China’s Oil Production Peaks, Increased Foreign Oil Dependency On The Horizon
From searching the globe in search of oil deals with intense geopolitical ramifications like Sudan, Niger, Iraq and Venezuela, to cutting a controversial multi-billion dollar oil deal in Canada’s oil sands play, China has become all things to all people in the global oil industry in an effort to satisfy its massive and growing oil thirst.
China’s largest African suppliers of oil are Angola, Equatorial Guinea, Nigeria, the Republic of Congo, and Sudan. Smaller exporters include Algeria, Chad, Gabon, Kenya, Liberia, and Libya.
China has also recently cut major energy deals with Russia, as Moscow and Beijing unfreeze decades of mutual suspicion and mistrust in a growing geopolitical alliance also aimed at reducing U.S. regional and global hegemony. Russia recently replaced Saudi Arabia as China’s largest oil importer. However, Middle Eastern oil still represents over 50% of China’s oil needs.
In efforts to offset China’s growing foreign oil dependence quandary, Beijing has fervently tried to maximize its domestic oil reserves. However, , with possible global repercussions.
China’s oil production peaked last year at approximately 4.3 million barrels per day (bpd), according to a Wall Street Journal report on Friday. The report, citing interviews with industry executives, said the development has significant implications globally, including the potential for higher crude prices over time as China steps up imports.
This news comes as China’s oil imports have reached record highs. So far this year, China’s oil imports have increased by 16%, while the country is poised to pass the U.S. as the world’s largest crude oil importer.
The pace of the increase could slow, however, since Beijing has taken advantage of recent low prices to fill its strategic petroleum reserves, which are now reaching full capacity.
Nonetheless, China’s foreign oil dependency rate, which hit 60% in 2013, has now exceeded that mark, troubling news for Beijing, a topic I covered in a post two weeks ago. The country’s oil dependency rate, in light of China’s slowdown in domestic production, will now likely remain above 60%.
China’s turning point
Kang Wu, vice chairman for Asia at energy consultancy FGE, said ‘the turning point that we’ve been searching for, for years, is happening now.”
The problem stems from China’s aging onshore oil fields and its inability to make up for these production declines. Approximately 80% of current Chinese crude production capacity is located onshore, while 20% of its crude oil production is from shallow offshore reserves as of 2014, according to the U.S. Energy Information Administration’s (EIA) latest analysis of China’s energy sector.
The Wall Street Journal report added that China’s need to import more oil marks a fundamental shift for a country that not long ago saw energy independence as a key part of national security, deepening China’s exposure to global hot spots, including Saudi Arabia, Russia, Angola and Iraq.
However, this is good news, at least for oil producing countries and companies. As China’s oil imports increase it will have a knock-on effect of putting upward pressure on global oil prices which have roiled the global oil industry for more than two years, with massive lay offs and bankruptcies.
Oil prices breached the $107 mark in July 2014 and are now trading in the mid to high $40s range, with little relief in sight as both Russia (the world’s largest crude oil producer) and Saudi Arabia (the second largest producer) ramp up production in an already over supplied market, in efforts to protect market share in Europe and Asia.
Nonetheless, China’s foreign oil dependency rate, which hit 60% in 2013, has now exceeded that mark,
troubling news for Beijing, a topic I covered in
a post two weeks ago. The country’s oil dependency rate, in light of China’s slowdown in domestic production, will now likely remain above 60%.
China’s turning point
Kang Wu, vice chairman for Asia at energy consultancy FGE, said ‘the turning point that we’ve been searching for, for years, is happening now.”
The problem stems from China’s aging onshore oil fields and its inability to make up for these production declines. Approximately 80% of current Chinese crude production capacity is located onshore, while 20% of its crude oil production is from shallow offshore reserves as of 2014, according to the U.S. Energy Information Administration’s (EIA) latest analysis of China’s energy sector.
The Wall Street Journal report added that China’s need to import more oil marks a fundamental shift for a country that not long ago saw energy independence as a key part of national security, deepening China’s exposure to global hot spots, including Saudi Arabia, Russia, Angola and Iraq.
However, this is good news, at least for oil producing countries and companies. As China’s oil imports increase it will have a knock-on effect of putting upward pressure on global oil prices which have roiled the global oil industry for more than two years, with massive lay offs and bankruptcies.
Oil prices breached the $107 mark in July 2014 and are now trading in the mid to high $40s range, with little relief in sight as both Russia (the world’s largest crude oil producer) and Saudi Arabia (the second largest producer) ramp up production in an already over supplied market, in efforts to protect market share in Europe and Asia.
China’s oil majors are also being punished from the prolonged low oil price environment. This past week, two Chinese state-owned oil companies reported record dismal financial results for the first half (H1) of the year.
PetroChina said on Monday that its profit for H1 dropped 98% compared to the same period last year to ($79.8 million) (531 million yuan) on weaker revenue from falling crude prices.
