China Oil and Gas Market Briefing. April 2014

Transcription

1 China Oil and Gas Market Briefing April 2014

2 Summary Summary China s fuel mix China s fuel mix is dominated by coal - accounting for 70% of total fuel consumption, as the serious environmental problems caused by coal as an energy source coming to the surface, China has outlined a revamped energy strategy, highlighting alternative energy sources and calling for shifting the primary focuses to oil and gas As a top energy user and the world s fourth-largest consumer of gas, China s high dependency on overseas oil and gas has brought grave energy security concerns, prompting China to increase supply cleaner-burning fuels by boosting domestic exploration and extraction. China s oil and gas market Oil industry: In 2013 China consumed 498 million tons oil of which 58% was imported, with projections of 66% and 75% by 2020 and 2030 respectively. As domestic onshore, and near offshore, production has flattened out in recent years, there is a push to explore and develop deeper water production. Gas market: China produced 121bcm of natural gas last year, while consuming 168bcm of which 28% was imported. This percentage is projected to hit 33% by The obvious need to increase domestic natural gas production is a high priority for China s state planners, with increases heavily weighted towards unconventional sources. Unconventional oil and gas segments China produced 48 million tons offshore oil in 2012, accounting for 23% of domestic production. Planners project offshore drilling production up to 37% in The extraction of tight and shale oil are in initial stages, due to the lack of advanced technologies. Unconventional gas, including CBM, shale gas and tight gas, accounted for 40% of production in 2012 and is projected to reach 80% by 2020, with these processes calling for a wide range cooperation with state-of-the-art technology holders Potential Opportunities China is very young in developing deep water oil and unconventional gas resources, thus state planners are encouraging and favoring foreign technology vendors to enter China, rather than protecting local industry in these fields Equipment and services involved in deep-water and unconventional gas wells drilling, horizontal well drilling, geo-steering, cementing, logging, well stimulation as well as environmental management related technologies are highly needed in China Although China s oil and gas industry has been dominated by the state owned enterprises (SOEs), many foreign players, such as Shell, Chevron, BP, TOTAL, Schlumberger, Halliburton and Baker Hughes, have engaged in this emerging unconventional market 2

3 China s Fuel Mix Overview Currently, China s fuel mix is dominated by coal, accounting for nearly 70% of total fuel consumption, causing serious environmental problems. China is planning to shift the focuses to the relatively cleaner fuels of oil and gas Features - The striking feature of China s fuel mix is the dominance of coal, accounting for 69% in 2012, and the far lower uses of gas and oil, accounting for only 5% and 18% Problems - The consequences of the burning of coal in China have created an ongoing environmental catastrophe for major Chinese cities China s Fuel Mix Overview 80% 70% 60% 50% 40% 30% 20% 10% 0% Fuel Consumption Mix, Share %, % 50% 18% 25% 5% 10% 8% Coal Oil Gas Others Governmental Solutions - Policies have been created to reduce small coal mining operations and restrict the production of low quality coal - Encouragement to develop domestic oil and gas resources, especially deep offshore oil and unconventional gas Projected Results - It is China s energy strategy to increase domestic oil and gas shares to 25% and 10% by 2020, with a belief that the share of coal, oil, gas and other alternative fuels would have equal weight by % Source: Statistic Bureau of China, BP World Energy Projection 2030, Ministry of Land and Resources of China, PIM analysis 3

4 China s Oil Market Overview China is highly reliant on imported oil energy, which jeopardizes national energy security, thus it is China s strategy to encourage development of domestic oil, especially offshore resources to decrease the security risk Current Situation China s Oil Market Overview_ Conventional - China s compound economic growth, exceeding 10% over the past decade, has created oil needs far exceeding domestic supply making China a major importer of oil - It is reported that since 2009, China imported over half of its oil needs, with imports taking up 58% of total consumption in Projected Picture - China s oil consumption is projected to grow at a rate of 3% year-onyear, with domestic production at near current levels, which could make dependence on imports 66% by 2020, and 75% by 2030 Problems - High dependence on imported oil has brought grave energy security concerns China Solutions - Encourage the development of domestic oil resources by inviting and including diversified international players - As domestic onshore production has flattened in recent years, there is a push to develop oil offshore in deeper water, where state-of-the-art technologies are required, and are being encouraged Source: Ministry of Land and Resources of China, The 12 th Five Year Plan for Energy, PIM analysis China Oil Production and Consumption (million tons), and Import % % Production Consumption 56% 58% 58% 54% % % E 2020E China oil production, onshore vs. offshore (million tons) 250 Offshore Onshore % 77% 23% 48 63% E 70% 60% 50% 40% 30% 20% 10% 0% -10% CAGR Onshore: 0.3% 37% 73 Offshore: 9.8% 4

