CHINA BUILDS PIPELINES TO BOOST PETROLEUM EXPORTS

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP86T00608R000500200019-6
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 14
• Document Creation Date: December 16, 2016
• Document Release Date: December 15, 2004
• Sequence Number: 19
• Publication Date: June 1, 1975
• Content Type: IR

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China Builds Pipelines to Boost Petroleum Exports
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China Builds Pipelines
To Boost Petroleum Exports
China has undertaken a multi-million dollar program since 1970 to build
pipelines as part of a major effort to exploi
L
its extensive petroleum resources.
At the outset the program was aimed mainly at meeting domestic requirements
for transporting petroleum. The need to pay for soaring imports and the sudden
increase in world prices in 1973 led the Chinese to accelerate construction of
pipelines to take advantage of new export opportunities.
The sudden push in construction has increased the national pipeline network
to more than 3,600 miles, five times the 700 miles that existed in 1970.
Approximately 1,600 miles of pipeline were laid in 1974 alone. Additional projects
under construction or planned will raise the national network to about 5,000 miles
within the next two or three years.
The new pipelines and associated port improvements will enable China to
handle crude oil exports of 10 to 12 million tons this year and perhaps 20 million
tons in 1977. If planned pipelines and port facilities are completed as expect?d,
China will have the capability to meet the projected export goal of 50 million
tons of crude to Japan by 1980. This level of exports would place China among
the top 10 nations as an exporter of petroleum;.
Note: Comments and queries regarding this report are welcomes. They may be
directed to lof the Office of Economic Research,
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Background
I. A shortage of rail capacity and petroleum handling facilities has been
a chronic problem in transporting China's growing output of crude oil. China
became essentially self-sufficient in crude oil in 1965, and output has since grown
more than 500%, to 65 million metric tons in 1974.' Pipelines are the most efficient
means of transporting such large amounts of crude oil, but bef;,re 1970 the Chinese
had only about 700 miles of pipelines, almost all located in the Karamai and Yu-men
oilfields in the remote western part of the country. Only a relatively short pipeline
from Ta-kang oilfield to Tientsin served the eastern seaboard (see Figure 1). In
1971 the Chinese launched a pipeline construction program that was aimed at
moving crude oil from the large new oilfields in Manchuria and Shantung Province
to refining centers and ports.
2. The thrust of China's pipeline program
changed sharply in late 1973. Soaring imports and
decreasing demand for traditional Chinese exports led
to growing trade deficits with non-Communist
countries. The trade balance with non-Communist
partners grew from a small surplus in 1972 to a $370
million deficit in 1973 and an unprecedented $1.5
billion deficit in 1974. These deficits coupled with
a threefold increase in world oil prices prompted
China to place greater emphasis on petroleum exports
to earn hard currency. Pipeline construction after
mid-1973, therefore, was aimed mainly at rapidly
developing the capability to export an increasing
amount of crude to non-Communist countries.
Concurrently, the Chinese speeded up port
construction in the northeast to handle exports,
which increased from only one million tons in 1973
to 4 million tons in 1974. In the span of two years,
petroleum h
as
b
ecome China
'
s single lar
est earne
g
r 1. Prcjected.
of hard currency. The tabulation shows the trend in
China's petroleum production and exports to non-Communist countries since 1973.
1. For consistency, metric tons are used throughout this report. In conventional usage, a metric ton contains
7.3 barrels. To convert metric tons per year to barrels per day divide by 50.
Million Tons
Produc-
Exports
to Non-
Commur,isr
1950
0.2
1960
5.5
1965
10.8
1970
28.5
1971
36.7
1972
43.0
N,:gl.
