The Oil Industry

Petroleum is the second largest energy source in China, with a domestic output of over 2,353 million barrels (bbl) of refined petroleum products in 2001.⁵⁰ About 1993, China’s domestic oil production began to fall behind its growing oil consumption, and the country became a net importer of oil (see figure 5). Demand for petroleum is forecast to increase by 50 percent by 2020. Furthermore, dependence on foreign petroleum sources, more than 368 million bbl in 2000, will also increase, -probably doubling to more than 735 million bbl by 2020, which will form approximately 50 percent of China’s total petroleum consumption.⁵¹
Beijing is pursuing several avenues to reduce reliance on foreign petroleum supplies. These include maximizing sources on Chinese territory, both on- and offshore; securing foreign sources through acquisition both of production sources and facilities, as well as the product; creating a national strategic stockpile; and enhancing the physical security of stocks and sources on hand, all to be supervised by “a unified management body.”⁵²
China’s oil and natural gas industries are almost exclusively government-owned, with the exception of a limited number of joint ventures. The main focus is on oil development, although the current 5-Year Plan seeks to take greater advantage of natural gas resources. Most oil is produced onshore by CNPC. The central government maintains active control over China’s most productive fields, including the largest, at Daqing in the Songliao Basin and the Shengli and Liaohe fields in the Bohai Basin, all in northeastern China.
The China National Oil Development Corporation, a CNPC subsidiary, is the contracting agent for cooperation with foreign companies in the onshore oil industry. China’s program to acquire interests in petroleum exploration and production abroad is led by CNPC, which holds oil concessions in Kazakhstan, Kyrgyzstan, Venezuela, Sudan, Iraq, and Peru. The Greater Nile Petroleum Operating Company, the Sudanese oil project in which CNPC owns a stake, began exports in August 1999. The CNPC concession in Iraq cannot be developed until the United Nations (UN) economic sanctions are lifted, at least to the extent of allowing foreign investment in Iraqi oil infrastructure.
China is also establishing energy relationships “all across the Middle East, Southeast Asia, Russia, Central Asia, Africa,” and Latin America.⁵³ Beijing clearly is pointing the national search for energy to a massive global campaign, especially for petroleum. The ongoing reorganization of the energy sector is fostering a -degree of privatization that undoubtedly makes expanded exploration attractive to the very large companies now dependent on profits for continued commercial viability.
Interestingly, Taiwan is trying to partner with Chinese companies searching for new oil sources. CNOOC signed an agreement with -Taiwan’s China Petroleum Corporation in January 2002 to search for oil in the Taiwan Strait.⁵⁴ The joint venture has been held up, however, by Taiwan’s Mainland Affairs Council; should that body approve the proposal, moreover, Beijing may well decide not to approve a Chinese company (and one that is primarily a government entity, at that) helping Taiwan overcome its lack of domestic petroleum by drilling in the waters between the island and the mainland. The economically logical business agreement may still fall victim to politics, although a May 2002 report stated that CNOOC and Taiwan’s state-run China Petroleum Corporation had “signed a landmark agreement for joint exploration.”⁵⁵
CNOOC has traditionally sought foreign investment for offshore oil, which represents a relatively small share of China’s oil industry. The company reportedly has interests in 45 maritime oil and gas properties in the Bohai, South China, and East China Seas. More recently, CNOOC has drawn interest from several foreign companies to its proffered deepwater blocks; an American company, Husky Oil, is the first to sign an agreement to explore one of these 12 blocks, in an area 100 kilometers (km) southeast of Hainan Island.⁵⁶
As of late 1996, foreign commitments by Chinese energy companies totaled nearly $3 billion (almost 60 percent of total offshore exploration and development), including CNPC exploitation of oilfields in Russia, Pakistan, Kazakhstan, Indonesia, Myanmar, Egypt, Ecuador, Venezuela, Argentina, Iran, Iraq, Somalia, and Sudan, as well as power generation and refining projects in Bangladesh, Kuwait, Sudan, and Kenya.⁵⁷ In fact, CNPC president Ma Fucai has stated that the company hopes to emulate ExxonMobil, with “overseas production account[ing for] 60 to 70 percent” of profits.⁵⁸

