Oil and Natural Gas

Before 1949 China imported most of its oil. During the First Five-Year Plan it invested heavily in exploration and welldevelopment . In 1959 vast reserves were discovered in Songhua Jiang-Liao He basin in northeast China. The Daqing oil field in Heilongjiang Province became operationÍÍÍÍal in 1960. Daqing was producing about 2.3 million tons of oil by 1963, and it continued to lead the industry through the 1970s. Further important discoveries, including the major oil fields of Shengli, in Shandong, and Dagang, in Tianjin, enabled China to meet domestic needs and eliminate nearly all imports by the mid-1960s. In 1973, despite a steadily growing internal demand for petroleum products, output was large enough to export 1 million tons of crude oil to Japan. Exports increased to 6.6 million tons in 1974 and reached 13.5 millions tons in 1978. In 1985 exports of crude oil amounted to approximately twenty million tons, roughly 16 percent of total production. The majority of 1985 exports were to Japan, but the government also had released increasing quantities on the spot market and sent some to Singapore for refining. Although the government temporarily abandoned its drive to broaden its oil export base in 1986, 131 million tons of crude oil still were produced, an increase of 5.8 million tons over 1985.

Oil reserves are large and widely dispersed. In general, development is concentrated on deposits readily accessible from major industrial and population centers (see fig. __, Fuels, Power, Minerals, and Metals, 1983). Deposits in remote areas such as the Tarim, Junggar, and Qaidam basins, remain largely unexplored. The quality of oil from the major deposits varies considerably. A few deposits, like the Shengli field, produce low-quality oil suitable mainly as fuel. Most of the oil produced in China from the big fields in the north and northeast is heavy, low in sulphur, and has a very high paraffin content, making it difficult and expensive to extract and to refine.

Offshore exploration and drilling were first undertaken in the early 1970s, and it became more widespread and advanced as the decade progressed. Chinese and foreign oil experts believed that offshore deposits were extensive and could equal onshore reserves. Offshore operations relied heavily on foreign technology. In 1982 thirty-three foreign oil companies submitted bids for offshore drilling rights twenty-seven eventually signed contracts. By the mid-1980s, when offshore exploration results were disappointing and only a handful of wells were actually producing oil, China began to emphasize onshore development. To continue offshore exploration, China established the China National Offshore Oil Corporation to assist foreign oil companies in exploring, developing, extracting, and marketing China's oil.

Exploration and drilling was concentrated in areas in the South China Sea, Gulf of Tonkin, and Zhu Jiang (Pearl River) Mouth Basin in the south, and Bo Hai Bay in the north. Disputes between China and several neighboring countries complicated the future of oil development in several promising offs c7chore lococations (see Physical Environment , ch.2).

Natural gas was a relatively minor source of energy. Output grew rapidly in the 1960s and 1970s. By 1985 production was approximately 12 billion cubic meters--about 3 percent of China's primary energy supply. The following year, output increased by 13 billion cubic meters. Sichuan Province possesses about half of China's natural gas reserves and annual production. Most of the remaining natural gas is produced at the Daqing and Shengli northeastern oil fields. Other gas-producing areas include the coastal plain in Jiangsu, Shanghai, and Zhejiang the Huabei complex in Hebei Province and the Liaohe oil field in Liaoning Province.

The exact size of China's natural gas reserves was unknown. Estimates ranged from 129 billion to 24.4 trillion cubic meters. The Chinese hoped for a major discovery in the Zhongyuan Basin, a 5,180-square-kilometer area along the border of Henan and Shandong provinces. Major offshore reserves have been discovered. If successfully tapped, these could increase gas output by 50 percent. The largest unexploited natural gas potential is believed to be in Qinghai and Xinjiang.

A rudimentary petroleum-refining industry was established with Soviet aid in the 1950s. In the 1960s and 1970s, this base was modernized and expanded, partially with European and Japanese equipment. In 1986 Chinese refineries were capable of processing about 2.1 million barrels a day. By 1990 China plans to reach 2.5 million barrels a day.

In the 1970s, China constructed oil pipelines and improved ports handling oil tankers. The first oil pipeline was laid from Daqing to the port of Qinhuangdao 1,150 kilometers long, it became operational in 1974. The following year the pipeline was extended to Beijing a second line connected Daqing to the port of Luda and branched off to the Democratic People's Republic of Korea (North Korea). A pipeline from Linyi in Shandong Province to Nanjing was completed in 1978, linking the oil fields of Shengli and Huabei to ports and refineries of the lower Chang Jiang region. In 1986 plans had been made to construct a 105-kilometer pipeline linking an offshore well with the Chinese mainland via Hainan Islands.

Data as of July 1987