This timely publication deals with a topical issue. The double‐digit economic growth of China that has been sustained over two decades had significant energy implications for China and the world at large, which has been recognised recently when oil prices in the international market soared to record levels. The steady growth in Chinese demand for energy in general and for oil in particular, and the Chinese efforts for securing more oil through acquisition of oil development rights or oil assets in the international arena have suddenly become a matter of concern for the rest of the world, provoking “oil nationalism” even in the so‐called free‐market economies. Against this backdrop the book under review provides a detailed analysis of the Chinese oil and gas industry and assesses the role China is going to play in the hydrocarbon sector.
The title of the book is somewhat misleading. Its focus is on the Chinese oil and gas industry that comes as the second part of the title. Its coverage of the Chinese role in the global energy crisis is rather limited. Perhaps, the authors and the publisher have put a more catchy title to enhance the commercial prospects of the book.
The book is divided into seven chapters. The first chapter provides the fascinating story of the history of Chinese petroleum industry development. Oil and gas available from seepages or natural flows were used in China long before their modern usages were discovered. Initial exploration efforts started in the pre‐liberation period and the development of the petroleum industry has been highly influenced by the political and policy changes in different phases of the country's transformation. The authors trace these developments by highlighting how the policy changes have influenced the petroleum industry developments and what was achieved in each period.
In particular, the chapter provides an account of the four phases of oil industry development:
- 1.
The Japanese influence in oil exploration and in the establishment of an oil shale distillation facility in the period prior to the creation of the People's Republic of China (PRC). However, the domestic supply during this period was limited and the country remained highly dependent on imports.
- 2.
Greater political attention and Soviet influence since the creation of the PRC in 1949 until 1960. This period saw the level of self‐sufficiency in oil to increase to around 60 per cent by 1960. Both crude oil and shell‐oil production increased many‐fold compared to the pre‐PRC phase.
- 3.
Emphasis on self‐reliance during the cultural revolution that significantly influenced the oil industry development. Rapid growth of the industry following the discovery of the Daqing field in 1959, the loss of Soviet expertise in this phase and innovative ways of managing the petroleum industry development subsequently are the highlights of this period. The domestic production grew nine‐fold between 1965 and 1978 and China started to export crude oil to Japan in the aftermath of the first oil shock of 1973‐1974. However, proven reserves just doubled between 1965 and 1978 and the issue of Chinese expertise and access to modern technology and know‐how became apparent.
- 4.
Shift away from self‐sufficiency in the “Open Door” policy regime being followed since 1978 that has profoundly changed the prospects for the domestic oil industry in China. Foreign participation in offshore exploration, technology imports for the oil industry use, economic incentives for the industry and institutional reform to remedy the issues faced by the industry were successful in stabilising the output from its main supply source (Daqing field) to above 50 Mt level for a period of 27 years and enabled better recovery rates and increased national oil output. But China's stated objective of quadrupling its oil production between 1980 and 2000 did not materialise. In addition, as economic reform produced better economic growth, the demand grew rapidly as well and the centres of growth changed from the traditional growth centres of the past. These changes transformed the country from an exporter to an importer.
The second chapter provides an assessment of the oil and gas reserves in China that are spread over 30 distinct sedimentary basins. Although the geological oil resources are estimated at 106.8 billion tons in 2000, only 21 billion tons may be recoverable ultimately, with two‐thirds of these resources located onshore. In contrast, China has significantly higher gas resources: in 2000, the resources are estimated at 52 trillion m3. The authors believe that there are substantial opportunities for further petroleum exploration in China. While this chapter provides an overview of the resources, the reader does not get a clear picture of the size of the resources in comparison to the global reserves or in comparison to the major oil and gas players. Such comparative information would have allowed a better appreciation of the importance of the Chinese oil industry. Similarly, the offshore‐onshore distinction and differences are also not always evident. Some of the tables (tables 2.1 and 2.2) provide a decade old data which may have little relevance now.
Chapter 3 presents the evolution in the hydrocarbon sector management in China, which was highly influenced by the political changes in the country. The sector benefited most during the pre‐reform phase when the oil industry achievements were show‐cased as role models for self‐reliance. However, in the open‐door policy regime, the heavy industry driven economic growth received a set back and the hydrocarbon sector failed to win sufficient support at the highest political decision‐making levels to ensure adequate budgetary support for the industry. This lack of financial support created problems for exploration.