These projects, with a contract value of $750 million, are augmented by proposed pipelines with or in Russia, Turkmenistan, and Thailand, and possibly Pakistan, Afghanistan, and Burma.⁵⁹ Other Chinese projects (some with foreign partnership) have been established in Canada, Colombia, Malaysia, Mexico, Mongolia, Papua New Guinea, and the United States. China’s first joint venture refinery, West Pacific Petrochemical Company (20 percent owned by Total SA of France), opened in late 1996.⁶⁰ Through 2000, China’s investment plans emphasized upgrading and expanding existing refineries, in some cases to handle imported crude oil from the Middle East, rather than constructing new facilities. This policy probably reflects both Beijing’s desire to increase the efficiency of its refinery infrastructure and the global surplus in refining capacity.
Sinopec produces most of China’s refined petroleum products, while Sinochem dominates oil and gas trade, with import and export quantities determined by state planners. However, Sinochem also has partnerships with CNPC and the China International United Petroleum and Chemical Corporation. Some CNOOC production-sharing agreements also allow direct exports from offshore fields. Future import routes under discussion focus on land-based facilities, including oil and natural gas pipelines from Russia and Central Asia.
Official encouragement of cooperation with foreign companies is reflected in recent regulations increasing the number of Chinese companies authorized to negotiate, contract, and implement “joint onshore oil exploration projects.”⁶¹ This objective was further underlined in December 2001, when the nation’s trade minister urged expanded use of foreign capital throughout the country’s economy.⁶²
The need for foreign capitalization and expertise reflects the weakness of China’s indigenous capabilities in the energy sector. The -sector’s shortcomings are also indicated by Shanghai’s search for foreign partners to build a “natural gas grid” in the city.⁶³ The city of Hangzhou, in Zhejiang Province, has also announced a plan to “turn itself into a clean ‘natural gas city.’”⁶⁴ One of Shanghai’s major projects is the conversion of city buses to gas fuel.⁶⁵
China draws the majority of its overseas oil from the Middle East and Southwest Asia; its efforts to secure new foreign sources of petroleum are global in scope but have focused on Central Asia and Russia. Oilfield investment and pipeline construction are two important areas for Chinese companies and include projects in Azerbaijan, Pakistan, Uzbekistan, Kazakhstan, Kyrgyzstan, and Russia.⁶⁶
The campaign to obtain energy resources from the former Soviet republics of Central Asia has occurred in the context of Beijing’s diplomatic efforts to secure and expand Chinese influence in this area, historically of vital national interest to China. The primary vehicle of this effort has been the Shanghai Cooperative Organization organized in 1996 as the Shanghai Five by Beijing and Moscow; the other original member states were Kazakhstan, Kyrgyzstan, and Tajikistan. The organization’s stated goals were to:

strengthen mutual trust and good-neighborly relationship[s], increase effective cooperation of the member states in political, trade and economic, scientific and technological, cultural and educational fields, ensure peace, security and stability in the region, and push forward the process of establishing a democratic, just, and rational international political and economic order.⁶⁷

Five primary transnational pipelines to China have been discussed, although their actual construction will presumably depend on sufficient supplies and consumer demand:

• 1,865-km gas pipeline from Western Siberia to Shanshan, in Xinjiang Province; this $3.62 billion line would be able to transport 30 billion cubic meters (bcm) of natural gas to China annually.
• 3,370-km pipeline from Kazakhstan’s Karachaganak gas and oilfield to Shanshan; this line would have a capacity of 25 bcm per year.
• 2,150-km pipeline from Turkmenistan to Shanshan, also with an annual capacity of 25 bcm, at a cost of approximately $4.7 billion.
• 2,416-km pipeline from Sakhalin to Shenyang, with an annual -capacity of 5 bcm.
• a line from Irkutsk, in Siberia, to northern China (this plan is the most tentative of the five).⁶⁸

