China is banking on a big oil bonanza

Press, 20 January 1981, Page 16

China is banking on a big oil bonanza

By

BRIAN EADS in Hong Kong

China is preparing to invite Western companies into what promises to be the biggest oil bonanza since the opening up of Britain’s North Sea fields, a decade ago. :, Forty-six oil companies have permission from Peking to bid for exploration rights in three main areas off the Chinese coast, in the north; r-.stern Bohai Gulf and Yellow Sea. and' in the South China Sea between Vietnam and Taiwan. Bids will be invited in the next few months, after seismic data collected last year have been interpreted. According to Asia’s energy bible, “Petroleum News.” preliminary analysis indicates extensive reserves, notable in areas of the South China Sea between the Gulf of Tonkin and the Taiwan Straits. Estimates of recoverable reserves have varied widely in . the past, but experts are how more inclined to accept the. high C.I.A. figure of 40 billion barrels — roughly equivalent to total identified reserves tn the United States. China is in a hurry to develop offshore oil, and it is not hard to see why. Onshore production already puts it among the world’s top eight producers. It is the third largest exporter in the world of primary energy, of oil and coal. But there are signs that output at major fields like Daqing and Shenglie has peaked, and the over-use of water to force up oil in re-

cent years promises rapid decline. Onshore reserves still untapped are as rich as those offshore, but are found in remote, in mcessible areas, and are especially vulnerable to Soviet attack.

Only the successful ex- ; citation of offshore reserves will allow China to press on with domestic development plans, afford much needed modern technology, ' and continue to enjoy political leverage over oil-hungry neighbours. Severe embarrassment has been.caused by over-optimis-tic commitments in all three areas. Chinese factories have been burning raw crude oil, or forced into short-time o- closure by energy shortages. Scores uf contracts for plant and... equipment purchases from overseas have been rescheduled or cancelled. The Prime Minister, Mr Zhao Yiyang, admits that it is “absolutely impossible” for China to meet.its agreement to supply Japafi with 110 million barrels of oil by next year and 365 million barrels by 1985. Like a December, 1979, offer to sell one million tons of oil + o India, the deal with Tokyo, signed two years ago, aimed to wean them away from Soviet oil supplies and tempting joint ventures in Siberia. Japan relies for some 75 per cent of its oil supplies on the ; Middle East and is anxious’ to reduce its vulnerability. Much will be at risk if China is unable to help out. ■< . -1

A host of question marks still hangs over the successful development of offshore ■deposits. Not least, Peking’s relations with the major international oil companies. China has looked to the Norwegian state oil com.pany, Statoil, for advic- on now jo play tough. But the oij giants recognise that ■ China needs them more than (hey need China. .China’s proposed . petroleum law has still to be ‘finalised, and there is ’said to\ be a running battle between militants at the Ministry of Geology and Conciliators at the Ministry of Petroleum. The oil majors have made it known that arrangements whereby they carry the bulk .of exploration and development costs in return for the right to purchase oil output hold little appeal. All eyes at present are on Atlantic Richfield Oil, reliably reported to have signed an agreement in principle to exjplore the Yinggehai Basin, south-east of Hainan. An arrangement with' Peking will establish a precedent for all others;-, and should-also give some elites as to how, and indeed? whether, China will be able to generate the $25 billion; needed to develop offshore fields, support industry, refinery and transport infrastructure over the next decade. If the areas around Hainan and in the Tonkin Gulf prove the richest, and so far nine of 11 wells drilled have brought oil discoveries, the oil companies could be the spark to fire a major con-

frontation : with Vietnam and the Soviet Union. China claims the South China seabed from its own coast to Indonesia as “sacred territory,” acknowledged only 12mile limits for other littoral nations. Hanoi sees this as further evidence of “Han expansionism.” South of Hainan two clusters of coral islands, the Paracels, partially occupied

by Chinese troops, and the Spratleys, partially, occupied by Vietnamese troops, are a potential flashpoint. Though neither are included in areas so far surveyed, or to be put up for bidding, Hanoi considers activity in the Gulf of Tonkin as th,e thin edge of a wedge which will eventually be used to engage American support for Chinese claims to sovereignty. Reports from Vietnam recently suggested that the

three Western oil companies still engaged off the Vietnamese coast, Agip of Italy, Deminex of West Germany and Bow Valley of Canada, are disgruntled after 12 consecutive dry wells, and that Soviet teams are preparing to take up the mantle. Whether the South China Sea bubble goes pop dr bang should soon become clear. — Copyright. London Observer Service.