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Oil and Gas

Industry Overview

China is the world’s second largest importer of oil and consumed over 10 million bbl/d in 2012. China holds 20.4 billion barrels of proven oil reserves, the highest in the Asia-Pacific region. In 2011, China produced around 4.3 million barrels per day (bbl/d) of oil liquids; this capacity is expected to rise to reach 4.5 million bbl/d in 2013. Sinopec controls 46% of total crude refining capacity, while PetroChina accounts for 31%. The remainder is processed by smaller refineries.

SOEs control around 66% of the market for well-drilling equipment. Small- and medium-sized private Chinese companies make up 19% of the market and are producing mainly individual stand-alone equipment. Foreign companies make up 15% of the market and supply advanced complete-set equipment. Key international players have established their presence in China mostly through partnering with Chinese companies.

Natural gas makes up relatively small portion of China’s primary energy generation capacity, but is developing rapidly as the government looks to move away from an over-reliance on coal. As stated in the government’s 12th Five-Year Plan, China will require between 200-250 bcm of natural gas per year by 2020, an almost four-fold increase from current consumption. The government has set a target of increasing gas to 10% of China’s energy consumption by 2020 which will make it the largest consumer of natural gas in Asia sometime in the next 10 years.

Market Opportunities

Currently, most of China’s technology is focused on the exploitation and processing of its domestic light crude oil – domestic equipment accounts for about 90% of this sector. However, limited domestic reserves have forced China to exploit more of its heavy crude reserves and to import increasing quantities of heavy crude oil. This type of oil is more difficult to recover from the ground, more difficult to refine, and more polluting than light crude; thus requiring advanced technology.

China also has over 1,275 trillion cubic feet of shale gas reserves. Development of China’s inland shale gas is a promising market, but the region is hampered by poor logistics and scarce water resources.

Best Prospects

In general, areas with high government support and low domestic product maturity offer the best prospects for foreign companies. Exploitation technologies enjoy strong government support. Specifically, Steam-Assisted Gravity Drainage (onshore), Geologic exploration equipment, position navigation systems, and deep-water drill systems (offshore) are technologies and equipment that enjoy high demand from Chinese companies.

Shale Gas The Chinese shale gas industry is poised to expand rapidly over the coming decade. According to the Ministry of Land and Resources, China holds more shale than any other country, having around 25 trillion cubic meters of technically recoverable reserves. Despite extreme interest from national and local government, China currently has zero commercial shale gas production capacity, leaving the industry ripe investment and development.

China’s large shale reserves will require a concentrated and multi-faceted effort if they are to be fully exploited. The country faces a number of challenges in these endeavors. In particular, Chinese shale reserves are located in regions that will make extraction very difficult. Not only are these areas often mountainous and inaccessible, but the resources therein are often located at depths beyond those that which have previously been considered viable. Furthermore, China lacks a developed pipeline network which is able to transport potentially massive amounts of shale gas to the more energy demanding regions on the East coast. The water intensive nature of shale extraction will pose a strong challenge to the industry as China already faces water shortages in many of the areas where shale reserves exist.

These challenges have the potential to create substantial opportunities for American companies across the shale gas value chain. For example, firms that have developed significant advantages in extraction technologies – particularly in water efficiency and deep extraction are well positioned to do business in China. Companies that specialize in drilling, produce extraction equipment or that provide operational services for shale gas developers may also benefit from the growth of the Chinese shale market.

Onshore recovery The Energy Conservation Plan states that optimization technologies should be applied to oil exploitation systems; energy saving supplementary technologies to heavy crude hot exploitation; optimized operation technologies to water filling systems; comprehensive energy saving technologies for oil and gas enclosed collection and transmission, and recovery and reutilization technologies for discharged natural gas.

Offshore recovery The Chinese offshore recovery industry relies on domestic manufacturers for some 90% of its equipment. However, there is still a need for foreign assistance in geologically complex extraction technology and advanced thermal recovery technology for heavy crude.

Heavy crude refining Refineries that are being upgraded, expanded or newly-built will all need hydrocrackers and delayed cokers to process increasing amounts of heavy crude. Hydro-treaters are needed to filter out pollutants, such as sulphur and nitrogen, to comply with EURO III standards and to increase combustion efficiency.