In Kyrgyzstan, Beijing has approved a $300 million investment in a joint venture with the Kyrgyzneftegaz Company, to extract gas and oil from the country’s south.⁶⁹ The main Chinese effort in Central Asia, however, has been in Kazakhstan, bordering on China’s westernmost province, Xinjiang.⁷⁰ Kazakhstan, which may rank among the world’s top six petroleum and natural gas producers by 2010, and China have signed a series of agreements to produce and export petroleum.
The most significant deal thus far has been the CNPC acquisition of a 60-percent stake in the Kazakh oil firm Aktobemunaigaz, based on a pledge to invest $4.6 billion in the company’s development over the next 20 years.⁷¹ Beijing has an ambitious long-range plan to build a pipeline from Kazakh natural gasfields to a central terminus in Xinjiang Province, whence a pipeline network will deliver the gas to central and eastern China, reaching to Shanghai. One Kazakh source has set a goal of exporting 50 million tons of oil a year to China.⁷² To date, however, these contracts have led to very little pipeline construction; while Sino-Kazakh border disputes apparently have been resolved, weak economic indicators, political uncertainties, and severe corruption remain.
Beijing plans to meet this terminal with pipelines from Gansu, Szechuan, and Hebei provinces, thus distributing Central Asian energy supplies across much of China. Construction of the international portion of this pipeline was scheduled to begin in mid-2001, with the entire, 3,000-km-long network completed by 2008 at an estimated cost of $3.5 billion, but planning has halted, probably because of disagreements -between Beijing and Almaty.⁷³ China’s interest in Kazakh oil projects continues, however, with a focus on finding and exploiting new oil and gas deposits.⁷⁴
CNPC friction with Kazakh authorities exists about the level of investment in the firm’s projects, as well as other management issues. The senior CNPC representative for the Kazakh scheme, Zhang Chenwu, recently expressed reservations about the possibility of successfully completing the current pipeline project.⁷⁵ Political corruption on both sides of the Sino-Kazakh border is also a factor, as are governmental disputes within Kazakhstan, natural difficulties, and the slow development of Central Asian petroleum fields. These problems cast doubt on how soon China will be able to take advantage of this energy source in a major way.⁷⁶
“ Stabilize the East, Develop the West” is the current slogan in China’s petroleum industry, which is applying enhanced oil recovery techniques to older fields and investing in promising areas of the West—in particular the remote Tarim Basin in the harsh environment of the Taklamakan Desert. A less remote but smaller target for development is the Turpan-Hami, or Tuha, Basin. A new 300-mile pipeline serving both of these areas was completed in 1997.
The South China Sea is surrounded by seven other nations, most of whom claim part or all of the sea’s resources. The northern and western areas of the South China Sea are the scene of the most active offshore petroleum development; territorial disputes involving the Spratly Islands complicate offshore activities in the sea’s central and southern areas. Since it is China’s only contested area of known energy reserves, garnering those resources may rest directly on the ability of the People’s Liberation Army Navy (PLAN) to enforce national claims.
Oil prospecting in the South China Sea dates back at least to Japanese efforts in the 1930s. Total 1998 production was over 1.3 million bbl per day, from proven reserves of approximately 7.5 billion bbl. Almost all of this came from the uncontested northern or southern areas of the sea.⁷⁷ There are no proven reserves for the Spratly or Paracel Islands in the sea’s central area, and no commercially recoverable oil or gas has been discovered there, although efforts continue.⁷⁸ Geologists and analysts disagree on the presence (and recoverability) of petroleum reserves near these islands, with widely varying estimates.
The western sea area also promises to become a significant natural gas source, with 4 fields and 15 gas-bearing structures believed to exist.⁷⁹ These fields are expected to provide three bcm of gas by 2005, and six billion by 2010.⁸⁰
Estimates of the petroleum reserves in the South China Sea range from Beijing’s wildly optimistic 213 billion bbl (105 billion in the area of the Spratlys) to a U.S. estimate of 28 billion bbl (2.1 billion in the Spratlys).⁸¹ A similar range of estimates exists for natural gas reserves, about which the Chinese are also optimistic, offering an estimate of more than 2,000 trillion cubic feet (tcf), while the U.S. estimate is a more modest 266 tcf. China’s belief in these estimates is more important than their dubious accuracy, and Beijing’s high expectations strengthen its determination to protect its sovereignty claims in the Spratly Islands.⁸²
