China Steps Up Oil Production at Failing Daqing Field

2004-08-16
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Faced with huge energy shortages, China is planning to boost production at its oldest and fast-failing Daqing oilfields in a bid to bring more oil onto the domestic market, raising the likelihood of layoffs in the industry sooner rather than later.

"There's the corporate message that says, we as a company are a viable company. We as a company are not going to let our production drop."

The Daqing oilfield in Heilongjiang Province now appears to have suspended an earlier plan to reduce production in order to make the dwindling field last longer in favor of more commercial considerations, according to official media reports.

“If you’re a commercial company, as Daqing Oil Field Co. is trying to be, then you do not artificially prolong the life of the field unless there is a good technical reason,” Philip Andrews-Speed, a China energy expert at the University of Dundee, said in a recent interview.

“It seemed that the idea of slowing down production and prolonging the life of the field may have been a political one related to the desire just to have Daqing there for longer within China and maybe to keep the employment at a high level for longer,” he said.

Assurances

He said the Daqing oil company, a unit of the China National Petroleum Corp. (CNPC) seemed to want to send a reassuring message about its total output, even though production is declining at the Daqing field.

“There’s the corporate message that says, we as a company are a viable company. We as a company are not going to let our production drop, and it also supports the government strategy of maximizing domestic production.”

The field, which is one of China’s most important energy assets, has been pumping oil since 1963, but in 2003, annual output fell below 50 million tons for the first time in 27 years. The resource, which once served as the country’s main oil supply, contributed just 28.4 percent of domestic production in 2003.

Fears of social unrest

Daqing is also a major employer, and the government fears growing social unrest as severance packages and retirement pensions go unpaid by state-owned enterprises across the country, but particularly in the northeastern rust-belt.

An estimated 50,000 laid-off workers staged protests at the oilfield in 2002. One year ago, PetroChina President Chen Geng declared that Daqing could last “for another 100 years” if development was conducted “meticulously and reasonably.”

Last year, China’s domestic oil output grew by only 8 one-hundredths of a percent, while Daqing’s production declined 3.5 percent. So far this year, the figures tell the same story.

While oil demand is still soaring, domestic production rose by just 1.9 percent in the first half of the year, while imports jumped by more than 40 percent, compared with the same period in 2003, the State Development and Reform Commission (SDRC) said.

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