Company officials said it saw headwinds for the second half, and warned that the “global oil price is likely to keep fluctuating at a low level.”
Cnooc, China’s largest offshore oil producer, said on Wednesday that it swung to a loss for H1 2016, with revenue dropping almost by a third because of lower crude oil and natural gas prices. The company reported a net loss of $1.16 billion (7.74 billion yuan) in the first six months of the year, compared with a profit of 14.73 billion yuan in the same period last year. It was the first ever HI loss in the company’s history.
Forbes
Makati1 on Sun, 28th Aug 2016 6:44 am
Forbes … nuff said.
Davy on Sun, 28th Aug 2016 7:21 am
China is on the road of collapse. It has all the variables of collapse in play. Too much population and too much consumption with an export economy facing a global system at limits. The peaking of China’s oil production is just another nail in the coffin of a giant that is going to fall and take us all with it.
Sinophiles can’t accept this because they desperately are looking for an alternative to the US. They want a new superpower to crush the US. I am laughing at you. You have been crowing this message for a few years now as every one of their super heroes have bit the dust. Anyone who thinks China can fail and others not go with it are delusional also. There are plenty of Sinophobes that are just as delusional. We have racists who hate them because they are a different ethnicity and culture. These Sinophobes somehow think we in the west can manage a world without China like back with Moa. Or they think China can collapse in on itself like one of those grotesque high rises that get a mange demolition. China is grotesque but it won’t be a managed demolition. Concrete will land on your head my friend.
This is situation is the same with the US and or Europe. We are talking vital nodes that are locked in competitive cooperation. It will be how this competitive cooperation plays out with the vital nodes of the global system that determines our future. Any economic or military war between them is the end game. We all are locked in a brittle economic and social relationship of a system that is extended beyond balance. If you are one of those “great gamers” who live for the mother of all battles we are getting close. This board is full of them. Nothing like a battle to raise the blood pressure of bored old white men. The only problem is you think there are no consequences for your great game. This game is in your head just like the youth that play these stupid battle games on Xbox. Reality has consequences that head games don’t. Good luck finding food and shelter when this great battle comes. You will be on the losing end like everyone else.
Richard on Sun, 28th Aug 2016 7:28 am
Davy nothing wrong with a few computer games, helps to distract from reality here and there.
joe on Sun, 28th Aug 2016 8:33 am
Energy supplies are such an evolving topic right now. Cant imagine millions of ecars rolling out in China, but just such a step would help them.
I guess im with you on this one Davy. When the sh1t hits we are all gonna stink. The last roll of the dice began in 2007. Nearly 10 years after and we still cant let banks operate unsupervised and money is just a game of how fast can we print!
Davy on Sun, 28th Aug 2016 9:38 am
Richard, I hear you. I grudgingly buy them for my 9 yr olds. I tell myself to be fair. When I was around 11 I was blasting out rock and roll trash at full volume. By 16 I was doing that combined with drinking beer and toking on big fat doobies. How is some gaming worse than that?
shortonoil on Sun, 28th Aug 2016 10:21 am
With oil prices in a long term decline trend, and the Middle East likely to explode into all out war over the next few years, China had better find a new supplier.
http://www.thehillsgroup.org/depletion2_022.htm
Somewhere around $25/ barrel should have all the Sheiks blowing up each others fields. The end of the oil age is not likely to come peacefully!
rockman on Sun, 28th Aug 2016 12:11 pm
Time will tell how Chinese hydrocarbon development progresses. In many ways its current stage is more similar to the US in the 50’s and 60’s. Which doesn’t mean it will have a similar future. Today it is more of a blank page. And reading the following understand that one of the hottest CONVENTIONAL oil plays in the US during the last 10 years was in a similar deep (17,000′) carbonate play (the Smackover formation) in Mississippi and Alabama. A big play in the late 70’s/early 80’s that has produced billion of bbl of oil and trillions of cubic feet of NG.
But very difficult to find. The recent resurgence is due to 3d seismic which took much longer to reach this play then the rest of the Gulf Coast Basin. And though deep it’s not as excpensive to drill since it isn’t high pressure. It’s also not as hot for that depth and thus the oil window survived. The Rockman started drilling his newly acquired seismic in the play about 3 years ago. And you won’t find much news on the web about it because most of the companies in the play are investing their own caped. IOW we don’t need to hype it to lure in unsophisticated investors. LOL.
From 2 years ago:
“Potential Chinese trend – Deep marine carbonate rocks have become one of the key targets of onshore oil and gas exploration and development for reserves replacement in China. Further geological researches of such rocks may practically facilitate the sustainable, steady and smooth development of the petroleum industry in the country. Therefore, through a deep investigation into the fundamental geological conditions of deep marine carbonate reservoirs, we found higher-than-expected resource potential therein, which may uncover large oil or gas fields.