More than 368 million bbl of crude oil have been produced since the first well began pumping in 1990 and production expands annually as additional wells are installed, usually with participation by foreign companies. ⁸³ The history of the Lufeng 22–1 oilfield, located in the northern South China Sea, illustrates the difficulties of recovering petroleum reserves from the area: the petroleum in these fields is typically located in high porosity sandstone and is waxy in texture, which requires extraordinary drilling and recovery methods. Additionally, the wells are located in a prime area of tropical cyclones that historically have had an average duration of 26 hours, generating a wave height of up to 8 meters. Force 6 winds and extremely rough seas are also common to the area. Specialized tankers have been designed and built to transport this field’s product to the mainland—tankers that presumably would require protection from the PLAN in times of international crisis.⁸⁴
Beijing’s 1992 Law on the Territorial Sea and the Contiguous Zone brings it into direct contention with the other claimants to South China Sea resources: Vietnam, Malaysia, Indonesia, Brunei, and the Philippines; Taiwan makes the same claim as China. The 1992 law repeats Republic of China claims first made in the mid-1930s, including a U-shaped, dashed line encompassing almost all of the South China Sea, including ocean areas. This line implies that Beijing claims the entire sea as sovereign territory.
If upheld, this claim would have a major effect under the 1982 United National Convention on the Law of the Sea (UNCLOS), which most nations of the world—including China but not the United States—have signed. Not only would all the land formations that lie in the South China Sea—primarily the Paracel and Spratly Islands (Xisha and Nansha in Chinese) and the Macclesfield Bank—be Chinese territory, but most of the very important natural gas and petroleum fields lying in the southernmost part of the sea would belong to China instead of to Brunei and Indonesia, which currently mine them.
The South China Sea also bears the main, crucial sea lines of communication (SLOCs) between East Asia and the oil-rich countries of Southwest Asia and the Middle East. Beijing’s sovereignty over these SLOCs would be unacceptable to the United States, which insists on freedom of navigation through international waters. Many other nations would share American dissatisfaction with Chinese sovereignty over this sea, and a crisis situation would develop immediately, despite Beijing’s protestations that its claimed ownership of these waters would not in any way affect the SLOCs.⁸⁵
As a net crude oil importer, China’s petroleum industry is focused on meeting domestic demand, but it still exports significant amounts of crude. The largest export customer by far is Japan, which imports 120,000 to 160,000 bbl per day of Daqing crude oil for generating electricity. This supply was called into question in early 1999, when CNPC informed the Japanese that it would no longer be available for export after deciding to refine it for sale on the domestic market rather than sell it at low world market prices. After Japanese protests to the State Bureau of Petroleum and Chemical Industries, CNPC agreed to continue supplies. The incident underlined the tension inherent in having state-owned firms operating with substantial independence—they still have to take the government’s foreign policy concerns into account when making sales decisions.
An important development is China’s decision to set extremely low quotas for crude imports—almost an import ban—starting in the second half of 1998, due to a supply glut and excess domestic refining capacity. Cheap imported oil was flooding the more prosperous coastal areas of China, causing stockpile increases and production cuts by domestic producers. The government responded by acting to protect domestic production. Crude oil import restrictions have largely been lifted, but restrictions on petroleum product imports are expected to continue in the near future.
Related to the import quota reduction is a continuing crackdown on petroleum smuggling, which has resulted in numerous criminal convictions. China’s government also has begun a campaign to close down small-scale independent refineries, some of which had acted as conduits for smuggled oil. A Chinese government spokesman stated in February 2000 that all small refineries failing to meet the government’s product quality standards would be shut down by the end of March 2000.
Approximately 90 percent of China’s oil production capacity is located onshore. One complex alone, the Daqing fields in Heilongjiang Province, accounts for 1 million bbl per day of China’s production, out of a total crude production of 3.2 million bbl per day. Daqing is a mature field, however, and is expected to show a declining output in future years. Government priorities focus on stabilizing production in the eastern regions of the country at current levels, increasing production in new fields in the west, and developing the infrastructure required to deliver western oil and gas to consumers in the east.
