Liu Zhenwu is senior advisor at the Advisory Center, China National Petroleum Corporation (CNPC), and was co-advisor for the 2013 IPTC Conference Program Committee. He granted an interview with JPT to discuss CNPC’s outlook for technology development and upstream growth.
What are CNPC’s current research and development priorities?
CNPC’s core business encompasses both upstream and downstream activities. Our current R&D priorities are in upstream, particularly exploration and production in complex areas, deep formations, offshore, and unconventional resources such as tight gas, tight oil, CBM, and shale gas, etc. There is a high demand for advanced IOR and EOR technology to maintain a stable production and succession of mature fields. There is also a strong need for large-scale and high-definition seismic exploration technology, advanced logging technology, and ultradeep drilling technology, as well as horizontal well multistage fracturing technology. As an international energy company, CNPC continues its technology innovation, making our own contribution to the global security of oil and gas production and supply.
What is the company’s current strategy for investing in projects outside of China?
We maintain the “win-win” approach when investing in projects outside China. As a worldwide trend, it is inevitable that energy companies become more and more globalized in terms of both resources and markets. CNPC is also trying to merge itself into the global platform of oil and gas development. During the past decade, our investments have been gradually transformed from a one-way “bringing in” strategy to a two-way “bringing in and going out” strategy. Facing the dramatic changes in the external and internal energy markets, CNPC promotes ever-closer cooperation among consuming and resource countries, various energy enterprises, and oil and service companies in order to grasp common opportunities and tackle common challenges. We advocate mutually opening markets and sharing technology, capital, and resources, as well as sharing risk and benefit. Through investing in oversea projects, CNPC also helps the development of the local economy and the local community.
Is CNPC actively seeking partnerships with other operators (IOCs or NOCs)? If so, for what types of projects?
Yes, we are actively seeking partnerships with other operators including IOCs and NOCs. The types of projects cover both upstream and downstream, throughout the whole oil and gas business chain, including capital investment, technology development, and personnel training, as well as management. Our mission statement is “energize, harmonize, and capitalize”; in other words, “mutual benefit and win-win cooperation in a harmonious development.” So far, we have established five international oil and gas cooperation regions, three international oil and gas trading centers, and four strategic oil and gas transportation corridors. As such, we now have more than 80 cooperation projects in more than 30 countries. Following common international cooperation principles, we have built up our own business model for international cooperation, and we have good cooperative relationships with many IOCs and NOCs, as well as service companies.
What is the current situation regarding development of unconventional resources in China?
There are abundant unconventional oil and gas resources in China. The initial estimate of unconventional gas resources is about 123 to 228 Tcm, and unconventional oil resources total about 64.9 to 67.1 billion tons. There is huge interest in the development and utilization of unconventional oil and gas resources in China, which is high on the government’s agenda as a strategic policy for energy security.
There is already large-scale commercial production of tight gas in the Ordos and Sichuan basins, with more than 30 Bcm produced in 2012 alone. There is also commercial development of CBM in the southern Qinshui basin and the eastern Ordos basin. Total production in 2012 was about 2.6 Bcm. Production of oil shale was about 800,000 tons in 2012, mainly from the Liaoning, Shandong, and Jilin provinces. To sum up, there has been a breakthrough in exploration of shale gas, tight oil, and oil sands in China, with production capacity building up gradually.
What are the differences between developing unconventional resources in the US and in China?
First of all, the exploration and production of unconventional oil and gas is advanced in North America, and technology transfer can be very useful. From a geological point of view, there are a number of favorable conditions in the US, such as a relatively simple structure, continuously distributed marine sediments including shale formations, and flat surfaces, as well as highly developed pipeline networks, which provide good conditions for unconventional oil and gas exploration and development. However, China is characterized by continental and lake deposits, as well as ancient marine strata that have undergone strong tectonic transformations. The accumulation of unconventional gas and oil are also very different from the US, with complex structures, and thin, discontinuous and deep-buried shale formations. Therefore, it is very difficult to assess and identify geological sweet spots, as well as to develop and produce unconventional oil and gas economically.
In general, are China’s resources more structurally challenging?
