Xinjiang is steeped in oil. If you drive five hours northwest from Urumqi, the region’s capital, you come to Black Oil Mountain, a popular tourist attraction. More a big hill than a mountain, the 40-foot-high sandstone mound is blackened by petroleum, which springs up to the surface naturally, forming thick, glassy pools.
Black Oil Mountain is an unusual geological feature of the Dzungarian basin, a vast and arid expanse in China’s remote western corner, rimmed by snow-peaked mountains to the north and the south. It sits just outside Karamay, an oil boomtown whose name in the local Uighur language simply means “black oil.” Thanks to this weeping hill, Karamay’s main oilfield was discovered in 1955, though it did not go into large-scale production until 1995. Since then, the city has ballooned into a sprawling metropolis and one of China’s most prosperous urban centers if measured by average wealth.
Karamay’s success has repeated itself across Xinjiang. As China rushes to develop the region’s rich energy potential, oil exploration and production has reached fever pitch. Xinjiang is home to about a quarter of China’s onshore reserves, and nearly 30 percent of its natural gas. China National Petroleum Corporation (CNPC), the largest state-owned oil producer, controls the lion’s share. Its operations account for nearly one-sixth of the region’s GDP.
After joining the World Trade Organization in 2001, China’s demand for energy grew by leaps and bounds, contributing to a rise in global prices. In 2009 China overtook the U.S. as the world’s largest energy consumer; a year later it became the world’s largest market for automobiles. It seemed certain that China’s oil consumption would quickly follow suit and outstrip U.S. consumption. But that was not to be. After the global financial crisis, China’s economy faltered, and so too did its demand for crude oil.
Other factors also played a part in softening demand. Foremost among them was intense air pollution, which ushered in new environmental protection policies. The country is now in the process of shifting to cleaner, more sustainable energy sources, such as natural gas and nuclear power.
None of this, however, has dampened interest in Xinjiang’s oil. China’s northeastern wells, in places like Daqing, are steadily depleting. Meanwhile, some people think total barrels of oil equivalent (BOE) throughout Xinjiang could reach 100 million tons by 2025 and account for up to one-third of the country’s overall BOE. That is welcome news for Beijing, which wants to limit China’s high dependence on foreign oil. So far, its efforts in this direction have paid dividends: imports of foreign oil in 2014 fell to 22 percent, while net exports rose to 30 percent.
This dramatic turn was made possible by heavy investment in domestic energy production, particularly in Xinjiang. CNPC has spent more than 300 billion yuan over the past three decades on expanding exploration and production capacity in the region. Investment has been stepped up since 2010 with the aim of transforming Xinjiang into the country’s largest energy production and reserve base.
Achieving this goal will be a challenge. China first has to find ways to tackle tight oil and shale gas, which require sophisticated extraction technologies. To gain access to these technologies, China has turned to several American companies. Earlier this year, for example, Petrotech (Xinjiang) Engineering Co., Ltd. and American energy-services giant Halliburton formed a joint venture called Xinjiang HTDT. Petrotech will contribute its extensive regional knowledge, and Halliburton its industry-leading oil recovery and hydraulic fracturing services.
With new development now underway, Beijing hopes the region’s Uighurs will benefit more than they have in the past. Uighurs, a predominantly Muslim Turkic-speaking people who migrated from the Mongolian steppe centuries ago, make up the largest ethnic group in the region. They have become increasingly discontented, saying they have not been compensated for resource exploitation in their ancestral homeland. Bloody riots across Xinjiang and a spate of deadly terrorist attacks in other parts of China by radical Uighurs prompted Beijing to launch a heavy-handed security crackdown last year. Uighurs blame it for robbing them of religious freedoms and say it amounts to ethnic repression.
Last April, President Xi Jinping said stability in the region is critical “to the great revival of the Chinese nation.” Accordingly, Beijing is making strident efforts to settle tensions between Uighurs and Han Chinese, and to improve livelihoods and living conditions in Xinjiang. In the central government’s latest move last November, it unveiled plans to sell oil and gas stakes to private investors. CNPC has already begun soliciting interest. The resulting joint ventures will pay their taxes directly to the local Xinjiang government rather than to the central government, which Beijing believes will help to stimulate the local economy.
Other countries also have their eyes on Xinjiang. In October 2013, Russia and India announced plans to construct a $30 billion oil pipeline passing through the region. If completed, it would be the most expensive pipeline built in the area to date. The project has received support from both China’s central government, eager to transform Xinjiang into a major oil transit point, and Russia, which seeks to broaden its energy markets in response to tensions with the U.S. and Europe.
If all these enterprises succeed—as Xi Jinping expects—in creating better livelihoods and living conditions in Xinjiang, they could, as Beijing officials like to say, be a “win-win” arrangement, possibly bringing an end to Uighur discontent and the misery it has led to. In that fortunate event, Xinjiang’s Black Oil Mountain may not be weeping in vain.
Lucrezia Seu is the Asia-Pacific Producer for RAI Italia, Italy’s national public broadcasting company, based in Beijing. She previously worked for CNN’s Beijing bureau and is a graduate of Tsinghua University, China, and the University of Westminster, England. Paul Nash is Senior Editor at Diplomatic Courier.
This article was originally published in the Diplomatic Courier's January/February 2015 print edition.