China’s most recent oil finds have been offshore. Surveying and exploration have centered on the Bohai area, east of Tianjin, which government officials have announced may hold more than 9.7 billion tons of oil and gas.⁸⁶ Phillips Petroleum announced in March 2000 that it had completed its appraisal drilling of the Peng Lai Find in Block 11/05 and would proceed with development. Full-scale production at the field is expected to reach more than 100,000 bbl per day by 2004. The Chinese company, Ocean Petroleum, meanwhile announced a plan to drill up to 80 wells in 2002 in the Bohai. Foreign partners in this plan include Shell, ChevronTexaco, Petronas Carigali, and Ultra Petroleum. ⁸⁷
Another major offshore field has been developed recently in the Pearl River Mouth area by a consortium including Chevron, Texaco, Agip, and CNOOC. The field began production in February 1999 and is expected to reach production of 27,000 bbl per day when fully operational. Meanwhile, improvement in Sino-Vietnamese relations is expected to open the way for oil and gas exploration in the Beibu Gulf (the northwestern arm of the South China Sea), especially since the countries have reached a preliminary agreement on a line of demarcation.⁸⁸
China encourages foreign investment in exploration and infrastructure development.⁸⁹ CNSP is also pursuing several exploration ventures with foreign companies. By late 1996, almost 1 million square miles were open to foreign companies, including the southern provinces, the southeast sector of the Tarim Basin, and areas in northern and eastern China. Thirty petroleum contracts worth $770 million had been signed with 35 companies.
In July 2002, Premier Zhu Rongji announced that Beijing was opening the 2,500-mile-long West-East Pipeline project to international companies, specifically mentioning Royal Dutch–Shell, Gazprom, and ExxonMobil.⁹⁰ This pipeline would be a very significant national project, running from the Tarim Basin in Xinjiang Province through Gansu, Ningxia, Shaanxi, Shanxi, Henan, Anhui, Jiangsu, and Zhejiang Provinces to reach Shanghai. Its social and environmental impact is being studied by a joint UNDP–Shell project.⁹¹
There are two possible difficulties with this project, apart from funding and actually building it, which appear to reflect a lack of coherent planning at the national level. The first is whether there is sufficient natural gas in the Tarim fields to make the pipeline profitable; three major oilfields in the province reportedly produced 20.3 million tons (144.1 million barrels) in 2002, a threefold increase since 1990, but the evidence of proven natural gas is more problematic. The second reason for concern is the possible lack of planning at the national level to deconflict natural gas piped from the far west with that being imported from Indonesia, Papua New Guinea, and Australia.⁹²
Russia’s Far East is often cited as a potential major source of Chinese crude oil and natural gas imports, although so far there has been more talk than action. The Russian and Chinese governments have been holding regular discussions on the feasibility of pipelines to make such exports possible, with their first agreement signed in September 2001 to explore and develop jointly east Siberia petroleum reserves, estimates of which run as high as 11.5 billion tons.⁹³ In December 2002, Russian President Vladimir Putin and Chinese President Jiang Zemin issued a post-summit meeting statement that emphasized “the great significance of energy cooperation” between their countries, since “it is critical to make sure that Sino-Russian cooperation projects concerning crude oil and natural gas pipelines” are “carried out according to schedule” and that “the implementation of promising energy projects” be coordinated.⁹⁴
Another project operated by East Siberian Oil at Yurubchenskoye is currently exporting crude oil to China by a combination of road and rail transport. Quantities are small, but East Siberian claims the field could have a production potential of 400,000 bbl per day if fully developed. Downstream infrastructure development in China centers primarily on upgrading existing refineries rather than building new ones, due to current overcapacity.
The petroleum refinery sector in China is overbuilt, although it suffers from a serious lack of adequate capacity suitable for heavier crude, which will have to be remedied as Chinese import demand rises, especially for Middle Eastern crude. It is hampered especially by a plethora of small, unprofitable refineries, although not nearly to the same extent that the coal industry counts too many small mining operations. Beijing has determined to shut down many of these small refining plants, although it also is concerned about resulting unemployment.⁹⁵ The problem of efficiency applies to larger production facilities as well, however: most Chinese refineries operate at financial losses that are hidden by state ownership. Chinese firms probably average $1.50 to produce a barrel of oil; Western companies typically spend $1.20. Natural gas exploration costs are similarly high for Chinese companies, $3.90 per barrel, compared to $3.00 for Western firms.⁹⁶

