Oil and gas exploration and development are entering a period of favorable policy synergies.

At a recent press conference held by the State Council Information Office, the Ministry of Natural Resources stated that during the 15th Five-Year Plan period, it will launch a large-scale mineral exploration campaign, focusing on critical minerals such as oil, iron, copper, and aluminum. Oil has been designated as the top priority among these target resources, while work will also steadily advance the development of approximately 300 energy and resource bases.

In 2025, China’s domestic oil and gas supply will reach a new milestone of 420 million tonnes of oil equivalent, with crude oil production hitting a record high of 216 million tonnes and natural gas output increasing by more than 10 billion cubic metres for the ninth consecutive year. According to the targets set forth in the “15th Five-Year Plan” for Oil and Gas Development, domestic oil and gas supply is expected to reach 440 million tonnes of oil equivalent by 2030, requiring an additional leap forward within the next five years.

At present, mature oilfields have generally entered a stage of extremely high water cut, requiring annual efforts to offset roughly 20 million tons of natural production decline in order to maintain net growth, while new resource exploration is increasingly shifting toward deep‑layer, deepwater, and unconventional plays. Against this backdrop, a coordinated policy package—comprising import tax incentives, large‑scale mineral‑prospecting campaigns, and the targets set in the 15th Five‑Year Plan—has been put in place, linking tax measures, exploration strategies, and production‑capacity goals. This has significantly accelerated the development pace of hard‑to‑extract resources such as deep‑layer, deepwater, and unconventional reserves.

Tax incentives extend through the 15th Five-Year Plan period.

The pressure of development costs is most directly felt in the deep-sea sector.

Deepwater drilling equipment has long relied on imports, with high procurement costs driving up the breakeven point for deep-sea projects. Reducing equipment import costs is the first step toward making these resources commercially viable. To address this issue, the Ministry of Finance, the General Administration of Customs, and the State Taxation Administration have jointly issued a policy. The policy stipulates that, for self-operated oil and gas exploration and development projects conducted in China’s internal waters, territorial sea, continental shelf, and other maritime areas under its jurisdiction, as well as for offshore oil and gas pipeline emergency‑response projects, import duties will be waived on equipment, instruments, spare parts, and specialized tools that cannot be produced domestically or whose performance fails to meet domestic requirements. Furthermore, the tax exemption for Sino‑foreign cooperative projects has been extended to cover value‑added tax at the import stage.

Guo Haitao, Director of the Institute of Energy Economics and Finance at China University of Petroleum (Beijing), elucidates the underlying logic of the mechanism design, noting that the new policy “significantly broadens the scope of eligible entities: in addition to traditional state‑owned energy enterprises, local energy groups and large private firms are now also covered by the tax rebate.” The VAT rebate mechanism for natural gas imports has shifted from a “full‑coverage” approach to a “proportional‑guidance” model. For long‑term contract gas, a fixed 70% rebate is maintained to ensure the stability of baseload supply, while spot‑market gas receives a dynamic rebate equal to 80% of the price inversion rate. This dual‑track arrangement effectively mitigates price‑volatility risks while sending clear market signals to businesses regarding operational priorities.

Furthermore, self‑operated projects are eligible only for tariff exemptions, with a reasonable level of preferential treatment. This not only helps reduce the costs of deepwater exploration and development but also provides domestic equipment manufacturers with the necessary room for growth and a favorable time window. The policy is valid through 2030, aligning precisely with the Fifth Five-Year Plan period. With the elimination of import tariffs on core equipment for marine exploration and development, the projects’ internal rate of return is correspondingly enhanced.

The resource base continues to be strengthened.

It is essential not only to ensure that resources are “affordable to extract” but also that there are “resources available to extract.” According to data released by the Ministry of Natural Resources, from January to August this year, China’s newly discovered recoverable oil reserves totaled nearly 70 million tonnes, while newly discovered recoverable natural gas reserves reached 610 billion cubic meters. Meanwhile, the total value of mineral exploration rights sold nationwide increased by 133.5% year on year.