5 China s Gas Market Overview It s China s second leg to increase the share of natural gas in the energy mix, with movements to expand the gas supply under way China s Gas Market Overview_ Conventional Current Situation and Problems China Movements China produced 121bcm of natural gas last year, while consuming 168bcm, with 28% imported, and the percentage is projected to hit 33% by 2020 China, the top energy user and fourth-largest consumer of gas, is racing to increase supply of the cleaner-burning fuel by boosting domestic exploration and extraction The strategy for the expansion of natural gas supply involves movements in every way. Developing international pipelines from neighboring countries Agreements on LNG imports and the building of LNG terminals and processing facilities Exploitation of domestic unconventional gas reserves are the third driver Besides supporting the development of conventional gas resource, the increases will also be heavily weighted with incentive policies towards unconventional sources China Natural Gas Production and Consumption % Production Consumption % (bcm), import % % % % % E 2020E 100% 90% 80% 70% 60% 50% 40% 33% 30% 20% 10% 0% Source: EIA report, 2013 Ministry of Land and Resources PIM analysis 5

6 China s Unconventional Oil and Gas Market Overview As conventional oil and gas production have flattened in recent years, offshore oil and unconventional gas have the potential to be the gamechangers Unconventional Oil China s Unconventional Oil and Gas Market Overview Shale oil: A significant portion of China s recoverable oil reserves are in shale, however, as yet, no drilling and perforation activities have proven to be effective in developing shale oil reserves with the practice today is to extract the shale directly from the earth and derive the oil from heating the shale with a retorting process. Tight oil: appears more promising, but activity to date appears minimal, due to lacking of advanced technologies. Unconventional Gas Coal Bed Methane (CBM): China s development of CBM has been slow, but recently there have been over 6,000 CBM wells developed by 2012, with their production comprising 12% of total natural gas production Shale gas: While not yet in commercial production, with only about 0.2 bcm in 2013, shale gas has already had a dramatic effect in China. Plans have set a goal of 6.5 bcm of production by 2015, with a target of bcm by There is considerable skepticism that these targets can be reached. Among the many challenges will be the difficult geology of the shale reserve locations and the lack of midstream natural gas infrastructure. Experts believe a conservative projection of 30 bcm would be achievable, but there is no doubt that the development of shale gas will begin a significant period of development in China Tight gas: Tight gas is the main source among unconventional gas resources. The total production of tight gas in China was 40 bcm in 2013, accounting for around 33% of total gas production Natural gas production by source (bcm) Shale gas Tight gas Coal bed methane Conventional gas E 2020E 6

7 Main Players China s 3 big giants- PetroChina, CNOOC and Sinopec, dominate China s oil and gas industry. Due to lacking of domestic advanced technologies, China s offshore oil and unconventional gas sectors are open to foreign investment Leading E&P Players in China Market Main Players_ Exploration and Production Enterprises Oil and gas industry is considered as a strategic industry in China, and the oil production is dominated by 3 giant SOEs- PetroChina, CNOOC and Sinopec, whose aggregate share exceeds 90%, with PetroChina, accounting for nearly half of the total Offshore Oil Market E&P Players CNOOC is the leading offshore oil producer in China, contributing over 90% of the offshore oil production China s offshore oil was the first sector opened to foreign investment. Many joint investments, such as Conoco, Chevron, BP, etc, have operated under production sharing contracts (PSCs) struck with one of the big oil and gas SOEs Natural Gas Market E&P Players The dominance of the big SOEs over gas is likely to be diminished earlier than is the case with oil. China s energy planners are introducing more competition into the natural gas production industry. The goal is to allow more scope for other state-owned domestic players, as well as independent, non-state operators, including foreign investors Unconventional Gas Market E&P Players Nearly all of the major international oil and gas E&P companies, such as Shell, Chevron, BP, TOTAL and so on, have staked out ground in China s unconventional gas markets China, pushing hard on shale gas development, appears to be fostering competition among oil and gas SOEs, non O&G state players and private independents in its drive to build momentum. Up to now, two rounds of auctions have been held by Ministry of Land and Resource of China, and 21 blocks have been awarded to 18 companies, in which, 16 of them were not oil and gas companies 7

