Sustainable Energy Supply · business in China has basically taken shape, as evidenced by the on-stream of Fushun Petrochemical's 10Mt/a refining and 1Mt/a ethylene units, Daqing

Sustainable Energy SupplyA sustainable energy supply is vital for global economic growth and human development. As oil and gas still dominate the global energy supply, it is our due responsibility and mission to meet energy challenges and satisfy ever increasing energy demand to safeguard national energy security and the stability of the global energy market. To this end, we have continued our efforts in exploration and development, boosting natural gas production, tapping new energies, promoting international cooperation, and accelerating the construction of transportation and storage infrastructure to build up our capability in securing sustainable energy supply.

Caring for Energy · Caring for You

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1. Strengthening Exploration and Development

Global oil and gas exploration activities are expanding to previously inaccessible areas such as the deep sea, deep-buried strata and polar areas, and unconventional resources such as shale gas, tight sandstone gas and oil sands, posing great challenges for development. CNPC is now facing difficulties in stabilizing its production, since a growing number of its main oilfields are becoming high water cut ones. In 2012, we invested RMB 208.4 billion in exploration and development, further consolidated our resource base through technological innovation, and constantly enhanced our supply capacity.

Consolidating Resource Base

In 2012, we continued the “Peak Growth in Oil and Gas Reserves” program to scale up pre-prospecting and risk exploration, with a focus on natural gas and unconventional resources such as t ight o i l . As a resul t , 11 major discoveries and 14 significant achievements were made in Tarim, Sichuan, Ordos and Junggar. Domestically, we newly proved 710 million tons of oil in place and 450.4 billion cubic meters of gas in place. Our proven oil and gas reserves maintained 1 billion tons of oil equivalent for six consecutive years, and the oil reserve replacement ratio remained above 100% for 13 consecut ive years , providing a strong basis for the growth of our oil and gas production.

Strengthening oil and gas exploration to consolidate resource base

Increasing Oil & Gas Production

I n 2 0 1 2 , w e c o n t i n u e d t h e O i l f i e l d Development Year campaign and special governance on water flooding. Our efforts were focused on 10 major pilot tests including the redevelopment of mature fields, fine water flooding and mass horizontal well drilling, to lay a solid foundation for stabilizing the output of mature fields. Production capacity building was also accelerated in Jiyuan of Ordos, Fengcheng of Xinjiang, Sulige of Changqing and Keshen of Tarim. Daqing Oilfield has maintained its output at more than 40 million tons for 10 consecutive years. Changqing Oilfield achieved record production of 45 million tons of oil equivalent, thanks to the efficient development of tight oil and gas supported by technological innovation. In 2012, our domestic crude and gas production increased to 110.33 million tons and 79.86 billion cubic meters, up 2.6% and 5.6% year-on-year respectively, accounting for 60% of China’s total. And it is notable that gas output took 36.6% of the Company’s total oil and gas production.

138.75 137.45 141.44149.27 151.88

2008 2009 2010 2011 2012

Crude production (mmt)

(Including overseas equity production)

(Including overseas equity production)

66.473.8

82.988.2

93.5

Natural gas production (bcm)

2008 2009 2010 2011 2012

2012 Corporate Social Responsibility Report

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Technology Helps Daqing to Maintain Annual Production at 40 Million Tons

Daqing Oilfield has entered its later stage of development, with the total water cut of its main pay zones exceeding 90% and the recovery rate of recoverable reserves higher than 80%. To address this, tertiary recovery technologies, especially polymer flooding and ASP flooding, were adopted and tested. Polymer flooding experimental zones were established and managed by category. Category-based reservoir evaluation methods and multi-slug alternating injection were used to enhance the displacement efficiency of polymer. The technical package for ASP flooding has been improved and is ready for commercial application. In 2012, tertiary recovery contributed 13.67 million tons to Daqing’s crude output, helping Daqing successfully maintain its annual production at 40 million tons for the 10th consecutive year.

