Heavy Oil May Play Bigger Role in China’s Oil Output Growth

China is showing increasing interest in developing its domestic reserves of heavy-grade crude oil as it struggles to line up energy supplies to feed its booming economy.

Although China has substantial heavy oil reserves, their development has been hindered by high extraction and processing costs and a lack of technical skills. But due to current high oil prices and China’s dwindling reserves of lighter grades of oil, the sector is getting a boost.

The latest evidence of growing enthusiasm for heavy oils is an agreement in early May signed by Citic Resources Holdings Ltd. (1205.HK), a subsidiary of Chinese conglomerate Citic Group.

It’ll pay $150 million to buy a stake in the heavy-oil Hainan Yuedong block in the Liaohe oil field in northeastern China, the country’s largest reserve of heavy oil.

The Liaohe field produces around 161,000 barrels a day of oil, and the Hainan Yuedong block is expected to add a further 30,000 barrels a day. Sources familiar with the field say the block’s development has up to now been hindered by a lack of funds.

Heavy oil, which has lower commercial value than lighter grades, is generally defined as having and American Petroleum Institute gravity of lower than 22 degrees.

Apart from Citic, China’s three largest oil producers, PetroChina Co. (PTR) and China Petroleum & Chemical Corp. (SNP), or Sinopec, and Cnooc Ltd. (CEO), all have a long involvement in heavy oil projects domestically.

And all have new ventures in the pipeline and in some cases, are looking for new investments abroad.

Rigzone