In China, the history of discovering and utilizing petroleum and natural gas goes back two thousand years. Today China’s state-owned company, China National Petroleum Corporation (CNPC), is a world-leading integrated energy corporation. Its businesses cover oil and gas operations (upstream and downstream), oilfield services, engineering and construction, petroleum (material and equipment) manufacturing and supply. The firm is the second largest in the world in terms of workforce.
CNPC is China’s flagship energy enterprise. It plays an important role in China’s oil and gas production and supply. The company produces 2.69 million barrels of crude oil per day and has gas production of 4.6 billion cubic feet per day. CNPC has proven oil reserves of 2.69 billion metric tons and gas reserves of 2215.9 billion cubic meters.
CNPC has placed most of its domestic assets into a separate company called PetroChina in the course of a restructuring. CNPC now has 30 international exploration and production projects with operations in Azerbaijan, Canada, Indonesia, Myanmar, Oman, Peru, Sudan, Thailand, Turkmenistan and Venezuela. Underscoring its growing dominance in China’s expanding energy sector, CNPC received the National Award for Science and Technology Progress at the State Science & Technology Awards Conference held in January 2008 in the Great Hall of the People in Beijing.
CNPC has been a pioneer industrywide over the past decade. Its seminal idea: leverage government funding to achieve global scale. The outcome: as world oil prices have risen inexorably, CNPC has become an increasingly potent global force. The firm has along the way acquired exploration and production interests in 27 countries spanning four continents. During 2005, CNPC announced its intentions to invest a further $18 billion in foreign oil and gas assets between 2005 and 2020. Expansion, underpinned by massive government budgets and innovative exploration technology, is making CNPC the ExxonMobil of tomorrow in scale, depth and global influence.
In Sudan, CNPC has invested more than $8 billion in the country’s oil sector, including investments in a 900-mile pipeline to the Red Sea. In October 2005, CNPC finalized the purchase of PetroKazakhstan, whose assets include 11 oil fields and licenses to seven exploration blocks. In December 2005, this purchase was complemented by the completion of the 600-mile Sino-Kazakh oil pipeline that will deliver 200,000 bbl per day of crude oil to China. Some of CNPC’s other overseas investments include Encana’s oil and gas assets in Ecuador and PetroCanada’s oil and gas assets in Syria.
Flush with cash and fueled by China’s Olympics 2008-led consumption surge, CNPC bought Rosneft’s, one of Russia’s oil giants, for $500 million in 2006. The next year, CNPC signed a cooperation agreement with Russia’s largest independent crude producer, LUKoil. CNPC’s 2007 overseas operations hit a new record: it produced 60.23 million metric tons of crude oil, equivalent to 1.2 million barrels a day.
Establishing Exceptional Technological Capabilities.
Much of the overseas output came from Sudan where the company’s oil operations had drawn criticism from activists and U.S. politicians who believe they complicate efforts to resolve the crisis in the Darfur region. Production by CNPC’s PetroKazakhstan, Inc. venture in Kazakhstan exceeded 10 million tons.
Worldwide CNPC has established comprehensive technological capabilities in the survey, design, construction and operation of large-scale petroleum and petrochemical engineering projects. It is also an innovation leader in the design and manufacture of related large-scale specialized equipment. These mainly include oil and gas field surface facilities (such as gathering stations and processing plants), oil and gas storage and transportation facilities (storage tanks and pipelines), refining and chemical facilities, and pipe manufacturing.
The combined oil-gas pipeline system of the Kenkijak subsalt oilfield in Kazakhstan began operations in July 2005. This represented another technological breakthrough in CNPC’s development of combined oil-gas pipelines. Working together with China’s steel enterprises and scientific institutes, CNPC has succeeded in producing X80 high-tensile pipeline steel as well as both spiral- and longitudinal-welded steel pipes of the same tensile strength with a diameter of 1016mm. This results in a saving of 8 percent steel compared to the quantity used to produce X70 steel. The steel is being used on a trial basis in a 7.7-km section of the Ji-Ning branch of the West-East Gas Pipeline. So far tensile and leak tests show that the steel meets all of CNPC’s engineering quality benchmarks.
CNPC has established benchmarks within the enterprise by deft restructuring to maximize returns from its assets. Its drilling technology and R & D have set industrywide standards. Within China, CNPC’s growth has sanctified the revolutionary idea that an unbridled capitalist approach can create a Chinese multinational. In size, scale and ambition, CNPC has been a global energy pioneer.
CNPC accounted for 89 percent of China’s crude oil production in 1996. The China National Offshore Oil Corporation (CNOOC) accounted for another ten per cent, while the Ministry of Geology and Mineral Resources (MGMR), local governments, and joint ventures between CNOOC and foreign companies shared the remaining 1 percent. The China National Star Petroleum Corporation (CNSPC) was created in 1997 to develop both onshore and offshore oil and, particularly, natural gas resources on a commercial basis through partnerships with foreign companies. It gave the existing state-owned oil companies a new and much needed competitor. The firm was formed due to an impending oil shortage in China’s burgeoning, energy-guzzling economy.
Going Downstream
CNPC was created as an upstream conglomerate. But its state owners had plans to expand its downstream (refining) sector by forming integrated refining-petrochemical centers in Karamay, Dushanzi, Daqing, Zhongyuan, and Bohai Bay. In a 1998 restructuring of the national oil industry, CNPC acquired 19 companies from the China National Petrochemical Corporation (Sinopec), including several refineries. In turn, Sinopec acquired 12 of CNPC’s companies, including several oilfields. After the trade, CNPC and Sinopec became known as “Northern” and “Southern” companies respectively due to the geographies of their possessions. CNPC now owned assets of $57.2 billion. The firm accounted for two-thirds of both China’s petroleum and its natural gas output.
In January 1999, CNPC merged 10 pipeline enterprises into its China Oil and Gas Pipeline Bureau subsidiary which was also given authority over four engineering construction companies, two research and design centers, a personnel training center, and a hospital. This gave the bureau assets of $2.77 billion, including 13 oil or gas pipelines. CNPC completed its first long-distance crude pipeline built overseas by the end of May 1999. It linked the Muglad oilfield to Port Sudan over a distance of 1.05 kilometers. By now China was importing annually 20 percent of the oil it used. This figure is projected to increase to 40 percent by 2010. The country’s oilfields in the north and northeast were maturing, noted Britain’s Financial Times, but its more recently discovered fields in the west had proved disappointing both in terms of profits and the cost of shipping oil to the east coast economic centers.
In 2007, China’s crude oil output rose by 1.6 percent year-on-year while growth of crude oil consumption reached 7.3 percent. Currently, approximately 46.05 percent of the nation’s crude oil consumption is imported. CNPC’s subsidiary PetroChina has acquired global size and credibility despite the handicap of functioning in a Communist regime. It has made a determined effort to professionalize its management. Led by President Jiang Jienin, the company is run by seven Vice-Presidents and two Assistant Presidents. Top management includes Chen Ming whose designation – Chief Discipline & Inspection Group – reveals CNPC’s state-owned mindset.
The obvious advantage of state-owned funding and captive domestic markets notwithstanding, CNPC has made full use of rising oil prices. China remains a big importer of energy and CNPC thus has a critical role in hitting new oil and gas fields. The Chinese regime regards energy as pivotal to sustaining GDP growth at over 10 percent a year. PetroChina is thus an integral part of Beijing’s economic strategy. The 2008 Beijing Olympics (CNPC is an official partner) is meant to showcase China’s growing global left. CNPC and PetroChina are two of its most prized exhibits. q