The organisational transformation in the era of economic reform based on the principles of corporate governance saw emergence of three national oil corporations, two of which (PetroChina and SINOPEC) are involved in the entire spectrum of the sector activities while the other (CNOOC) is mainly responsible for the offshore developments. The chapter also describes the exploration and development onshore and offshore following the new organisational structure of the industry. The field‐level information describes the evolution since the Open Door policy and proffers on the future supply prospects. Despite being informative, the chapter is somewhat awkward for two reasons: first, the organisational changes could have been analysed in further detail showing how the changes have affected the performance of the industry and analysing whether the new structure is sufficient to take the new challenges being faced by the country; second, it is not clear why the authors thought it appropriate to club the evolution of the upstream activities in this chapter, when Chapter 2 covered much of the ground. Better articulation of the two themes was required.
Chapter 4 reviews the developments in the Chinese natural gas industry. China has a long experience in using natural gas but the modern development of the gas industry is quite recent. There are four principal gas rich basins onshore while there are two smaller offshore fields. The total output in 2005 was around 50 billion m3, with 8 billion coming from the offshore fields. However, the imbalance between the sources of supply and the centres of demand is growing, especially since the economic reforms started and despite growth in the gas industry, importing gas in the southern coast is a viable option. Two LNG import facilities are expected to be ready in the near future and other facilities are being planned to increase the import capacity.
Chapter 5 considers the question whether the Tarim basin holds the solution to the Chinese hydrocarbon supply issues. Although this enormous basin has been surveyed extensively, its potential is not clearly understood. The proven gas reserves of the basin stood at 505 billion m3 in 2000 and are expected to grow much higher with intensive exploration activities experienced by the region in recent times. Political support to the plan of transferring gas from this western region to the eastern demand centres through the “West to East” gas project is enlisted since 2000 and on completion 32 BCM of gas will be delivered to Shanghai. However, the political complexity of the region, the problems in finding a suitable joint‐venture partner for the project, the financial risks associated with such a huge development and the issues related to the utilisation of resource revenues in the region are some issues to be addressed in this ambitious development project.
Chapter 6 is devoted to oil refining and distribution in China. China has a capacity of refining 270 million tonnes (Mt) of crude oil, essentially shared by SINOPEC and PetroChina. However, this capacity is inadequate to meet the domestic oil product demand which stood at 317 Mt in 2005. Moreover, almost one half of the refining capacity comes from hundreds of very small size refineries (less than 1 Mt per year). Being inefficient and simple refineries, they appear to be unsuitable for any modern refining business. In addition, the Chinese refineries are not suitable for imported heavier crude slate with high sulphur content. With crude import share projected to reach more than 50 per cent by 2010, oil refining would become a major issue in China. Furthermore, the demand for products is changing in the country with greater motorisation and urban developments. This also leads to demand for better quality fuels for environmental reasons. Although Chinese oil companies are investing in enlarging and restructuring their existing capacities, no investment is forthcoming in building new capacities. The authors suggest that there is room for refinery capacity expansion in China.
Chapter 7 is the concluding chapter of the book where the authors sum up the discussions on China's oil and gas developments and look at the future. The authors suggest that the crude oil output is likely to be 185 Mt in 2010 and 200 Mt in 2020. This level of output is not much higher than the 2005 output which stood at 180 Mt. With a modest growth in domestic supply the country would need to import increasing amounts of crude in the future. However, the authors suggest that the Chinese demand would not be unmanageable given the comfortable situation of global oil reserves. The refining and transportation bottlenecks are however of greater concerns for China, especially ensuring a safe supply route for its crude supply.
Similarly, the authors expect that the gas output would reach 70 BCM by 2010 compared to 50 BCM in 2005. But the demand is expected to reach 136 BCM at that time, leaving therefore a substantial shortfall in supply. The country, according to the authors, faces a greater challenge in terms of gas supply. This chapter also discusses the import and security of supply‐related issues.
As indicated earlier, this informative book essentially deals with the supply‐side of the domestic oil and gas sector in China. Its attempt to reach a larger audience has required some top‐ups which in the end proved to be inadequate and unconvincing. The book did not consider other forms of energy used in China and there is no discussion on the global impact of China's increasing energy demand. The supply‐side focus of the book was not adequately integrated with the demand‐side analysis and whenever it was done, the discussion was rather limited. Similarly, no or limited attention was paid to geopolitical issues, economic and pricing issues, funding and investments and management concerns. While the book explains the past evolution, its usefulness for the future development of the industry remains rather limited. Despite these limitations the books remains a valuable contribution to the existing knowledge as this appears to be the first of its kind to provide a detailed exposition of the Chinese oil and gas industry development. Students and researchers interested in the Chinese hydrocarbon sector would find this volume invaluable.
