone reach 701.0 billion cubic meters. Researches show that there will be 1~2 trillion cubic meters of explored geological reserves added before the year 2010. Therefore, there will be sufficient recoverable reserves to guarantee a high reserves/production ratio even if the production predicted for 2010 is as high as 70 billion cubic meters.

(5) Environmental protection measure for sustainable development of oil and gas

Pollution and damages to the natural environment and people's living environment may occur during the processes of oil and gas exploration, development, transportation and refining as well as their consumption. For this issue, China has formulated targets and technical standards for prevention of pollutions in addition to relevant laws and regulations.

In the development of oil and gas, the main targets for prevention of industrial pollution for 2000 include: reinjection of waste water yielded during oil production should reach 97%; the recovery rate of oil spilled in the soil should reach 95%; 85% of the major production units should be built into clean and pollution-free mining areas; and emphasis should be put on the control of direct pollution of oil in major sea areas.

As for the refineries, the targets for prevention and control of pollution for 2000 are: industrial waste water be 100% treated, release of dust and SO2 greatly reduced, and 90% of solid industrial wastes made use of.

A series of control measures have already been taken in some oilfields, including those for preventing dispersion of hydrocarbons and pollution by waste water, control of wastes in the mining areas, noise prevention, and technical measures for prevention and control of blow-outs, leakage of pipelines, oil tanks or oil carriers etc. All these are aiming at minimizing the harms liable to the ecological environment by accidents in oil and gas production. It is believed that the effective implementation of the measures will promote the sustainable development of China's petroleum industry.