Endnotes

⁵⁰Petroleum figures will be given in barrels, unless otherwise noted. One barrel of petroleum/petroleum products equals approximately 42 U.S. gallons or 0.136 metric tons or 0.15 short tons. [BACK]

⁵¹These estimates are from “China Expects to Import 50 Million Tons of Oil in 2000,” Xinhua, November 21, 2000, in FBIS-CPP20001121000078, and “China,” EIA, November 1999, accessed at <www.iea.org/about/nmcchina.htm>, 1. They are repeated in the more timely estimate by the International Energy Agency, cited in “China’s Oil Demand Expected to Rise,” Dow Jones, September 11, 2002, in Alexander’s7, no. 19 (October 1, 2002). [BACK]

⁵²Various energy sources, in this case petroleum and coal, are difficult to compare in gross terms; more significant is a percentage comparison, which in China reveals a continuing dominance of coal as the most important energy fuel. See, for instance, Gong Zhengzheng, “PRC Analyst Views State Law Proposed to Strengthen Oil Security,” China Daily,October 30, 2001, in FBIS-CPP20011031000022, for the statement by State Economic and Trade Commission official that “we must quickly form regulations” to secure Sino-foreign cooperation in oil exploration, pipeline protection, overseas oil prospecting, “the State oil stockpile.” [BACK]

⁵³“China Busy to Win Security of Supply for a Growing Economy,” Reuters, April 27, 2000, in Alexander’s5, no. 7 (April 27, 2000). [BACK]

⁵⁴This joint venture is nominally headquartered in the British Virgin Islands to avoid Taipei’s restrictions on cross-strait business dealings. CPC announcement in Luis Huang, “CPC, CNOOC to Sign Agreement on Oil Exploration Soon,” Central News Agency (Taipei), in FBIS-CPP20020123000197; also see “CNOOC Finalizes Plans to Explore for Oil and Gas in Taiwan Strait,” Reuters, August 28, 2000, in Alexander’s 6, no. 18 (September 25, 2001), which noted that cross-strait companies jointly conducted geophysical surveys from 1996 to 2000. David Hsu, “Taiwan, Mainland Chinese Oil Companies May Jointly Explore in Strait,” Central News Agency (Taipei), in FBIS-CPP20011010000182, dates this agreement to 1998. [BACK]

⁵⁵“Cross-Strait Oil Deal Delayed,” Taipei Times, February 7, 2002, in FBIS-CPP20020207000144. A more optimistic report notes that “a final joint-venture agreement” will be signed in May (Xie Ye and Gong Zhengzheng, “JV to Tap Resources Across Straits,” China Daily, April 19, 2002, in FBIS-CPP20020419000013), while “Taiwan and China Sign Landmark Oil Exploration Pact,” Reuters, May 16, 2002, in Alexander’s 7, no. 12 (June 13, 2002), reports signing of an agreement. “China and Taiwan Undertake Joint Oil Search,” Neftegaz.RU, January 29, 2003, in Alexander’s 8, no. 4 (February 20, 2003), reports that the “the two countries, Beijing and Taipei,” have approved the dual venture, but the verbiage of the announcement casts doubt on its accuracy. [BACK]

⁵⁶“CNOOC Signs First Deepwater Exploration Agreement with Husky Oil,” CNOOC Ltd., December 6, 2002, in Alexander’s 8, no. 1 (January 10, 2003). This agreement reportedly requires Husky to pay 100 percent of the exploration costs, while CNOOC would garner 51 percent of any discoveries. [BACK]

⁵⁷“China Petroleum Completes Historic Kuwaiti Oil Project,” in ChinaOnline, accessed at <www.chinaonline.com/industry/energy/NewsArchive/Secure/2001/April/C01042305.asp>. “Shenzhen Huxian to Invest $600 Million in Gas Sector,” accessed at <www.bangladesh-web.com/news/mar/18/e18032003.htm#A1>, reports the deal with Bangladesh. [BACK]

⁵⁸“China’s Largest Oil Company to Further Boost Overseas Presence,” Xinhua, January 15, 2003, in FBIS-CPP20030115000011. [BACK]

⁵⁹Umbach, 88. Also see “Turkmen Oil Company Cooperates with China,” Turkmen Press, November 21, 2002, in FBIS-CEP20021122000186; “China to Invest in Venezuelan Industries,” Reuters, in Alexander’s 6, no. 24 (December 27, 2001); “CNPC Acquires Stake in Myanmar Oil and Gas Blocks,” Platts, in Alexander’s 6, no. 24 (December 19, 2001); Xie Ye, “CNOOC Finalizes Acquisition of Indonesian Oil Assets from Spanish Firm,” China Daily, January 19, 2002, in FBIS-CPP20020119000006; Mai Tian, “Canadian Oil Firm Confirms Discussions, ‘Potential Transactions’ With PetroChina,” China Daily, February 21, 2002, in FBIS-CPP20020221000042; “Chinese Oil Experts Begin Oil Exploration Work,” Radio HornAfrik, February 14, 2002, in FBIS-AFP20020214000044. [BACK]