Yes, of course. The quality of conventional resources is degrading in China. Exploration and development of these conventional resources are becoming more and more difficult, despite the fact that the conventional resource is still our main source for a stable energy supply and production. Unconventional resources have started to gain our attention, and economical development of unconventionals will support the increase of Chinese oil and gas production substantially. Although it is still small, there is a huge potential for growth in unconventional oil and gas production in China.
When do you estimate that China would achieve major unconventional production?
It depends on what you mean by “major” unconventional production. Based on our scenario forecast, it is expected to go through three phases in the development and utilization of unconventional oil and gas resources in China. Phase 1 is to 2020; Phase 2 is 2020-2030; and Phase 3, 2030-2050. During Phase 1, the emphasis will be on technology innovation and development with the aim of establishing sizable production capacity. Unconventional oil and gas production is expected to reach 70 million tons of oil equivalent in 2020, with tight gas taking a large proportion.
During Phase 2 (2020-2030), we expect rapid growth of unconventional production, with annual production of unconventional oil and gas expected to reach 150 million tons of oil equivalent by 2030, taking an important proportion of the energy supply. During Phase 3 (2030-2050), we expect large-scale development of unconventional oil and gas, with production of unconventionals expected to reach 300–400 million tons of oil equivalent by 2050, playing a dominant role in China’s oil and gas supply.
What are the biggest E&P technical challenges facing CNPC?
The biggest technical challenges facing CNPC are still in petroleum engineering technology development. While geological understanding and evaluation lay the foundation, petroleum engineering technology provides the concrete tools for hydrocarbon exploration and production, particularly the efficient development of unconventional oil and gas. Breakthroughs in engineering technology, such as seismic, logging, drilling, fracturing, etc., are vital to the successful development of unconventional resources. To some extent, nowadays, the petroleum industry is driven by technology innovation in order to reduce cost and increase economic performance, which are challenges facing all companies. I am sure that CNPC will keep growing as technologies progress.
What is CNPC’s main upstream focus within China?
In terms of upstream business development, CNPC currently concentrates on stabilizing the production of the Daqing oil field at the level of 40 million tons per year, and increasing production at the Changqing oil field to the level of 50 million tons per year. We also aim to repeat the Daqing model in west China, with the discovery of western Daqing, and to increase reserves and production from mature fields such as Liaohe. In terms of energy sources, gas production is still one of the most important focuses of CNPC’s upstream activities, and it is CNPC’s fastest growing sector. In terms of technology development, the main focuses are exploration and production in lithological reservoirs, foreland basins, carbonate reservoirs, and mature fields, as well as offshore exploration. Some successful examples include a pilot cooperation project shale gas development in Sichan province, and the first commercial tight oil production in the Ordors Basin.
Some international operators have remarked on a shortage of technical talent in the industry. Is this a challenge that CNPC is facing?
Yes, of course. Human resources are the driving engine for sustainable development of the oil and gas industry. In response to the shortage of professionals and technical personnel, CNPC has taken a series of active measures and instituted a range of policies in personal training and career development. Our guiding principle is “talent driven” as CNPC develops into an integrated international energy company. CNPC has built up a comprehensive staff training program and a staff reward system with advanced training facilities, providing a platform to train and attract international talent, and creating an environment to grow and foster creative and innovative technical teams.
What role can industry associations—such as the ones that sponsor IPTC—play in the continued development of China’s oil and gas industry?
Through a series of academic and technical activities and conferences, technical associations can play a significant role in the continued development of China’s oil and gas industry. These activities and conferences have attracted intense attention and participation from oil and gas companies, service companies, international organizations, academic institutions, and other relevant parties. Technical activities for the purpose of exchanging information and cooperation have played an important role in promoting technological progress in the global petroleum industry and the cooperation and exchange among states, companies, and scientific and technical personnel. Technical associations have made great effort to cultivate young professionals and provided a platform for their career development. CNPC is keen on these exchanges and cooperation between domestic and international industry associations. Through these platforms, we have improved our perception, understanding, and knowledge of the internal petroleum communities, and we have strengthened mutual communication and cooperation. These associations also serve as the platform for CNPC to contribute to the world’s petroleum technology development.