The findings were reflected in four aspects. Firstly, there are two kinds of hydrocarbon kitchens which were respectively formed by conventional source rocks and liquid hydrocarbons cracking that were detained in source rocks, and both of them can provide large-scale hydrocarbons.
Secondly, as controlled by the bedding and interstratal karstification, as well as the burial and hydrothermal dolomitization, effective carbonate reservoirs may be extensively developed in the deep and ultra-deep strata.
Thirdly, under the coupling action of progressive burial and annealing heating, some marine source rocks could form hydrocarbon accumulations spanning important tectonic phases, and large quantity of liquid hydrocarbons could be kept in late stage, contributing to rich oil and gas in such deep marine strata.
Fourthly, large-scale uplifts were formed by the stacking of multi-episodic tectonism and oil and gas could be accumulated in three modes (i.e., stratoid large-area reservoir-forming mode of karst reservoirs in the slope area of uplift, back-flow type large-area reservoir-forming mode of buried hill weathered crust karst reservoirs, and wide-range reservoir-forming mode of reef-shoal reservoirs); groups of stratigraphic and lithologic traps were widely developed in the areas of periclinal structures of paleohighs and continental margins.
In conclusion, deep marine carbonate strata in China onshore contain the conditions for widely and intensively preserving hydrocarbons, so large oil or gas fields are expected.”
But obviously the hunt has been tempered by lower oil prices since this report was written. OTOH Chinese companies, due to govt mandates, are not as strongly ruled by economics as most companies.
rockman on Sun, 28th Aug 2016 12:17 pm
“The end of the oil age is not likely to come peacefully!” Not a difficult prediction to make given the beginning of the end showed up many years ago. And far from peaceful so far as witnessed by the $TRILLIONS in spent military ventures and the many thousand of lives lost.
Truth Has A Liberal Bias on Sun, 28th Aug 2016 6:21 pm
America cant even stand up to Iran anymore lol. America’s days of dictating to the world are over. While USA remains preeminent it is no longer dominant. They can’t even get regime change in Syria because Russia and Iran oppose it. America is fucked. The fact that China is fucked too somehow makes Davy feel America is less fucked but that’s cuz he’s a retard. Nobody can make America powerful again. USA is in decline. I can’t wait to see the world line up to get their kicks in. A few days ago Iranian fast attack boats ran charges in attack formation at USA naval vessels and the only thing the USA can do about it is complain to the media lol game over. Next time you want to sail through the sSraits of Hormuz call up Tehran and ask for permission. lol losers.
Davy on Sun, 28th Aug 2016 8:01 pm
“The fact that China is fucked too somehow makes Davy feel America is less fucked but that’s cuz he’s a retard.” A little off topic WTF is with the name “Truth Has a Liberal Bias”. That is retarded. Every time you comment I think to myself how stupid that sounds.
China is what it is and I make sure and spit on the Sinophiles who are generally anti-American with some nasty Sino-reality. The US is what it is and a fucked up mess. No need to add anything to that because it is the dominant talk on this board. What I savor is the thought that there is no reason the US cannot be the last man standing if only for a few months. I would love for that to happen just so I can imagine all that humiliation people like THALB will be feeling from being such dumbasses.
Sissyfuss on Sun, 28th Aug 2016 8:04 pm
Rock, I read somewhere that the reefs that China is building in the South China Sea has the dual purpose of fishing and oil exploration. Does that sound credible?
rockman on Mon, 29th Aug 2016 12:51 am
Sissy – Given the source (Forbes) take this report with a very big grain of salt:
“With all of China’s geopolitical posturing in the South China Sea, many are claiming that Beijing’s aim to control more than 80% of the troubled waterway is purely based on national sovereignty claims.
Others claim that Beijing’s land reclamation and artificial island building in the region, including its illegal seizure of Scarborough Shoal from the Philippines in 2012, is not only based on sovereignty issues but also potential oil and gas resources. Meanwhile, most believe that the majority of these hydrocarbon resources are natural gas instead of oil.
However, geologists are now taking another look at what might actually lie beneath the South China Sea and if they are even partially right, China could emerge with more than just bragging rights if it controls most of the South China Sea – they could also potentially hold hundreds of millions of barrels of oil, even more.
What lies beneath the South China Sea?
First, some figures: One older Chinese estimate places potential oil resources in the South China Sea as high as 213 billion barrels of oil, though many Western analysts have repeatedly claimed that this estimate seems extremely high. A conservative 1993/1994 US Geological Survey (USGS) report estimated the sum total of discovered reserves and undiscovered resources in the offshore basins of the South China Sea at 28 billion barrels.