Mass Horizontal Well Drilling

Technical experts carefully selecting new type of polymer

Horizontal well drilling in Fengcheng Oilfield in Xinjiang

Case Study

Case Study

In 2012, the Company drilled 1,351 horizontal wells in its domestic fields. As a result, some mature fields in Daqing, Changqing and Liaohe were rejuvenated and the potential of high-water-cut ones was tapped. Horizontal drilling technologies have been applied to the whole process of exploration, reservoir evaluation and production capacity building. In addition, horizontal drilling and volume

fracturing were introduced to ensure the efficient development of ultra-low permeability reservoirs and yielded satisfactory outcomes, with individual horizontal wells in seven demonstration areas achieving an average daily output of 7.7 tons. 7% of our domestic oil output was contributed by horizontal wells, which accounted for 2.2% of our total wells drilled throughout the year.


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2. Safeguarding Stable Oil & Gas Supply

We continued to restructure and optimize the layout of our refining business and took corresponding measures to stabil ize oi l supply in the domestic market and to meet emergency needs in special periods. In 2012, we provided 116.62 million tons of refined products in China, 1.4% up over the previous year, taking a 46.5% share of the domestic market. All of our refined products meet the National III standard, and in particular, those delivered to Beijing meet Jing V standard while those to Shanghai and Guangzhou meet the local IV standard.

Optimizing Supply Pattern

In 2012, CNPC’s strategic layout of its refining business in China has basically taken shape, as evidenced by the on-stream of Fushun Petrochemical's 10Mt/a refining and 1Mt/a ethylene units, Daqing Petrochemical's 1.2Mt/a ethylene unit, Hohhot Petrochemical’s expansion and upgrade project, and the completion of Sichuan Petrochemical and the launch of the Guangdong Petrochemical project. With eight 10Mt/a refinery bases and five major ethylene production centers, CNPC is more confident of further improving its market supply pattern. Throughout the year, we processed 147 million tons of crude and produced 96.38 million tons of oil products and 22.64 million tons of chemical products, up 1.6%, 3.6% and 8.6% year-on-year respectively.

Ensuring Supply in Special Periods

IIn special periods of 2012, including the spring planting and summer harvest seasons, as well as the occurrence of natural disasters such as earthquakes and floods, we mobilized and reallocated our resources to ensure ample oil supply for agricultural activities as well as for rescue and relief efforts.

Meeting agricultural needs . In 2012, we increased oil products deliveries to rural and remote areas to ensure ample supplies for agricultural activities such as planting and irrigation. We also took weather conditions into consideration and ensured plentiful supplies of

Guaranteeing Supply for Summer Agricultural Activities

Strengthening resource allocation and transportation to increase supply to key areas ;

Maintaining close communication with local governments and agricultural authorities to update demand information;

Informing refineries to make corresponding production plans;

Increasing supply allocation to major agricultural provinces such as Henan, Shandong, Jiangsu and Anhui;

Coordinating with railway operators to prioritize transport of oil products for summer agricultural activities.

2400Kt/a refining equipment in Fushun Petrochemical

low condensation point diesel for cold places. We continued our tradition of sending diesel to rural farms and provided special services to ensure oil products supply during the summer harvest season. These efforts contributed to grain output growth for nine consecutive years in China.

Suppor t ing rescue and re l ie f e f for ts . When natural disasters took place, such as earthquakes, floods, droughts and extreme weather, we activated emergency response program to ensure stable oil products supply for disaster rescue and relief efforts.


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Myanmar-China Oil and Gas Pipelines in construction

3. Accelerating Pipeline Network Construction

To realize effective connection between resources and markets, we have developed comprehensive plans to push ahead the construction of oil and gas pipeline networks, improve storage and transportation capacity, and enhance overall network control. A nationwide oil and gas supply system with diversified sources has been put in place and is operated in an efficient manner.

I n 2012 we ach ie ved ne w progress in construction of domestic pipeline networks. The trunk line of the Second West-East Gas Pipeline and its eight branches as well as the Hong Kong branch, and the northern section of the Zhongwei-Guiyang Pipeline were completed and put into operation. Construction of the Third West-East Gas Pipeline started. Several deliverability expansion projects, including the Tieling-Fushun Pipeline, were completed and became operational as scheduled. Besides, we sped up the construction of underground gas storages, with

those in Huabei, Dagang, Xinjiang, Liaohe, and Chongqing nearly completed. The construction of the second phase of the Jintan underground storage was also accelerated. All these facilities will ensure CNPC’s peak-shaving capacity is enhanced.

