Chinese Firms Emerge as Formidable Competitors in Global E&P

Abstract

Guest editorial When I first came to work in the People's Republic of China back in 1979, domestic production exceeded demand by a comfortable margin. Although production has risen steadily over the past three decades, China has been consuming more oil than it produces since 1993. In 2007, China consumed about twice the amount of oil it generated (BP 2008). Meanwhile, demand continues to grow. How are Chinese oil firms trying to meet the nation's surging energy requirements? Expanding Domestic and International Activities China's three main state-owned oil companies—Sinopec, China National Petroleum Company (CNPC), and China National Offshore Oil Company—are fully integrated upstream and downstream, and now compete with one another both domestically and internationally. Domestically, they have explored every viable sedimentary basin in China, using an increasingly sophisticated arsenal of oilfield technologies. Over time, China's oilfield service companies have acquired tools and equipment comparable with those available anywhere else in the world. Like other countries, China's remaining reserves have become more difficult to find, often in deeper or subtler plays, hostile terrains, and environmentally sensitive areas. As seismic and drilling technologies have evolved, Chinese oil firms have gone back and re-evaluated many old fields with new methods and fresh ideas. Reservoirs considered marginal or unproductive in the past are yielding additional reserves. Nevertheless, demand continues to outstrip China's domestic capacity. As a result, the Chinese have been moving into virtually every key oil and gas province in the world, either as an active player or a nonoperating partner. China's oil companies have forged deep relationships with the major international oil companies (IOCs) and the big oilfield service providers both at home and abroad. They have proven themselves competent peers of the IOCs, and have partnered successfully with many national oil companies. Chinese seismic and drilling contractors pride themselves on being able to perform efficiently in a variety of remote and hostile regions. For example, BGP, CNPC's geophysical service company, operates more than 100 crews in 24 countries in terrain as diverse as mountains, deserts, gravel plains, jungles, swamps, marshes, shallow water, and transition zones. Since 2006, they have been operating offshore as well (BGP). In general, Chinese state-owned enterprises appear willing to accept higher risks than some of their international counterparts. Leveraging their association with the government, they have entered a number of situations that the IOCs might normally avoid. If they believe there is significant potential to be exploited, these Chinese companies carefully analyze their options and when they decide to act, they go full speed. This, of course, is providing China with important opportunities to fill its domestic energy needs.