China is looking to pump up oil and gas production in the years ahead to meet climbing domestic demand and reduce the record-high share of imports in its oil consumption. A Rystad Energy report projects a surge in spending till 2025, which will be accompanied by a drilling spree totaling 118,000 wells that will create significant opportunities for suppliers. China’s national oil companies (NOCs) are expected to splurge more than $120 billion on drilling and well services in the five-year period of 2021-2025, seeking to meet the rising oil and gas demand. At the same time, the country aims to supply more of its oil demand from domestic sources, after the share of imported crude oil has risen steadily from 2014 to a high of almost 75% last year. To be exact, CNPC, CNOOC and Sinopec together are expected to spend about $123 billion on drilling and well services in the coming five-year period, up from a total $96 billion between 2016 and 2020. As a result of China’s oil and gas demand growth, drilling activity in the country is expected to remain intense in years to come, with the cumulative number of development and exploration wells drilled between 2021 and 2025 expected to reach 118,000. Development wells will account for 88% of the total and exploration wells will make up the remaining 12%. “Despite a strong policy push to electrify transport, China is still expected to use oil products to fuel its hundreds of millions of cars, buses and trucks for the next five years at least. “Although the country’s electric vehicle market is projected to achieve a 20% market share by 2025, internal combustion engine vehicles are expected to account for most of China’s transport needs and to provide a backbone for oil demand through 2025,” said Peng Li, energy research analyst at Rystad Energy. Chinese oil production has fallen from 1.55 billion barrels in 2014 to 1.43 billion barrels in 2020. Domestic oil production was able to meet just over a quarter of China’s domestic oil needs in 2020, with the remaining 74% met by imports, the highest level on record. Given that just 2.4% of the world’s proven oil reserves are located in China, the scope for dramatically increasing domestic production is limited. China’s reliance on imports — and associated energy supply security concerns — has led the government to push its domestic E&P companies to find new reserves and increase domestic output. On the natural gas side, domestic production remains modest compared to overall demand, but has grown from approximately 120 billion cubic meters (Bcm) in 2014 to around 190 Bcm last year. This is still well short of 2020’s total demand of 330 Bcm, meaning the nation remains reliant on imported piped gas and shipped liquefied natural gas (LNG) for over 40% of its needs. With gas consumption on the rise — especially as China looks to use more gas in place of coal in power generation to reduce short-term emissions — the pressure to boost domestic gas production is an overarching imperative. This will also provide a stimulus to the E&P sector, especially if international LNG prices continue to track higher, as seems likely due to anticipated global supply constraints. While the transition to a low-carbon economy is a major priority for China, balancing this with the nation’s transitional oil and gas needs is still an important consideration. This is outlined in China’s 14th five-year plan for 2021-2025, which emphasizes the importance of identifying new hydrocarbon reserves and increasing oil and gas production, alongside increasing the share of non-fossil fuels to 20% by 2025. “As state-owned entities, China’s major operators are not solely profit-driven. They also play an important and integrated role in social economics. So even in a less-favorable oil price environment, we expect Chinese NOCs to perform in line with government expectations and to continue to make an effort to shore up domestic supply,” Li points out. China has managed to maintain overall oil production while increasing gas production, despite drilling notably fewer wells in 2020. This is quite an achievement considering that China was the first country to be seriously impacted by the pandemic. One of the main contributing factors has been advances in drilling and well services techniques, which is enabling China to drill an increasing number of deep and horizontal wells. Improved well planning and advanced enhanced oil recovery (EOR) methods are also helping China increase its recovery rate, even at giant mature fields such as Daqing. Another gamechanger in the past decade has been the rising use of fracturing services, which has boosted development of unconventional oil and gas resources. With China focused on maintaining or increasing production levels, service companies that bring innovative technology solutions to the table are likely to get a warm welcome in the Chinese drilling and well services market in the years to come, whether the field developments are conventional or unconventional, onshore or offshore. — Rystad Energy