The growth in reserves is reshaping the resource landscape. The Tarim, Sichuan, and Ordos basins have emerged as the primary frontiers for this round of deep‑layer exploration. Onshore, deep‑layer oil and gas resources account for 34% of China’s total, yet the proved recovery rates stand at only 11%–15% for deep‑layer oil and 20%–28% for deep‑layer natural gas, leaving substantial resources untapped. The Southwest Oil and Gas Branch of Sinopec has reported proven geological reserves of 235.687 billion cubic meters in the Dongfeng shale gas field near Ziyang, pushing shale gas exploration into a new ultra‑deep realm exceeding 4,500 meters in depth. Meanwhile, the Ordos Basin has identified five large, trillion‑cubic‑meter‑scale deep‑layer coalbed methane fields, with proven geological reserves surpassing 500 billion cubic meters.

Reserves are growing, but turning these resources buried thousands of meters underground into actual production is no easy task. Guo Xusheng, an academician of the Chinese Academy of Engineering, points out that ultra-deep reservoirs face challenges such as unclear accumulation mechanisms, limited seismic imaging accuracy, and significant drilling‑completion difficulties. There is an urgent need to deepen our understanding of the “basin formation–hydrocarbon generation–reservoir development–accumulation” processes and to advance high‑precision imaging for ultra‑deep formations, as well as the upgrading of technologies and equipment for drilling and completion under ultra‑high temperature and pressure conditions. During the 15th Five-Year Plan period, key technological priorities include three-dimensional development of continental shale oil, economically viable exploitation of ultra‑deep shale gas, and efficient development of deep coalbed methane.

Guo Xusheng forecasts that during the 15th Five-Year Plan period, the annual average additions to proven oil and natural gas reserves will remain stable at over 1 billion tonnes and 1 trillion cubic meters, respectively, and that by 2030 China’s natural gas production will rise to approximately 280 billion cubic meters.

Equipment Technical Support Objectives

Reserve discovery occurs upstream, while technological breakthroughs take place in the midstream. Advances in equipment capabilities are being pursued simultaneously across multiple fronts. CNOOC’s independently developed, China’s first 1,500-meter‑water‑depth drilling riser system has been put into operation in the eastern South China Sea, achieving full domestic production across the entire value chain and marking a new stage of independent, controllable mastery over core deepwater drilling equipment. Earlier, Xu Jilin, Deputy Director-General of the Department of Energy Conservation and Science & Technology Equipment at the National Energy Administration, stated that efforts will focus on developing key technologies and equipment, including a 15,000‑meter‑deep intelligent drilling rig and a 1,500‑meter‑class all‑electric subsea control system, while also promoting the deep integration of artificial intelligence with oil and gas exploration and development.

Equipment localization will reduce costs and shift the development paradigm toward green, low‑carbon, and smart practices, thereby unlocking the value of marginal, low‑permeability, and heavy‑oil assets.

The effects of domestic equipment localization are being passed downstream. In the first quarter, crude oil production by industrial enterprises above designated size nationwide reached 54.8 million tons, up 1.3% year on year; natural gas production totaled 68.1 billion cubic meters, an increase of 3.0% year on year.

Import tax incentives have lowered the barriers to acquiring deep-sea equipment, the large-scale mineral exploration campaign has prioritized oil as its primary focus, and the Outline of the 15th Five-Year Plan explicitly designates strategic reserve bases in specific regions such as Ordos, Bohai Bay, Sichuan–Chongqing, and Tarim. In the inaugural year of the 15th Five-Year Plan, oil and gas development has already established a coordinated framework of cost‑reduction measures, exploration strategies, and production‑capacity targets. Going forward, policy benefits will continue to translate into the pace and efficiency of actual output growth, thereby underpinning the achievement of production goals.

Source: China Energy News