In 2012, the first phase of the Kazakhstan-China Crude Pipeline transported 10.38 million tons of crude from Kazakhstan. The Russia-China Crude Pipeline transported about 30 million tons of crude during the past two years. Construction of the Myanmar-China Oil and Gas Pipelines was launched. With Line A and Line B being operational and Line C under construction, the Central Asia-China Gas Pipeline delivered more than 44 billion cubic meters of natural gas from Turkmenistan by the end of 2012. Additionally, our J iangsu and Da l ian LNG ter mina ls maintained stable operation, providing gas to the West-East Gas Pipelines and the Liaoning pipeline network.

4. Scaling up Efforts to Develop Natural Gas

C h i n a’s a c c e l e r a t e d u r b a n i z a t i o n a n d industrialization has led to fast-growing demand for clean energy. As an efficient and clean fossil fuel, natural gas has become a realistic choice for China to optimize its energy mix and strengthen environmental protection for sustainable development.

CNPC attaches strategic importance to speeding up natural gas development and utilization. We continue to increase investment and accelerate production capacity building to boost production and market supply. In 2012, our domestic natural gas production reached 79.86 billion cubic meters, accounting for 74% of the nation’s total. We pushed ahead with the construction of trunk gas pipelines to improve market access to resources and a stable supply. We also advanced the construction of oil and gas import channels to build a multi-source and diversified supply system with enhanced gas supply capacity. In 2012, we supplied 97.3 billion cubic meters of natural gas domestically, an increase of 17.6% from the previous year, accounting for 70% in the domestic market. Secure and stable gas supply to urban residents, public utilities and key industrial users was ensured.

In some major cities such as Urumqi, Beijing, Tianjin, Shijiazhuang and Taiyuan, we facilitated the transformation of coal-fired boilers to gas-fired ones. By the end of 2012, 785 boilers in Urumqi had been remoulded to fire natural gas instead of coal, making Urumqi China’s first provincial-level capital to use only natural gas for heating purposes. And in Beijing, the largest coal-to-gas switch project was completed, which will reduce coal use by 100,000 tons, SO2 emissions by 827.3 tons, and nitrogen oxide emissions by 282.5 tons annually.

We also promoted LNG-fueled transportation to cut CO2 emissions. In 2012, CNPC signed strategic cooperation agreements with a number of provinces and cities to promote the use of th is c lean energy in publ ic traffics including Beijing, Chongqing, Tibet, Guangzhou and Hefei . We also signed a strategic cooperation agreement with China Changjiang National Shipping Group in a joint effort to promote the use of LNG in water transportation.


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Ensuring Gas Supplies in Extreme Cold Weather

14.03% and 51.57% respectively. We also coordinated with our oilfields in advance to reduce their gas consumption to support peak demand.

Safeguarding delivery safety

Deposits in the gas supply system were eliminated and newly built pipelines were cleaned up to prevent freezing and blocking. We intensified monitoring of key equipment such as pipeline compressor sets to ensure their smooth operation and prepared standby ones. Our repairing and maintenance crews are ready around the clock for unexpected failures in order to restore supplies to end users as soon as possible.

During the winter of 2012, we delivered a total of 50 billion cubic meters of gas, an increase of 13.1% year-on-year. In particular, the Shaanxi-Beijing Gas Pipelines supplied 7.03 billion cubic meters to Beijing, up 18% year-on-year. Through these measures, we managed to ensure safe and stable gas supplies to the domestic market during the winter heating season.

Maximizing resource potential

CNPC’s major gas provinces, i.e. Tarim, Changqing, Sichuan and Qinghai, were all producing at their full capacity, with the peak output reaching 10 million cubic meters per day. During the winter, we delivered a total of 14.73 billion cubic meters to downstream users. Meanwhile, we managed to increase gas imports through the Central Asia-China Gas Pipeline, which totaled 12.084 billion cubic meters, a year-on-year increase of 33.26%. Furthermore, we purchased 400 million cubic meters of LNG to deal with this emergency.

