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Technology, Cooperation & Innovation: Making Energy Available to All

Keynote address for Plenary Session at 20th World Petroleum Congress
Zhou Jiping, President of CNPC and PetroChina
December 8, 2011 Doha

Honorable Mr. Chairman, ladies and gentlemen, good afternoon!

It's my great pleasure to join all of you here at the World Petroleum Congress. During the past three days, our distinguished participants have elaborated their insightful perspectives on the theme of the Congress, and we indeed have got lots of benefits from what we heard. Now, I feel much pleased to share with you my thoughts on the topic "The Role of Technological and Cooperative Innovations in Enhancing Energy Supply and Meeting Growing Needs".

I. Technological innovation is the vitality of petroleum industry

As we look at the history of our petroleum and petrochemical industry, every major breakthrough, theoretical or technological, has actually brought about a series of profound changes to the production and even to a country's energy structure, and consequently left a significant impact on the world history.

In China, the breakthrough and application of terrestrial oil forming theories led to the historical discovery of Daqing Oilfield in 1960s, making China become one of major oil producing countries. By implementing the technology-driven EOR projects, Daqing oilfield has created the miracle of steady production throughout the past two decades, making prominent contributions to guaranteeing China's petroleum supply security.

In the United States, the major breakthroughs in horizontal drilling and multi-staged fracturing technologies have generated a sizable increase in the country's unconventional natural gas output. As a result, the US gas price has been staying lower than other regions of the world, and it has become less susceptible to the volatility in the international gas market. This revolutionary change has considerably transformed the US energy consumption mix, and will also have a far-reaching impact on the world gas market.

The wide application of 3D seismic data processing technique together with the constant progress in deep and ultra-deep offshore E&D technologies, equipments and environmental protection solutions have all contributed to a substantial increase in the world's hydrocarbon reserves and production. Nowadays, deepwater and polar regions abundant with oil and gas resources are becoming important and promising alternative areas for our prospective exploration and development.

The development and utilization of large-scale and integrated refining and petrochemical facilities, the low-quality heavy crude processing techniques and high-performance catalysts all have helped to dramatically reduce the investment and processing costs, facilitate both industry-wide and product-specific upgrading efforts and further expand the value chain of the downstream sector.

These above illustrations clearly demonstrates that technological innovations do play an essential role in achieving the great-leap-forward industrial development and facilitating productivity acceleration of our industry.

II. Technological innovation is a strategic priority of oil companies

Looking to the future, we envision four trends of our industry as follows:

Firstly, despite the shift to a more diversified and low-carbon energy structure within the next two decades, oil and gas will still remain to be the main energy sources and our industry is expected to maintain its growth momentum.

Secondly, although the world is rich in hydrocarbon resources, our overall E&D conditions are getting much more challenging and the quality of reserves is gradually deteriorating. As a matter of fact, such areas and resources as deepwater, Polar Regions, tar sands and oil shale are becoming an increasingly important replacement of strategic resources and the main focus of our technological innovation.

Thirdly, due to the global climate change, a carbon-emission constrained era is around the corner and a green energy revolution is under way. Going green and achieving the harmony between energy and environment is sure to be a natural choice for petroleum technology development.

Fourthly, the global natural gas industry will keep thriving and serve as a bridge to the green future in this green energy revolution. Breakthrough techniques for exploring and developing unconventional gas is going to shape the world's gas demand-supply pattern and redefine the rules of the game.

In the face of these trends, today's petroleum and petrochemical technologies are getting increasingly integrated, IT-supported, smart, visible, real-time and green. Oil companies and service providers all put technological innovation high on their agenda, retain their competitiveness through technological debottlenecking, develop sophisticated solutions to take control of the economic and technological commanding heights of the industry.

III. Innovative cooperation is required for addressing common challenges

Oil companies have developed their respective R&D strategies. Nevertheless, one player alone cannot win a game in today's world. Cooperation among NOCs, IOCs and services providers is of great necessity for all of us.