It must be remembered that reserves are considered oil or gas assets remaining in place that are fairly well known, and have been discovered by exploratory drilling. Reserves must also be extractable at a net profit at market prices with current technology, optimally in a politically stable area. Resources on the other hand are deposits that do not meet one or more of the criteria for reserves. There are different classifications of reserves which are related to their degree of certainty.
According to the 1993/94 USGS estimate, natural gas is more abundant in the area than oil. The USGS estimates that about 60%-70% of the area’s hydrocarbon resources are gas and has placed the sum total of discovered reserves and undiscovered resources in the offshore basins of the South China Sea at 266 trillion cubic feet.
State-owned oil major China National Offshore Oil Company (CNOOC), responsible for most of China’s offshore hydrocarbon development, estimates that the area holds around 125 billion barrels of oil and 500 trillion cubic feet of gas in undiscovered areas, although the figures have not been confirmed by independent studies.”
Bottom line : we won’t know what’s there until it’s drilled. And that may take more then just a few wells: I read long ago that the first major North Sea oil field was discovered by the 93rd well drilled out there.
shortonoil on Mon, 29th Aug 2016 6:51 am
“Sinophiles can’t accept this because they desperately are looking for an alternative to the US. “
The last of the oil will belong to the nuclear super powers. China is not one of them. When push comes to shove, “might makes right”. It is the 10,000 year history of the human race, and always will be!
makati1 on Mon, 29th Aug 2016 7:35 am
short, did you miss the fact that China is a nuclear power already and may have nuclear subs, armed with nukes, off America’s coasts as we type? You ASSUME too much, I think. Closet Sinophobe?
Or the possibility that they have the ability to knock out the GPS system that all of the US’ militaries systems need to be effective?
Or the possibility of their dumping that trillion plus in USBs on the market and taking down the US in a financial crash?
Or … The oil will likely stay where it is when the SHTF, forever. No amount of military power can make it gush out of the ground and into the refineries.
rockman on Mon, 29th Aug 2016 8:36 am
China lacks nuclear warfare capabilities??? Kind of like the old joke about being “just a little pregnant”. IOW how many nukes does China need to force the US to take them serious? ONE. Some folks need to brush up on the current technology. The Hiroshima nuke was just a popcorn fart compared to current designs. A nuclear war isn’t going to be won by the country with the most nukes. It could be won by a country without launching a nuke if the potential adversary beleives they would do so. Even if only 10 Chinese hydrogen nukes went off over the Pacific 2,000 miles from the CA coast millions of Americans would die…eventually. In the meantime the US economy would be crippled. The Chinese and US govt both understand the potential.
Now swap the US position with Russia. And lastly swap both Russia and the US with every country in the same hemisphere as China. Assuming China isn’t a nuclear threat seems very odd IMHO.
China and weapons of mass destruction – Wikipedia – China is estimated by the Federation of American Scientists to have an arsenal of about 260 total warheads as of 2015, which would make it the second smallest nuclear arsenal amongst the five nuclear weapon states acknowledged by the Treaty on the Non-Proliferation of Nuclear Weapons; in terms of warheads, they are …
First nuclear weapon test: October 16, 1964
First fusion weapon test: June 17, 1967
Maximum missile range: 14,000 km
Current strategic arsenal: 260 warheads (2015 est.)
shortonoil on Mon, 29th Aug 2016 11:08 am
“Even if only 10 Chinese hydrogen nukes went off over the Pacific 2,000 miles from the CA coast millions of Americans would die…eventually. “
Sort of missing the point here: 18 minutes later there wouldn’t be any China. After that point the US, or Russia would have no choice but to reduce China to an algae patch. Both would likely contribute.
But, you are over estimating nuclear effectiveness. In an article from the Russian military several years ago, the Russians stated that they expected 25% of their nuclear weapons systems to detonate in the case of a full scale nuclear exchange. The US military has estimated that 50% of theirs would go off. With over 2000 deliverable systems held by both the US and Russia, China doesn’t even come into play in this game of MAD.
There are two nuclear supper powers, and with Russia now holding the last oil card the US had better start making some new friends. It had better restrict the beating up on others to the likes of Albania.
Davy on Mon, 29th Aug 2016 11:42 am
My understanding from my reading is Russia is ahead of the US in delivery systems and the US in accuracy and reliability of their NUKs. This why the US chooses lower yield weapons. Higher yields are needed when accuracy is an issue. Russia has some wonderful missiles and some great mobile systems.
This whole discussion is MAD because any use would assure all of our civilization is destroyed. I am beginning to wonder if that would not be so bad for the rest of life on earth. Remove the plague species by it destroying itself. Surely we are capable of better.
Boat on Mon, 29th Aug 2016 12:19 pm
China could nuke 20 of it’s largest cities and kill the world. The entire nuke argument is silly.
Sissyfuss on Mon, 29th Aug 2016 7:35 pm
Thanks for the knowledgeable update,Rocker. When it comes to oily things, you da man!