1973
54.5
1.0
1974
65.3
4.5
1975'
78.0
10.0
1980'
195.0
50.0
1
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China Pipelines and Oil Ports
Petroleum refinery
Producing oilfield
Shale oil complex
O Gasfield
Oil pipeline
?_~. ? Oil ports
Railroad
Figure 1
huong j P'arf'rh.u North
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11ur uf'iorlrurl
? Lhasa
Buifin a
f (I \l Shanghai
f
~;i Clri~nrhrq WU-hoo fi
11~ ~ t '~ ~ ~ hiPa
-Ia / Korea r
l Poking x ~ "t Dairen lNowplim
(TAIYrAr
P \ltlpplrios
South 0 500 ,\
Vlofnnln Nuullc.l lII ? ~7C f. ?U -
Tiadtsir( Tdkdl olroo `soutnl
T~ kannl
(~ I Huang-too A,
San Shei ~.C`enton
Hony done
,~f ecao OK)
hon?chiang
2
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The Construction Program
4. Although China's rail tank car inventory grew from only 9,600 in 1960
to more than 30,000 in 1969, the railroads were unable to handle the 22% average
annual increase in crude oil production. Some new wells drilled in 1969-70 aL'
the Ta-ch'ing oilfield in Manchuria reportedly were capped because transportation
was not available. The pipeline construction program, therefore, was originally
planned to relieve the overburdened railroad system in the northeast.
5. Pipeline construction began in the northeast late in 1970 with the start
of a line from the Ta-cli'ing oilfield to the Fu-shun refinery (see Figure 2). The
Ta-ch'ing to Fu-shun pipeline was completed in early 1972. The second major
pipeline in the northeast was begun in August 1972 and was laid from T'ieh-ling,
a large pumping station on the Ta-ch'ing to Fu-shun line, to new port facilities
at Chin-huang-tao. This line was apparently developed to relieve the severe port
congestion at Dairen. The line handles a large part of the oil shipments destined
for refineries at Shanghai and Nan-ching. A third line in the northeast, built in
1972, was an extension of the Ta-ch'ing - Fu-shun line to the refinery at An-span.
6. The only pipeline construction outside the northeast in this period was
a line built in 1972 in Hupeh Province to connect Chien-chiang oilfield to the
Ching-men refinery. Chien-chiang is the only producing oilfieid in southeast China.
The pipeline also connects Chien-chiang oilfield t.:) a river-to-barge transshipment
point on the Yangtse River, allowing crude to be shipped downstream to refineries
at Wu-han, Nan-thing, and Shanghai.
7. The world oil crisis in the fall of i 973 was a turning point for China's
petroleum industry. A threefold increase in the world price of oil provided the
incentive to market crude on a large scale. Pipeline construction accelerated sharply
after September 1973 in order to take advantage of expanded export opportunities.
The pace of construction in recent years is shown in the tabulation.
8. In September 1973 the Chinese began a pipeline running parallel to the
original Ta-ch'ing to T'ieh-ling line (see Figure 3)~
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Growth of the Pipeline Network in Northeast China
Figure 2
PIPELINE CONSTRUCTION
Built before 1973
-' --- Built during 1973
Built during 1974
Under construction
0 100 Miler
.1
ci 1 'ra-ku
lei-shan '
Fu-shun
T'ieh-lin
fAn-shan
Chin-hsi:/
Chin-huang.1an
0r/d y' ' ^
I ilSbenp li
Poking
Fang-shon~
Tientsin
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second
project was started in late 1973 to connect the
Sheng-li oilfield in Shantung to a deep water oil port
under construction at Huang-tao Island near the port
of Tsingtao.
9. The construction program peaked in 1974.
The northern part of the Ta-ch'ing - T'ieh-ling -
Ch'in-huang-tao system was finished by August, and
a pipeline linking Sheng-li oilfield to Huang-tao port
was completed in December. A pipeline designed
primarily to support crude exports - T'ieh-ling to a
new port near Dairen - was begun in mid-year.
During 1974, other pipelines totaling between 100
and 150 miles were completed as the Chinese fleshed
out the northeast network.
Tibet: A Special Case
10. While the Chinese have emphasized pipeline
construction in the northeast, they also have started
Total
Prior to
Miles
Installed'
1966 660
1966 0
1967 0
1968 0
1969 45
1970
1971
1972
1973
19742
19753
0
40
500
580
1,570
225
a major new line in the far west. In mid-1974 the Chinese began the 630-mile
Tibet to Tsinghai system running from Lhasa to Ko-erh-mu, the northern terminus
of the Tibetan logistical system. Completion of the pipeline will greatly ease Tibet's
extremely difficult transportation problem by assuring a reliable, ai!-weather supply
of fuel and petroleum products to this isolated region. Moreover, it will save a
considerable part of the fuel presently col:sumed by cargo trucks that are used
to transport petroleum products over the high Tibetan plateau and free additional
truck space for general cargo.