Enhancing peak-shaving capacity

We optimized the gas extraction plan for underground storage and drilled more gas extraction wells to meet gas demand during peak times. A total of 2.027 billion cubic meters of gas had been fetched from underground storage throughout the winter of 2012. Meanwhile, our LNG terminals boosted the daily regasifying capacity to 37 million cubic meters to increase gas supplies. Accordingly, we adjusted pipeline pressure and the amount of gas stored in the pipeline system based on input and output changes, with nearly 100 million cubic meters of pipeline stored gas being delivered for peak-shaving use.

Innovating resource deployment

With our nationwide pipeline networks, we joined forces with China Petrochemical Corporation (Sinopec) and China National Offshore Oil Corporation (CNOOC) to achieve flexible resource deployment throughout the country. We purchased 130 million cubic meters of LNG from CNOOC to feed pipelines in Zhejiang, and dispatched 4-5 million cubic meters of LNG per day to increase gas supply to North China. Besides, 1-2 million cubic meters of LNG were borrowed every day from the Shanghai pipeline network to bridge the supply gap during peak times.

Improving demand side management

We improved our gas supply plan to give priority to households, public utilities and specific areas. Throughout the winter heating season, we supplied 11.84 billion cubic meters of gas to North China, 10.63 billion cubic meters to East China, 6.99 billion cubic meters to Sichuan and Chongqing, and 4.82 billion cubic meters to Xinjiang, up by 6.1%, 5.04%,

Feature

In the winter of 2012, many provinces in China were hit by extreme cold weather and the temperature in certain areas dropped to a record level in 28 years. Meanwhile, some major cities began to increase the use of natural gas instead of coal for heating. Winter gas demand was pushed to a much higher level than previous years. Faced with this situation, we took comprehensive measures to

ensure stable gas supplies, such as boosting the production of major fields, increasing imports, strengthening demand side management and formulating a balanced plan as well as an emergency response program for gas production, transport and sales. As a result, stable gas supplies were guaranteed in key periods and to key cities.


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The West-East Gas Pipelines

With a total investment of RMB 290 billion, the first and second West-East Gas Pipelines, including all the trunks and branches and overseas sections, have a total mileage of over 15,000 km. The pipelines cover 28 provinces, municipalities and autonomous regions as well as the Hong Kong SAR, benefiting more than 500 million people.

Improving people’s livelihoods: As the two pipelines became operational, it was possible for the cities covered by the pipeline networks to increase the use of natural gas for power generation, chemical feedstock, and domestic use instead of coal and coal gas. This has helped improve air quality and people’s living conditions, and ease tension between urban economic growth and the environment.

Bringing environmental benefits: Operation of the two pipelines will help China raise the proportion of natural gas in its primary

Feature

energy mix to over 5%. By the end of 2012, the Second West-East Gas Pipeline had delivered a total of 43.1 billion cubic meters of natural gas, cutting the coal use equivalent to 57.32 million tons of standard coal and reducing carbon dioxide emissions by 66.49 million tons.

Boosting economic development: The two West-East Gas Pipelines have played an active role in connecting western resources with eastern markets and stimulating economic prosperity in western China. Every year, eastern China gets more than 40 billion cubic meters of natural gas from the pipelines, while western China enjoys the benefits brought by considerable income and tax revenues, thereby resulting in win-win and balanced development between the east and the west.

Source of the Second West-East Gas Pipeline Lunnan station of West-East Gas PipelineKola-2 plant of the First West-East Gas Pipeline

Milestones of the project

In July 2002, the First West-East Gas Pipeline Project was inaugurated at the Great Hall of the People. The pipeline runs through nine provinces, municipalities and autonomous regions from Lunnan in the Xinjiang Uygur Autonomous Region. It was the longest and most costly and complex gas pipeline with the greatest deliverability at the time.

In April 2004, the eastern section of the first pipeline w a s c o m p l e t e d a n d became operational.

I n O c t o b e r 2 0 0 4 , t h e western section of the first pipeline was completed and became operational.

I n June 2006 , the Fi r s t West-East Gas Pipel ine was named as one of the "National Environment-Friendly Projects” by the S t a t e E n v i r o n m e n t a l Protection Administration and ranked first on the list.


