Oil and gas

Until 1992, China was still an oil exporting country, and  in fact is the fifth or sixth largest oil producer in the world (depending on sources cited). It is also increasingly becoming one of the biggest oil importers in the world. Its oil consumption increased by 100% from 1990 to 2001, which is the same period that it started to attract huge foreign investments. In 2010, it was the third largest consumer of oil, after the USA and European Union, and substantially ahead of Japan and India

From the late 1950s onwards, following the Sino-Soviet split, China was forced to develop its own national oil industry. Emblematic of this was the development of the Daqing giant oilfield, under harsh conditions as exemplified by the model worker “Iron Man Wang”. From a very low level of technological capacity, a major centre of oil production was developed there, as well as a related petrochemical industry. This development enabled China to become virtually self-reliant in oil production, and for a limited period it even exported oil to Japan. Over 70% of China’s domestic oil production is obtained from 9 giant oilfields . Production at some of its fields, including Daqing, is reported to have peaked or to be near peak production. Some Chinese experts have even warned that if the current level of production continues, its oil reserves may be depleted in 10 years. A big factor driving the increase in oil consumption is the massive increase in the use of motor vehicles and airplanes, (especially among a rapidly growing urban middle class). Currently, about 30% of the oil comes from national supply, and the rest is imported. Africa has provided the key growth sources for imported oil. Oil consumption is likely to increase substantially in the coming years, as is true also for gas.

The government follows the principle of unified planning and step-by-step implementation. It has built its national oil reserve bases and expanded its oil reserve capacity. It has gradually established a guarantee system for oil and natural gas supply emergencies to ensure secure supplies of energy. At the technological level, it is accelerating its development of deep sea drilling, and other technologies for prospecting and exploiting petroleum and gas resources under complicated geographical conditions, as well as for maximizing the efficiency in the way it exploits is low-grade petroleum and gas resources. On a separate note, China has some of the biggest shale gas resources in the world. Until now, there has been no major commitment to exploit these resources at the current moment, although this is likely in the future. Currently a pilot project exists and a US-China agreement has been signed.

An important restructuring process began in the petroleum industry in the late 1990s, and state ministries were divided and turned into corporations. This restructuring transformed the whole planning process,  from a system based on ministerial command and hard targets to a more complex constellation determined by National Development and Reform Commission (NRDC) levers, the ownership requirements of the State-owned Assets Supervision and Administration Commission of the State Council (SASAC), and stock – market regulators. There is a big expansion of Chinese oil companies overseas. This is driven not so much by a need to satisfy increased energy demand, but rather as a way of making increased profits and making the investments now, so as not to lose the possibility in the future. Chinese oil companies, such as China National Offshore Oil Corporation Ltd (CNOOC Ltd), China National Petroleum Corp (CNPC), China Petrochemical Corporation  (Sinopec Group) and their related companies, are some of the biggest oil companies in the world.

Oil is a strategic commodity, both nationally and in global commercial and geopolitical terms. China is building extensive external cooperation relations in the exploration and development of oil and gas resources, and has developed product-sharing contracts with a number of other countries. China seeks to protect the rights and interests of foreign business collaborations, including in areas such as risk exploration for oil and natural gas, low-permeability oil and gas reservoirs (fields), and the improvement of the recovery rate of old oil-fields. It also encourages foreign investment in the construction and operation of oil and gas pipelines, as well as special oil and gas storages and port berths. Outside of China, its companies have an increasingly big presence in Latin America, as well as investments in Canada’s tar sands. The country is heavily reliant on imports of oil from the middle east, and has also built close commercial relationships with Iran and Venezuela. The Shanghai Cooperation Organization is an important regional framework with regard to collaborations in the oil and gas sectors. In addition to positive commercial relations, there are also some regional conflicts brewing in relation to control of the sector, especially with neighbouring countries, including Vietnam and the Philippines, over the issue of the oil that can be found in the South China Sea, where deep sea oil exploration is occurring in disputed territories.

Within China itself, there are some social and environmental conflicts relating to oil. During the Cultural Revolution, many centres of oil production were quite strongly impacted. Since then, there has been much more stability in the sector. While for the most part current levels of conflict within the sector are not particularly extreme, and are not in any way central to the country’s political landscape, they are also by no means insignificant. Restructuring of the industry led to approximately 80,000 workers being made redundant. Some estimates claim that oil rustbelts have unemployment levels as high as 25 per cent.

A significant strike of oil workers in Daqing,  the country’s biggest and oldest field, happened in 2002. Tens of thousands of workers and their families joined the protests and riots and demanded social security benefits. Hong Kong labour organizations have reported that workers attempted to set up an independent union, and the leaders were heavily repressed.

Environmental and land related conflicts are also arising in connection with oil production. In 2011 there was a big explosion accident in the coastal area of Dalian, resulting in an oil spill which had a major environmental impact. Many of the people depending on aquaculture were heavily affected. The people involved in the clean-up reportedly worked without receiving adequate safety clothing and equipment. Another social problem that is becoming important is the increase in crimes relating to corruption in the oil sector at the local level, which has occurred due to oil price hikes. This includes the arrest of over 100 people on suspicion of oil smuggling in Guangdong Province in 2010, and the investigation of police officers in oil-rich Heilongjiang Province for their role in protecting local fuel companies that stole crude oil from Daqing Oilfield.

Civil society and non-governmental organizations are not doing extensive work on oil related issues, but there have been some important activities.  There are now some NGOS, such as Moving Mountains, that are providing regular email and web-based information about China’s oil and gas industry. Importantly, this also includes detailed monitoring of the activities of Chinese oil companies overseas. Greenpeace were active in monitoring the effects of the Dalian accident and attempted to provide community support.  There is also a Chinese organization that is associated with the international network ASPO, Association for the Study of Peak Oil. This is the Chinese Peak Oil Association, that is based at the China University of Petroleum, which is close to the main governmental agencies relating to petrol. However, the sector is highly centralized and lacks transparency, making information about operations and related activities hard to obtain. Also, the fact that oil is a nationally strategic sector, means that few organisations  have the capacity to work on the issue and engage in research and advocacy.