Sources of Pipe
H. The Chinese claim that much of the pipe for the northeast system came
from domestic pipe and tube mills. New pipe mills were built in six northeastern
cities expressly to supply pipe for the pipelines (see Figure 4). These mills
reportedly made 200,000 tons of pipe from 1970 to 1973, enough for about 700
miles of pipeline.
12. Substantial imports of pipe from Japan have been required to supplement
domestic sources. Japanese pipe manufacturers supplied a large share of the pipe
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Figure 4. Steel pipe made by the Kirin Tubing Mill.
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used in the big construction push of 1973 and 1974.
Between 1968 and 1974, Japan supplied nearly 270,000 Tons
tons of pipe, enough to construct more than 1,000 miles Total 328,000
of pipeline. About 60,000 tons of Japaneso pipe have been 1968 40,000
ordered for delivery during 1975. The taLulation shows 1969 53,000
Chinese imports of pipe from Japan since 1968. 1970 59,000
1971 20,000
1972 8,00:
Supporting Construction 1973 46,000
1974 42,000
13. Construction of ports and storage facilities is an 1975' 60,000
integral part of China's pipeline development program. In 1. On order.
January 1973, Premier Chou En-lai issued a specific order to expand nine existing.
major ports. Four of these ports that handle petroleum shipments received special
emphasis after the 1973 world oil crisis, and work began on two others, namely
Huang Tao and a new port near Dairen. Five of the six oil ports are located in
the northeast and one, Chan-chiang, is in southern China. Chan-chiang handles most
of China's petroleum imports for the Canton area (see Figure 2 and Figure 5).
Port improvement involves constructing new oil wharves and storage tanks ant!
dredging channels to increase the size of ships able to use the port.2
14. The largest port construction project is the preparation of a new port
near Dairen. This installation is located on the peninsula at the entrance to Dairen
Bay and when completed will have a storage capacity of more than 300,000 tons.
The Chinese are negotiating for a specially designed offshore mooring buoy with
underwater pipeline attachments for use in loading very large tankers (over 100,000
DWT). The port may eventually be able to handle tankers up to 200,090 DWT.
Chinese ports presently can handle tankers no larger than 70,000 DWT. The
tabulation below shows the additions in storage capacity since 1973 at China's
six major oil ports.
Dairen (new port)
Chin-huang-tao
Huang-tao
Chan-chiang
Dairen
Ta-ku
Estimated Estimated
Storage Capacity Total Storage
Added Since 1973 Capacity
(Tons) (Tons)
300,000
280,000
210,000
9,000
18,000
50 0V
300,000
280,000
210,000
90,000
65,000
50,000
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Figure 5. The oil terminal at Ch'in-huang-taw
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A Note on the Cost of the Program
15. On the basis of an analogy with US and Soviet pipeline costs, China's
program to expand its pipeline network since 1970 could run as high as $200
million by 1975. This figure excludes the costs involved in expanding ports and
major storage facilities. The foreign exchange cost of developing the pipeline
network and associated installations has been about $100 million. This figure is
about evenly divided between the costs of imported pip( and expenditures for
pipelayers, bulldozers, and other construction equipment used in the program.
Capacity to Meet Future Exports
17. Observers of China's oil scene generally agree that the Chinese will have
the capacity to produce enough crude oil to meet future export goals of up to
20 million tons in 1977 and 50 million tons by 1980. During the past two years,
however, inadequate transportation facilities have hampered China's efforts to raise
exports. The recent program to build new pipelines and expand port facilities should
eliminate these limitations and place the export targets within reach. Two pipelines
in the northeast - Ta-ch'ing to Ch'in-huang-tao and Sheng-li to Huang-tao - with
a total transport capacity of about 22 million tons are already in place. The
important Ta-ch'ing to Dairen pipeline is in a mid-stage of construction, and, when
completed later this year, will add 10 million tons of new capacity. Another line
apparently is planned to run parallel to the one currently under construction
between Ta-ch'ing and Dairen. This line will increase the total pipeline capacity
in the northeast to almost 50 million tons and, together with ongoing port
improvements, should give the Chinese the capacity to move into the front rank
by 1980 as a world exporter of petroleum.
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