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Horgos

Dushanzi

Korla

TurpanShanshan

Jiuquan

First West-East Gas Pipeline

Second West-East Gas Pipeline

Zhongwei

Xi’anPingdingshan Nanjing

Changzhou

Shanghai

Nanchang

Wuhan

XiangtanChangsha

GuangzhouShenzhenHong Kong

Nanning

Xuedian

Tai’an

ShiyanZaoyang

Lunnan

Shihezi

Yumen

Jingbian

Sanmenxia

XiangfanHefei

WuhuWuxi

Jiaxing HanzhouJiujiang

ShangraoYingtan

Qingjiang

Ganzhou

Yangtze River Delta Shanghai Guangzhou

In December 2009, the western section of the second pipeline was completed and became operational.

I n M a y 2 0 1 2 , t h e cooperation framework agreement on the Third West-East Gas Pipeline was signed in Beijing. CNPC invited the National Council for Social Security Fund, China Urban Infrastructure Industry Investment Fund and Baosteel Group as the shareholders in the project to co-invest in pipeline construction.

I n O c t o b e r 2 0 1 2 , construction of the third pipel ine was launched. The pipeline, including one trunk, eight branches, three gas storages and one LNG terminal, runs through 10 provinces, municipalities and autonomous regions at a total length of 7,378 km, with a designed annual capacity of 30 billion cubic meters.

In February 2008, the Second West-East Gas Pipel ine project was inaugurated at the Great Hall of the People. The line, with an annual capacity of 30 billion cubic meters, travels through 14 provinces (municipalities and autonomous regions) at a total length of 9,102 km with eight branches. The total investment in this project was RMB 142.2 billion and it was China’s first pipeline for natural gas imports.

In December 2012, the trunk and all eight branches of the second pipeline were completed and became operational.

Roadmap of the West-East Gas Pipelines


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Boosting Global Market Supply

We continued to improve our global trading network and sped up the progress of the three oil & gas operation centers. The trading vo lume of our S ingapore -based As ian operation center was ranked by Platts as first in terms of fuel oil, third in terms of diesel, and fifth in terms of gasoline. We became the largest supplier of aviation oil in Hong Kong and Singapore, with a market share of 41% and 27.8% respectively. The European operation center completed the merger of the INEOS Group’s refining business, while the American operation center had successfully started the operation of WTI and achieved continued growth in its trade volume. The year 2012 also marked the first year that our oil & gas trade volume exceeded 300 million tons, with the trading value amounting to over USD 230 billion.

5. Developing Unconventional Energy

To achieve sustainable growth, we accelerated our pace in developing unconventional resources such as CBM, shale gas and tight oil, and also strengthened our efforts in technology R&D and pilot tests for biomass energy development.

CBM . We continued our effor ts in mass deve lopment o f CBM and we are now equipped with a package of applicable and cost-eff icient technologies for CBM exploration and development. Our two CBM production bases, in Qinshui and eastern Ordos respectively, operated smoothly, yielding 600 million cubic meters of CBM in 2012, up 42.3% year-on-year.

Shale gas. The building of our commercial demonstration zones was continued. At the Changning-Weiyuan Block in Sichuan, we drilled five wells in 2012, all obtaining commercial gas flows, with a total of 17.25 million cubic meters sold to the market. In addition, we achieved breakthroughs in integral evaluation techniques and volume fracturing techniques for shale gas reservoirs. And factory testing of shale gas development was launched. At the Fushun-Yongchuan Block, with Shell as our partner, five appraisal wells were drilled, including two vertical ones and three horizontal ones, each obtaining commercial gas flows.

Tight oil and gas. We have made significant progress in t ight o i l and gas reser voi r stimulation, and developed a technical package of horizontal well fracturing plus volume fracturing. Well Ji 172-H, the first horizontal tight oil well in Karamay, was successfully fractured and recorded the largest amount of sand injected into a single well in China.

6. Deepening International Energy Cooperation

The concept of mutually beneficial and c o m m o n d e ve l o p m e n t i s o u r g u i d i n g principle in building energy partnerships with international oil companies, service companies and host countries. In2012,CNPC operated over 80 oil and gas projects in 32 countries and provided oilfield services and engineering construction services in more than 60 countries worldwide. Our global presence has made due

contributions to meeting the world’s growing energy demand.

