China Focus on South China Sea Gas Field for Greater Bay Area Energy Transition

Hainan (China): China has made a major move to reduce its carbon emissions, commencing construction of the second phase of its first independently run ultra-deep sea gas field. Located 200km off the coast of south China’s Hainan province, this project will boost the peak annual output from 3 billion to 4.5 billion cubic meters, amounting to 90% of the island’s entire 2021 natural gas consumption. Wang Dongjin, chairman of the state-owned energy giant CNOOC, said that this will “promote the construction of a trillion-cubic-meter gas cluster in the South China Sea, and make a greater contribution to the ‘dual carbon’ transformation” as part of Beijing's pledge to peak carbon emissions before 2030 and achieve carbon neutrality by 2060. For the Greater Bay Area, this new source is essential considering declining offshore supply and expiring pipeline contracts; it will help improve energy self-sufficiency in an area which relies heavily on [liquefied natural gas] and pipeline imports. Unless it produces volumes large enough to justify liquefaction, Zha Daojiong believes that gas from Shenhai-1 will be sent via pipeline for consumption on Hainan Island.

China has commenced construction on the second phase of its first independently run ultra-deep sea gas field, a potential source of natural gas for the Greater Bay Area. Despite facing technical difficulties such as drilling depths of up to 5,000 meters, high temperatures and pressures, CNOOC believes that the project will be successful. Should it become commercially viable, the Chinese company stands a good chance of winning oilfield servicing contracts in other countries. The Shenhai-1 field is located 200km off south China’s Hainan province and its peak annual output is estimated to reach 4.5 billion cubic meters; 90% of Hainan’s natural gas consumption in 2021. This project also promises to make a major contribution to Beijing's ‘dual carbon’ target to reduce its carbon emissions by 2030 and reach carbon neutrality by 2060. Moreover, more investment in city gas infrastructure could bring great benefits to the Greater Bay Area, including job creation and industry expertise development. On top of this, China is still heavily reliant on imported natural gas which greatly increases their import dependency above 40%. With Shenhai-1 located within its territorial waters, however, this dependence could be alleviated.

The US Energy Information Administration has estimated that the South China Sea holds 11 billion barrels of oil reserves and 190 trillion cubic feet of natural gas reserves, based on proven and probable reserves. Onshore fields are uncontested and close to the shorelines of different nations, though there may be underexplored areas with hydrocarbons. The Shenhai-1 project went into operation in June 2021, making it the deepest gas field in China at the time. It has produced over 3 billion cubic meters of natural gas since then. President Xi Jinping noted its energy security abilities during a tour of Hainan in April. Developing this resource meets China's two primary goals of energy self-sufficiency and cleaner energy. In recent years, Beijing has proposed joint oil and gas exploration with some Southeast Asian countries as well as pressuring smaller neighbours to halt projects in contested areas, such as when it sent survey ships to Vietnam’s Vanguard Bank region from 2018- 19. Despite this push for success, 2022 could potentially be the first year that China sees a decline in its gas consumption due to a struggling economy and dwindling demand. Last year, China faced a 1.2% decrease in its natural gas consumption, amounting to 331.9 billion cubic meters. Despite the predictions of a rebound in demand this year with the re-opening of the economy, analysts remain skeptical due to soaring energy prices and an unstable macroeconomic climate.