8 Main Players China s oil field service market size is estimated to be around 40 billion USD, attracting over 1200 OSCs*, in which, foreign invested companies accounted for 5% of the total market State Owned Enterprises: - The vast proportion of China s oilfield service revenues are within the sprawling networks of the 3 big SOES PetroChina, Sinopec and CNOOC, accounting for 85% of the market share - The massive, vertically and horizontally integrated SOEs have tiers of service provider companies covering virtually every aspect of the business - Of the 7 major OSCs - Daqing Drilling Engineering, Shengli Drilling Egineering, Chuanqing Drilling Engineering, COSL, Great Wall Drilling Engineering, 6 of them are onshore OSCs, in which 5 belong to CNPC, 1 belongs to SINOPEC, and CNOOC s subsidiary, COSL accounts for nearly all of deep offshore wells Private Companies Main Players_ Oil Field Service Companies China s privately-owned OSC sector is characterized by a huge number of small enterprises: however, a few are reaching meaningful scale Foreign Companies 5% CNOOC, 20.1% Market Share by Type of Player Private Companies 10% PetroChina 48.5% Foreign Players The large global OSCs, led by Schlumberger, Halliburton and Baker Hughes, have deployed a range of tactics to develop their businesses in the market Notes: * OSCs: Oilfield Service Companies Sinopec, 16.4% 8

9 Samples of Opportunities Presented Various of opportunities are open to General tone State planners are encouraging and favoring foreign technology vendors to enter China, rather than protecting local industry The trend towards greater investment in the more challenging E&P environments favors experienced and world-class service and technology suppliers To encourage foreign investment, some imported advanced technology and equipment are free of import tariffs Technology, Equipment and Services: Equipment and services involved in deep-water drilling, horizontal well drilling, geo-steering in horizontal wells, cementing, logging, and well stimulation are highly needed in China As some shale gas reservoirs in China have high temperatures and pressures, hydraulic fracturing designs that reduce the formation breakdown pressure and the horsepower requirement will be beneficial to China operators, such as open hole fracturing and multi-stage/zone fracturing As China has water-access problems in some areas, other fracturing technologies that could reduce water consumption would also be welcome in China, such as Hybrid Fracturing and HiWAY Channel Fracturing Chemicals: The various chemicals and materials that involved in drilling and fracturing could also find potential market in China Environmental treatment chemicals related to oil and gas industry are significantly important in China s developing road map, state-of- the-art chemicals and management technologies in this field would be beneficial for Chinese operators Source: 1. Production Technology Challenges of Tight and Shale Gas Production in China, a report presented at International Petroleum Technology Conference in PIM research and analysis 9

10 Who Can Help? PIM can provide interested parties with customized opportunity analyses, and detailed pathways to block holder contracting authorities as well as identifying and qualifying potential Chinese partners About us: PIM, Ltd is a China focused industrial market strategic consulting firm offer We a variety of customized services for clients initially entering or expanding into China s industrial sectors Our services cover: Strategic Market Research - Industrial and commercial market opportunity research - Market entry facilitation - Strategic planning Cross Border Merger and Acquisition Consulting - Target selection through to negotiating advisory - Providing services for either buy or sell sides The leaders of both strategic research and acquisition advisory each have over 20 years of experience in Asian industries with a primary focus on China. Want to learn more about PIM? Please visit or write to tomward@pimchina.com in Shanghai or marknewhouse@pimchina.com in Denver Introduction of PIM 10

11 Thank You Address: Building 1 Suite 1361, Jin Jiang Complex, 59 Mao Ming Nan Lu, Shanghai China Office Phone: Fax line: tomward@pimchina.com Website: 11