Petrochemical refining Sinopec and PetroChina have announced major programs to expand their olefins and derivatives capacity. However, the biggest growth area is ethylene production. All major Chinese producers already use ethylene steam cracking technology constructed by or licensed from foreign companies. SOEs are mostly interested in acquiring patented technological processes and technical expertise.

Regulatory Environment

Current government policies 1) emphasize the use of high-efficiency technologies to develop low-grade oil & gas resources and improve oil recovery ratios; 2) encourage the replacement of fuel oil (light oil) with clean coal, petroleum coke and natural gas; 3) call for an acceleration of coal-to-liquids projects; 4) call for acceleration in the construction of oil bases and to strengthen oil pipelines and networks; 5) pursue petroleum-saving and consolidation policies in the electric power, petrochemical, metallurgical, building material, chemical, and transport industries; 6) call for implementation of fuel economy standards and a clean automobile action plan for motor vehicles; and 7) consolidate small oil burning units.

Shale Gas: The Chinese government is eager to promote the development of domestic shale gas energy. China has set itself ambitious targets for cleaner growth and the government believes that tapping its large unconventional gas resources might be a way of reducing its reliance on coal, which produces significant CO2 emissions. In addition, China wants to improve energy its security by becoming less reliant upon foreign imports. To this end the central government aims to produce 6.5 billion cubic meters of gas from unconventional sources by 2015, rising to 60 billion by 2020.

Recognizing these challenges, China has recently relaxed regulations surrounding the shale industry with the hope of attracting further foreign investment and expertise. For example, in contrast to other nations, China operates a loose environmental policy thus reducing the risk of liabilities and penalties for energy firms. Most significantly, the Ministry of Land and Resources (MLR) announced in September of 2012 that foreign companies would be allowed to take part in the bidding process for shale gas exploration licenses. Whereas this bidding was previously limited only to domestic firms, new MLR rules permit Chinese-controlled foreign joint ventures to take part in the tender process. Onshore recovery The Energy Conservation Plan states that optimization technologies should be applied to oil exploitation systems; energy saving supplementary technologies to heavy crude hot exploitation; optimized operation technologies to water filling systems; comprehensive energy saving technologies for oil and gas enclosed collection and transmission, and recovery and reutilization technologies for discharged natural gas.

Offshore recovery Developing deep-sea oil reservoirs have become the government’s new strategy to increase oil production. Currently, about 15 percent of China’s oil comes from offshore sources with companies actively looking to increase that share. Since recovery is still highly dependent on foreign technology, the government gives favorable tariffs for imported offshore oil recovery facilities, and imports of key equipment is exempt from import taxes altogether.

Heavy crude refining The Chinese government has adopted a series of measures, such as raising the transportation fuel standards and replacing the collection of road maintenance fees and other fees with fuel consumption tax as well as the use of public transportation systems, to encourage oil refiners to produce higher quality and cleaner fuel and fuel consumers to save energy. Currently, a EURO III–equivalent standard is in effect across China. However, the city of Beijing implemented EURO IV standards in 2008 as part of its drive for a Green Olympics and announced plans to enforce National 5 standard (comparable to EURO V) in 2012. Other large cities are expected to follow suit. Refinery capacity is to increase 31% during the 11th Five-year Plan (FYP) so as to reduce dependence on imports of refined products. China’s goal by the end of the 12th FYP is to increase refining capacity to around 14 million bbl/d.

Petrochemical refining The National Climate Change Plan places special emphasis on the production of one petrochemical: ethylene. This substance is the most important synthetic organic chemical in terms of volume, sales value and number of derivatives. In the Energy Conservation Plan, the government aims to optimize raw material (ethylene) structure, retrofit ethylene cracking furnace with advanced technology, optimize quenching system operation, and improve facilities management. Also, it plans to have 30 one-million ton ethylene plants in China by 2015. Foreign companies must form JVs with a Chinese partner in order to produce ethylene (and the Chinese partner must hold a majority share). Foreign investment is encouraged as a means to provide raw materials and advanced technology.