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The Land That Weeps Oil
January 22, 2015
Xinjiang is steeped in oil. If you drive five hours northwest from Urumqi, the region’s capital, you come to Black Oil Mountain, a popular tourist attraction. More a big hill than a mountain, the 40-foot-high sandstone mound is blackened by petroleum, which springs up to the surface naturally, forming thick, glassy pools.
Black Oil Mountain is an unusual geological feature of the Dzungarian basin, a vast and arid expanse in China’s remote western corner, rimmed by snow-peaked mountains to the north and the south. It sits just outside Karamay, an oil boomtown whose name in the local Uighur language simply means “black oil.” Thanks to this weeping hill, Karamay’s main oilfield was discovered in 1955, though it did not go into large-scale production until 1995. Since then, the city has ballooned into a sprawling metropolis and one of China’s most prosperous urban centers if measured by average wealth.
Karamay’s success has repeated itself across Xinjiang. As China rushes to develop the region’s rich energy potential, oil exploration and production has reached fever pitch. Xinjiang is home to about a quarter of China’s onshore reserves, and nearly 30 percent of its natural gas. China National Petroleum Corporation (CNPC), the largest state-owned oil producer, controls the lion’s share. Its operations account for nearly one-sixth of the region’s GDP.
After joining the World Trade Organization in 2001, China’s demand for energy grew by leaps and bounds, contributing to a rise in global prices. In 2009 China overtook the U.S. as the world’s largest energy consumer; a year later it became the world’s largest market for automobiles. It seemed certain that China’s oil consumption would quickly follow suit and outstrip U.S. consumption. But that was not to be. After the global financial crisis, China’s economy faltered, and so too did its demand for crude oil.
Other factors also played a part in softening demand. Foremost among them was intense air pollution, which ushered in new environmental protection policies. The country is now in the process of shifting to cleaner, more sustainable energy sources, such as natural gas and nuclear power.
None of this, however, has dampened interest in Xinjiang’s oil. China’s northeastern wells, in places like Daqing, are steadily depleting. Meanwhile, some people think total barrels of oil equivalent (BOE) throughout Xinjiang could reach 100 million tons by 2025 and account for up to one-third of the country’s overall BOE. That is welcome news for Beijing, which wants to limit China’s high dependence on foreign oil. So far, its efforts in this direction have paid dividends: imports of foreign oil in 2014 fell to 22 percent, while net exports rose to 30 percent.
This dramatic turn was made possible by heavy investment in domestic energy production, particularly in Xinjiang. CNPC has spent more than 300 billion yuan over the past three decades on expanding exploration and production capacity in the region. Investment has been stepped up since 2010 with the aim of transforming Xinjiang into the country’s largest energy production and reserve base.
Achieving this goal will be a challenge. China first has to find ways to tackle tight oil and shale gas, which require sophisticated extraction technologies. To gain access to these technologies, China has turned to several American companies. Earlier this year, for example, Petrotech (Xinjiang) Engineering Co., Ltd. and American energy-services giant Halliburton formed a joint venture called Xinjiang HTDT. Petrotech will contribute its extensive regional knowledge, and Halliburton its industry-leading oil recovery and hydraulic fracturing services.
With new development now underway, Beijing hopes the region’s Uighurs will benefit more than they have in the past. Uighurs, a predominantly Muslim Turkic-speaking people who migrated from the Mongolian steppe centuries ago, make up the largest ethnic group in the region. They have become increasingly discontented, saying they have not been compensated for resource exploitation in their ancestral homeland. Bloody riots across Xinjiang and a spate of deadly terrorist attacks in other parts of China by radical Uighurs prompted Beijing to launch a heavy-handed security crackdown last year. Uighurs blame it for robbing them of religious freedoms and say it amounts to ethnic repression.
Last April, President Xi Jinping said stability in the region is critical “to the great revival of the Chinese nation.” Accordingly, Beijing is making strident efforts to settle tensions between Uighurs and Han Chinese, and to improve livelihoods and living conditions in Xinjiang. In the central government’s latest move last November, it unveiled plans to sell oil and gas stakes to private investors. CNPC has already begun soliciting interest. The resulting joint ventures will pay their taxes directly to the local Xinjiang government rather than to the central government, which Beijing believes will help to stimulate the local economy.
Other countries also have their eyes on Xinjiang. In October 2013, Russia and India announced plans to construct a $30 billion oil pipeline passing through the region. If completed, it would be the most expensive pipeline built in the area to date. The project has received support from both China’s central government, eager to transform Xinjiang into a major oil transit point, and Russia, which seeks to broaden its energy markets in response to tensions with the U.S. and Europe.
If all these enterprises succeed—as Xi Jinping expects—in creating better livelihoods and living conditions in Xinjiang, they could, as Beijing officials like to say, be a “win-win” arrangement, possibly bringing an end to Uighur discontent and the misery it has led to. In that fortunate event, Xinjiang’s Black Oil Mountain may not be weeping in vain.
Lucrezia Seu is the Asia-Pacific Producer for RAI Italia, Italy’s national public broadcasting company, based in Beijing. She previously worked for CNN’s Beijing bureau and is a graduate of Tsinghua University, China, and the University of Westminster, England. Paul Nash is Senior Editor at Diplomatic Courier.
This article was originally published in the Diplomatic Courier's January/February 2015 print edition.