Timely and adequate investment, as one of the major challenges faced by our industry, is crucial for guaranteeing global energy security. According to IEA's forecast, the cumulative energy investment needed from 2010 to 2035 amounts to 33 trillion US Dollars, that is, 1.3 trillion US Dollars per year. On the other hand, climate change challenges, frequent occurrence of industrial accidents, revisions of policies and regulations have all been driving costs up and triggering even stricter supervisions. In addition, to make investment decisions in a volatile market is also getting much more difficult than before. Meanwhile, there have been a lot of social and political instabilities in today's world, including the worsening sovereign debt crisis, soaring inflation, rising unemployment, turmoil in Middle East and North Africa, post-earthquake/tsunami nuclear crisis etc., all of which have exerted a profound impact on the energy market.

The world is ever-changing and interdependence among various countries and regions keeps growing, which means energy companies must be able to make swift and decisive decisions. As energy suppliers, our long-term mission and fundamental responsibility shall never give way to any short-term fluctuations.

Due to the varied needs of oil companies, the strong complementarities of various components of petroleum value chain, and the common challenges ahead of us, NOCs and IOCs are now facing a significant and new opportunity of further enhancing our cooperation. I believe that both NOCs and IOCs are to play critical roles in meeting the world's growing energy needs.

Clearly, oil companies are no long just profit makers. Instead, we need to take on more responsibilities in the process of achieving sustainable economic development. To build a new model of partnership is a very important business strategy. Only through multi-faceted cooperation can we obtain more access to resources and markets, share risks and maximize returns for shareholders and host countries.

The kind of partnership offering access to market, technology, capital and resources is much more likely to achieve the target of win-win. Mutual respect and trust is the corner stone of cooperation. Moreover, the cooperation between NOCs and IOCs can also be expanded to be human resource development, environmental protection and R&D efforts.

IV. CNPC, a faithful practitioner of international cooperation, is committed to making our contributions to technological cooperation and cooperation model innovation.

Chinese economy is undergoing stable and relatively rapid growth, which leads to an ever-increasing demand for oil and gas. Estimates show that China's oil and gas consumptions will reach 530 million tons and 260 BCM respectively in 2015. Obviously, to meet our domestic needs turns out to be a big challenge for CNPC, but this also presents a great opportunity of cooperation for oil companies across the world.

CNPC's long-term vision is to build a green, internationalized and sustainable integrated energy corporation, which is closely linked with NOC-IOC partnership. With our overseas oil and gas operations presenting in 33 countries, CNPC in a sense is already an "international" energy company, which requires our cooperation with various NOCs and IOCs. As China's largest natural gas producer and supplier, we have been actively participating in international cooperation. Domestically, CNPC has teamed up with IOCs like Shell and ExxonMobil in tapping unconventional gas resources. Internationally, we have helped to diversify the natural gas export routes and boost the social and economic development of gas exporting countries through our upstream participation and natural gas importation.

In the global market, CNPC as an IOC has been following international common practices and responding to the expectations of JV shareholders and the demands from the governments of host countries. We hold that the more globalized a company gets, the more "localized" its business model should be. In the future, CNPC's overseas business development is due to become increasingly "localized". To be specific, we are going to employ more local staff members, pay more attention to the local communities' needs for better education, healthcare and environmental protection and promote local infrastructure construction through our locally incorporated subsidiaries.

With respect to technological innovation, CNPC has been persistently building an innovation system and focusing on removing the technological bottlenecks which restrain our operation and production. Actually, we have obtained satisfying results in technological innovation over the past five years. CNPC's Contribution Rate of Science and Technology Advance now reaches 52.3 percent, and this provides a strong support for the healthy and rapid development of the company's core businesses.

Looking to the future, CNPC is due to constantly perfect our technological innovation system and improve our capability of independent innovation. We have decided to commit 1.2 percent of our sales revenues to R&D investment. We will particularly give emphasis to encouraging various forms of exchanges and cooperation with domestic and international scientific and technological circles, proactively promoting high-level strategic alliance and technological cooperation with foreign oil companies to facilitate the applications of advanced technologies on a mutually beneficial and win-win basis. We will also further expand the platform for international technological exchanges and encourage our professionals, experts and top scientists to take an even more active part in international academic and professional organizations, conferences and the projects on technological cooperation, so as to keep up to date on the latest technology development trends and cutting-edge technologies.

To summarize, I myself firmly believe that, through the concerted efforts of NOCs, IOCs and service companies, constant technological innovations will definitely bring us much more reserves and production, higher energy utilization efficiency and, in the end, make energy available to all.

Thank you.

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