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. Last Updated: 07/27/2016

Chinese Oil Fields Drying Up With Age

BEIJING -- China's surging oil demand has captivated markets and captured headlines. The quiet, steady growth of its domestic crude production, which is larger than that of most OPEC nations, has received less attention.

But as China's core oilfields grow older and new finds fewer, output will one day peak, revving up the race for international supplies in order to sate rapid demand growth while making up for declining reservoirs in the world's No. 2 oil consumer.

Chinese officials are confident that day is at least a decade away; some Western experts expect it far sooner than that. "We believe the peak could come as early as 2006, looking at the number of wells being drilled and the exploration underway," said one Beijing-based industry analyst, who declined to be named due to the sensitivity and secrecy of the upstream industry.

So far this decade, Chinese oil firms have kept production increasing by about 2 percent a year, reaching 3.5 million barrels per day in 2004 -- the sixth-highest in the world and more than half the country's 6.4 million bpd consumption.

With oil demand growing an average of over 8 percent annually, the new crude meets only a small portion of incremental needs, but provides a bit of relief from imports that soared 35 percent last year, helping send oil prices over $50 a barrel.

New oil from fields in the offshore Bohai Basin, onshore western Tarim Basin and northwestern Ordos Basin has more than compensated for falling production elsewhere and may stave off the eventual decline for several more years, some say. "China is probably still an immature petroleum province and may still be an exciting place for oil finders," says Feng Xue, regional manager at industry consultants IHS Energy. "It is relatively safe to say that Chinese oil production may not peak for another five years or so," he wrote in a paper.

China's giant Daqing and Shengli oilfields, the backbone of national supply for over half a century and responsible over 40 percent of its total output, have already peaked. Last year output at Daqing fell some 52,000 bpd, or 5 percent, from the year before, a trend that has forced China to gradually loosen restrictions on foreign investment in the upstream. Shengli output was steady at around 520,000 bpd.

They face the same problem as mature areas like the North Sea and onshore United States, where output is declining at 5 percent or more a year as dwindling reserves get harder to retrieve.

Chinese experts say oil from the seabed and the desert expanses of western Xinjiang province could not only offset a decline from mature east coast fields but even boost output by up to 500,000 bpd, delaying a production peak until 2020.

They have already helped China clock up an impressive 5 percent increase in crude output in the year through May, although few expect such impressive gains to continue.

"We are certain crude oil production can be maintained at 180 million tons [3.6 million bpd] in 2020," Yan Xuchao, head of development and research at state-owned major CNPC. "Should there be any breakthrough in exploration, production could reach 200 million tons [4.0 million bpd]."