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By Lianyong Feng, Junchen Li and Xiongqi Pang
In order to forecast future oil production it is necessary to know the size of reserves and to use models. We use two peak oil models-the Hu-Chen-Zhang model, usually called HCZ model, and the Hubbert model-which have been used commonly for forecasting in China and the world, to forecast China’s oil Ultimate Recovery (URR). The former appears to give more realistic results based on an URR for China of 15.64 billion tons (115 billion barrels) and a peak by 2011. The study leads to some suggestions for new policies to meet the unfolding energy situation.
1. Introduction
Every country, including especially the so-called developing countries, has become addicted to oil. China’s economy has expanded rapidly in recent years, leading to soaring oil demand and growing imports. It was able to meet its needs from indigenous production up to 1993 (Fig.1), but imports have since grown rapidly such that by 2006 as much as 47.5% of its consumption had to be imported. The gap between production and consumption is expected to continue to widen, presenting a major challenge for the country’s oil industry.
Since oil has to be found before it can be produced, it is useful to extrapolate the discovery trend to obtain an indication of the size of the endowment. With this in place, it is possible to forecast this Ultimate Recovery using the statistical HCZ and Hubbert models. This knowledge may be valuable to policy-makers in designing future economic and political strategies.
2. China’s Discovery Trend
China’s oil history may be divided into five stages. The first stage (1907-1949) saw the birth of the industry with discoveries in the Ordos Basin and in a few other places. The second stage (1950-1964) saw irregular growth, with important developments in the Songliao Basin. The third stage (1965-1975) was marked by the development of the Bohai Bay Basin. The fourth stage (1976-1990) was the most successful throughout the country. The fifth stage, which opened in 1991, saw the discovery of the Tarim and Junggar Basins, as well as further developments in the Ordos Basin.
3. Forecasting Methodology
Two forecast methods are used: the HCZ model and the Hubbert model. The formulas and calculation methodologies for each one are presented in the full-length article.
The HCZ model was established by three well-known Chinese geologists in 1995 (Hu Jianguo et al., 1995) after a thorough study of oilfield data.
The well-known Hubbert model was developed in the 1960s by an American geologist of the same name. He found that production over time followed a logistic bell-shaped curve, which could also be extrapolated to indicate Ultimate Recovery.
4. Forecast for China
Using the HCZ Forecast: based on several key assumptions, the highest correlation with this method suggests suggest Ultimate Recovery is 15.64 billion tons. Using the Hubbert Forecast calculations suggest a much lower Ultimate Recovery of 9.31 billion tons.
5. Analysis
5.1 Analysis of Results The two models give very different results and it is difficult to know which to accept. But Zhai Guangming (2002) estimated an Ultimate Recovery of 16 billion tons and a Government study in 2005 indicated 16.4 billion tons under the 95% confidence level, suggesting that the HCZ model is to be preferred. On the other hand, C. J. Campbell, founder and chairman of ASPO (Association for the Study of Peak Oil and Gas), in his book Oil Crisis gives 55 billion barrels (7.5 billion tons) in 2004, subsequently revised to 65 billion barrels (8.87 billion tons), while Jean Laherrère, the well-known French analyst, gives 70 billion barrels (9.55 billion tons). Both are close to the results of the Hubbert model discussed herein, but far below the official forecast. Recognizing the huge amount of study behind the official estimates, we conclude that Campbell and Laherrère are unduly pessimistic. Exploration in China is at a much less mature status than, for example, in the United States, so we conclude that there is plenty of scope for new discovery. Accordingly, on balance, we prefer the HCZ forecast (URR = 15.64 billion tons).
5.2. Forecasting China’s Future Discovery The data show that China has passed its peak discovery and that annual discovery will decline in the years ahead at the average rate of 1.62% a year. It follows that production will also be constrained. Demand on the other hand is rising steeply. China’s total discovery through 2005 amounted to 6.9 billion tons. It means that, although peak discovery has passed, there is still plenty left to find and develop. Indeed, the forecast suggests that as much as 9 billion tons left, which will be produced and consumed gradually.
5.3 Forecasting China’s Future Production Rapid demand growth has prompted many nations to undertake new research into production technology and plan accordingly. An increasingly long list of countries, including the United States and Japan, join China in facing the need to increase their imports as domestic production falls from natural depletion. So forecasts of oil production are significant for each country. Using the HCZ equation to forecast production, production is expected to peak in 2011 at 197.76 million tons/year, only 14 millions tons (7+%) above the 2006 level. It is accordingly most important that the country should start to plan its response to declining domestic production.
5.4 Technological Improvements While forecasts must perforce be based on historical trends, it is important to also take into account the impact of advances in technology, knowledge and other factors. It remains possible therefore that more oil will be found at greater depth and in deeper water than the record to date would suggest. For example, the recent discoveries of the Nanpu Field in the Bohai Bay of China and the reported Tupi Field in deepwater off Brazil rely in part on new technology. We must not accordingly dismiss the role of technological progress, especially in regard to tapping so-called unconventional resources. China itself may be able to increasingly turn to unconventional resources, such as oil sands, coal bed methane and oil shale. In 2006, the world production of unconventional resources included 1.1 Mb/d from the tar sands of Canada, 600 kb/d from the Extra Heavy oils of Venezuela, and 260 kb/d of bio-ethanol (Annual Energy Outlook, 2007), and we may expect further technological breakthroughs to increase these levels in the future.
5.5 International Co-operation China's oil endowment is relatively small in international terms. The OPEC countries, such as Saudi Arabia and Iran, are the main powers in the oil market, and China's domestic needs will be increasingly met by co-operation with these countries. It has already secured some important stakes in Africa, but new relationships have to be forged to secure more, not forgetting the unconventional production of Canada and Venezuela.
6 Conclusions
This article has used the HCZ and Hubbert statistical models to forecast China's future oil production. The results differed widely, but the preference is given to the HCZ model, giving an ultimate recovery of 15.64 billion tons that better matches the official estimates. The issue of Peak Oil, which is now attracting interest around the world, has to be based on the underlying reserve data. The details naturally evolve over time, but the position is becoming clear for both China and the World as a whole. The implications are considerable and need to be addressed by policy makers.
Lianyong Feng and Junchen Li are with the Department of Business and Administration, China University of Petroleum (Beijing); Xiongqi Pang is on the faculty at China’s University of Petroleum, Natural Resource and Information Technology Dept., (Beijing)
Fig.1. China oil production and consumption history. Sources: BP Statistical Review of World Energy 2006
Fig.3. China’s annual discovered proved recovery increase trend. Sources: China oil date
Fig.7. China oil production forecast