Natural gas The Chinese government is continuing its efforts to create a more transparent gas environment to encourage investment by creating a gas law and appropriate downstream gas regulations. Currently, most regulations focus on the importing and pricing of LNG.

Reports and Statistics

China Greentech Initiative Reports

This is an energy-focused open source commercial collaboration of over 80 of the world's leading technology companies, services firms, entrepreneurs, investors, NGOs and policy advisors, united to contribute to a sustainable China.

Major Trade Shows

This section provides a listing of upcoming oil and gas-related events in China, including industry shows and trade missions. While FCS China is directly involved with some of these events, the others listed here have no direct relationship with the FCS and are listed solely as a convenience to our users.

For more information, please contact the organizing group as listed in the event description. Verify the information before making any commitments - we are not responsible for accuracy of information or changes in events' schedules.

The 4th China International LNG Industry Expo

Dates: September 1-3, 2014

Venue: China National Convention Center, Beijing, China

Exhibitor and Visitor Profile:

2014 China International LNG Industry Expo is composed of 6 exhibition sections: Integrated, LNG Liquefaction Technology & Equipment, ― LNG Storage and Transport Technology & Equipment, LNGV and Station Equipment, LNG Ship Technology & Equipment, ―LNG Basic Material & Infrastructure.

The Expo scale nearly 10,000 sqm, about 200 exhibitors will gather together showcasing their latest technology and products.

Concurrent activities: 4th China International LNG Conference; China Road Transport Industry Annual Forum; LNG Tech Training Course; New technology & product release

Contact: Michael Wang (CS Beijing), jianhong.wang@trade.gov

Website: www.lngchina.org

5th UGAS China 2014

Date: October 23-25, 2014

Venue: Chaoyang U-Town, Beijing

Contact:Mr. Chiang & Mr. Wang / (86-21) 5830-0710

Website: http://www.szwgroup.com/unconventional-gas-asia-summit-china-2014/

China (Beijing) International Offshore Oil & Gas Technology Conference and Exhibition (CIOTC 2014)

Dates: November 9-11, 2014

Venue: China International Conference Center, Beijing, China

Exhibitor and Visitor Profile: IOC,NOC, Service Company, EPC, EPCI, Equipment Manufacturers, Trading Company, Agents and so on.

The CIOTC 2014 will have two main forums, 16 technical sub-forums and a high-end technical equipment exhibition and with the theme of Incorporating Tomorrow’s Technology Today, it contains the number of cutting–edge topics focusing on development demand of the offshore industry chain. The exhibition is composed with four main show zones: international oil company/national oil company zone, oil & gas field service zone, offshore engineering equipment zone and oil equipment vender zone. The conference aims to provide the offshore oil & gas industry with a major platform for industrial analysis, policy guidance, technical solutions and new product release, CIOTC is gradually known as China’s OTC. With the guidance from the Ministry of Industry and Information Technology, and National Energy Administration, the 4th CIOTC will be hosted by CPS,CANSI, CPCIF and Energy AG and co-organized by BMC China Exhibition with CNOOC,CNPC and Sinopec Group as strategic partners.

Contact: Michael Wang (CS Beijing), jianhong.wang@trade.gov

Website: http://www.ciotc-top.com  ︱ http://www.en.bmc-china.cn

U.S. Commercial Service Specialists

The U.S. Commercial Service offers a broad array of market entry services to U.S. companies in the oil and gas industry. Please refer to the following relevant contacts for additional information on how we can help you expand your business in China.

Beijing Office:
Tel: (86-10)8531-3000
Fax: (86-10)8531-3701
Michael Wang

Shanghai Office:
Tel: (86-21)6279-7630
Fax: (86-21)6279-7639
Scott Yao

Guangzhou Office:
Tel: (86-20)3814-5000
Fax: (86-20)3814-5310
Lena Yang

Chengdu Office:
Tel: (86-28)8558-3992
Fax: (86-28)8558-3991

Shiyang Cui

Shenyang Office:
Tel: (86-24)2322-1198
Fax: (86-24)2322-2206
Yang Liu

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