China is drilling in deeper waters to reduce its dependence on foreign oil

(Bloomberg) — A stretch of concrete the size of Monaco overlooking China’s southern coast is the centerpiece of Beijing’s efforts to slow its growing dependence on imported oil.

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More than 15,000 workers can be on site at the same time at the Zhuhai site, near Macau’s gambling mecca. Led by a unit of China National Offshore Oil Corp., it produces production platforms to be deployed in China’s offshore oil fields.

The push for deep-sea drilling comes as China’s aging onshore wells and insatiable appetite for energy force it to become increasingly reliant on foreign crude. The world’s largest oil importer gets more than 70% of its supply from abroad, up from less than 10% at the turn of the millennium.

With its sprawling industrial base and deepwater ambitions, Cnooc, one of China’s top three state-owned oil companies, is spending to develop drilling technology currently dominated by Western oil majors. But pushing into waters contested by China’s neighbors has also brought it into conflict with the US government.

Washington blacklisted Cnooc in 2021, saying it acted in concert with the Chinese military to “bully” neighboring countries over its disputed claims to large parts of the South China Sea. The company denied the allegations.

The Chinese oil major has developed the Bohai Sea between North China and the Korean Peninsula into the country’s largest oilfield and is expanding the Liuhua field and other fields in the East China Sea southern. Offshore wells accounted for 60% of new Chinese oil production last year.

“With significant untapped volumes offshore China, domestic offshore barrels are set to become a much-needed growth engine for the next decade,” said Baihui Yu, senior research analyst at S&P Global Commodity Insights. “Technological advances and increased access have allowed more drilling to be concentrated in deeper waters.”

China is not the first country to have to go to sea to replace dwindling land reserves. American drillers opened up the Gulf of Mexico in the 1960s and European companies turned the North Sea into a major production center in the 1970s and 1980s.

Cnooc is China’s sole offshore oil producer and its domestic production grew to account for 23% of the country’s total in 2021, from 15% in 2013, according to company filings and data from BP Plc. The explorer is investing heavily to increase its production by 4 to 6% this year, then by an additional 12% by 2025.

Besides the geopolitical obstacles, the technical challenges of deep-sea drilling are also immense. On a recent weekday afternoon at the Zhuhai site, one of the largest such facilities in the world, sparks flew through the air as a small group of workers put the finishing touches on this which looked like the Eiffel Tower lying on its side.

The steel structure, called a jacket, will be dragged onto a boat and taken 200 kilometers offshore, where its length of 338.5 meters will allow it to stretch from the seabed to above the surface of the ocean. . The jackets, which must be strong enough to withstand waves and massive typhoons, are too large to be moved by a crane, so they are built horizontally and rolled sideways onto a ship.

Oil majors like Chevron Corp. and Shell Plc are still the most advanced players in the industry, with the technological capability to drill in more difficult and deeper offshore environments. But Cnooc is catching up.

A year ago, it built the largest jacket in Asian history for its Haiji-1 field, and it is ramping up exploration in deeper waters further from the Chinese coast. Cnooc expects to produce between 650 and 660 million barrels of oil equivalent this year and is also involved in projects globally, including Exxon Mobil Corp’s mammoth discovery. off the coast of Guyana.

At another construction site in Qingdao, he is experimenting with even more advanced technology, building a new cylindrical-shaped vessel designed to float near the liner and oil rig, processing and storing the oil on board before unloading it. on tankers.

Technical advancements like this have made some previously unprofitable offshore fields now viable for development, according to the company.

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