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The Wall Street Journal: Bridging China’s Oil Gap CNPC Aims to Boost Domestic Recovery With Foreign Partners

December 21, 2007

BEIJING — China National Petroleum Corp. aims to let more foreign companies develop domestic oil fields, building on the success of major onshore gas deals, as it grapples with stagnant production, a senior executive said.

The oil company, parent of PetroChina Co. and China’s largest by assets, hopes foreign firms can bridge its knowledge-gap in enhanced recovery, especially the injection of carbon dioxide into reservoirs to boost well pressure.

China has used polymer-and-steam injection at fields in the northeast to boost recovery, but industry insiders say carbon-dioxide injection leads to higher recovery rates.

China’s oil needs are also pushing the company to open more frontier areas like the Tarim Basin in Xinjiang province, where the terrain is harsh, and give foreign companies access to leases containing unconventional reserves like oil shale and heavy oil.

The strategy follows production-sharing contracts with Total SA and Royal Dutch Shell PLC that raised natural-gas output at blocks in the country’s northwestern Ordos Basin.

This week, China National Petroleum signed a 30-year contract with Chevron Corp. to share output from a high-sulfur gas block in southwestern China’s Sichuan province.

“We are thinking of oil after the gas deals…Our priority [for foreign partnerships] is to raise local oil-recovery rates,” Yan Cunzhang, general manager of the foreign cooperation unit under CNPC, said.

China’s growth in crude-oil production is failing to keep pace with rising domestic consumption. The International Energy Agency expects output to peak at 3.9 million barrels a day in 2012, even though this year’s Nanpu Jidong oil-field discovery is likely to come onstream at that time.

The IEA says all of China’s 11 biggest oil fields, except for Tahe in Xinjiang, are past their production peak. The 11 fields, from 492 in production nationally, contribute nearly half of China’s domestic output.

Stagnating production is driving China’s dependence on oil imports, which are likely to break through the 50% threshold soon. State oil companies have responded by acquiring fields overseas and bringing equity oil back home, although experts aren’t sure this is an effective strategy.

The company has a set a goal of 108.65 million metric tons, equivalent to 2.18 million barrels per day, up 1% year-to-year, for its crude-oil output in China and overseas next year, an executive said earlier this week.

Foreign companies have been pushing to work toward boosting oil recovery at China’s aging oil fields, like the flagship Daqing field in northeastern Heilongjiang province, where output is declining at a 3% to 5% annual rate.

Mr. Yan said Norway’s StatoilHydro ASA is exchanging technology with the development of an oil field in Jilin province, also in the northeast.

Industry insiders say StatoilHydro is examining the possibility of using carbon-dioxide injection to raise output at the Fuyu oil field, which the Chinese started to develop in 1959.

–Renya Peng contributed to this article.

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