Participating in International Energy Development

We a p p l i e d i n n o v a t i v e a n d p r a c t i c a l technologies to boost oil and gas production in host countries. In 2012, we achieved new exploration breakthroughs in Chad and Niger. In Iraq, following the operation of the Al-Ahdab project and the accomplishment of the target ahead of schedule of raising initial production by 10% at the Rumaila project, the first-phase project of the Halfaya Oilfield became operational and started to export crude. The crude output of the Rumaila project surpassed its target, contributing greatly to the stable growth of our overseas production. In 2012, we produced 104.28 million tons of oil equivalent overseas, of which CNPC’s share was 52.43 million tons.


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efficient exploitation of unconventional oil and gas resources. And the 15,000-channel G3i seismograph was successfully developed and applied in field prospecting.

Pipeline Transportation. Smooth progress in pipeline construction projects was ensured, thanks to the availability of our domestically m a n u f a c t u r e d 2 0 M W e l e c t r i c - d r i v e n compressor unit, high-pressure large diameter all-welded ball valve, and the mass production capability of the X80 LSAW pipe.

Promoting Domestic Cooperation with Foreign Companies

In China, our cooperation with international companies had been deepened in conventional f ie lds and saw substant ia l progress in unconventional oil and gas development. In 2012, the Zhaodong project with ROC achieved one-mill ion-tons oil production for nine consecutive years, with the cumulative output exceeding 10 million tons. New progress was made in the South Sulige project with Total. The Changbei project in partnership with Shell produced 13 million cubic meters of natural gas every day during the winter, playing a positive role in peak shaving. Breakthroughs were made in shale gas development at the Fushun-Yongchuan block and new progress was achieved in exploration activities at the Jinqiu block in Sichuan. Additionally, the tight oil project in Karamay and the risk exploration p ro j e c t i n Ta r i m we re we l l u n d e r w ay. Throughout the year, our joint blocks in China yielded 7.47 million tons of oil equivalent.

7. Deepening Scientific and Technological Innovation

We continue to intensi fy our ef for ts in technological research and innovation and have obtained significant achievements in new technology development and application.

Awakening the Halfaya Oilfield

Halfaya Oilfield, located in the south of Missan, Iraq, had been dormant for over three decades due to the great difficulties in development caused by deeply buried and multi-layered reservoirs.

In December 2009, CNPC won the Halfaya Oilfield service contract together with Total and Petronas. We gave full play to our integrated operations and made concerted efforts with our partners to boost the oilfield’s daily output to 70,000 barrels in June 2012, hitting the initial target 15 months ahead of schedule. This project has been highly recognized by the Iraqi government for its rapid and excellent implementation and its contribution to enhancing oil productivity and facilitating the economic recovery of post-war Iraq.Processing plant at Halfaya Oilfield

Researches carried out in Liaohe Oilfield

Case Study

These have strongly supported our reserve and production growth, and meanwhile greatly facilitated our pursuit of a harmonious relationship between energy development and environmental protection.

Explorat ion & Produc t ion . We fur ther deepened our theoretical understanding of the exploration and development of lithostratigraphic reservoirs, marine-facies carbonate and tight oil and gas. Great strides were made in the R&D of technologies for releasing the potential of mature fields and developing low-permeability fields. And China’s first demonstration zone for CO2 flooding and underground storage was established in the Jilin Oilfield.

Refining & Chemicals. CNPC developed inferior heavy oil processing technologies which were applied for industrial use in Venezuela. Considerable progress was made in the R&D of refining catalysts and technical packages for large-scale ethylene units and fertilizer plants. These have helped us to improve the quality of refined products and increase the supply of premium products to the market.

Oilfield Services. The application of 3D seismic technologies resulted in remarkable increase in our reserves. Multi-staged horizontal well fracturing by using coiled tubing ensured the

Documents

Sustainable Energy Supply · business in China has basically taken shape, as evidenced by the on-stream of Fushun Petrochemical's 10Mt/a refining and 1Mt/a ethylene units, Daqing