⁶⁰“China to be Largest Buyer of LNG from Tangguh, Papua,” Timika Pos, February 8, 2002, in FBIS-SEP20020211000124; partial (12.5 percent) ownership of the field is reported in “CNOOC to Take Stake in Tangguh Gas Fields From BP,” Platts, September 26, 2002, in Alexander’s 7, no. 20 (October 15, 2002); also see “CNOOC Acquires LNG Reserve Stocks from BP,” SinoCast, February 14, 2003, in Alexander’s 8, no. 5 (March 6, 2003). BP management of the Fujian terminal operation is reported in “BP and Partners to Supply LNG to China’s Fujian LNG Terminal,” Power Engineering International, September 26, 2002, in Alexander’s 7, no. 20 (October 15, 2002). Canada’s most recent involvement is reported in “CNOOC Signs Production Sharing Contracts with Husky,” Xinhua, September 24, 2002, in Alexander’s 7, no. 20 (October 15, 2002). [BACK]

⁶¹Xie Ye, “New Oil Regulations Allow Sinopec to Cooperate with Foreign Companies,” China Daily, October 16, 2001, in FBIS-CPP20011016000040. These revised regulations were codified into an amended Statute on the Exploitation of Land Oil Resources by Foreign Enterprises on September 23, 2001 (“Zhu Ronghi Signs Amendment to PRC Statute,” Xinhua, October 10, 2001, in FBIS-CPP20011010000184). [BACK]

⁶²“Minister on Use of Foreign Capital in 2002,” Xinhua, December 27, 2001, in FBIS-CPP20011227000151. [BACK]

⁶³“China Seeks Foreign Investors for Shanghai Gas Grid,” Reuters, in Alexander’s 7, no. 4 (February 21, 2002). Also see “Huaneng Power to Set Up Two Gas-Fuelled Power Plants,” Interfax Information Services, August 28, 2002, in Alexander’s 7, no. 18 (September 19, 2002): one of these plants is planned for Shanghai, the other for Nanjing. [BACK]

⁶⁴Wang Ling, “Zhejiang Province’s Hangzhou City Readies Itself for Switch to Natural Gas,” China Daily, March 28, 2002, in FBIS-CPP20020328000048; “Zhejiang to Build Natural Gas-Fuelled Power Plant,” Interfax Information Services, September 28, 2002, in Alexander’s7, no. 19 (October 1, 2002), links this project—projected to begin construction in 2003—to the West-East natural gas pipeline. [BACK]

⁶⁵“Gas Supplier in Shanghai Competes with Rivals in West China,” Xinhua, August 17, 2002, in FBIS-CPP20020817000082. [BACK]

⁶⁶CNPC has been active in Azerbaijan; see “Chinese Oil Major Eyes Share in Azerbaijani Onshore Field,” Baku MPA, January 28, 2003, in FBIS-CEP200301228000065. [BACK]

⁶⁷Jiang Zemin, quoted in “Summit Meeting Launches Shanghai Cooperation Organization,” People’s Daily,June 15, 2001, accessed at <www.english.peopledaily.com.cn/200106/15/eng20010615_727040.html>. [BACK]

⁶⁸Anthony Miccarelli, “China’s Energy Future: The 10th Five-Year Plan (2001–2005),” USCINCPAC Virtual Information Center (VIC) Honolulu, accessed at <www.cschuster@vic-info.org> (August 25, 2001), 13. [BACK]

⁶⁹“China Set to Invest $300 Million in Kyrgyzstan’s Oil Sector,” Kabar News Agency, June 26, 2002, in FBIS-CEP20020626000164. [BACK]

⁷⁰For instance, see Xie Ye, “State-Owned CNPC Buys Two Overseas Oilfields,” China Daily, January 25, 2002, in FBIS-CPP20020125000026; “Chinese Firms Interested in Pakistan Oil and Gas Exploration,” Asia Pulse, in Alexander’s 7, no. 2 (January 23, 2002); “China to Help Uzbekistani Oil, Gas Firm,” Novosti Nedeli, November 16, 2001, in FBIS-CEP20011118000052; “U.S., China and Iran Compete for Afghan Oil and Gas Pipelines,” Asia Times, in Alexander’s 7, no. 4 (February 21, 2002). [BACK]

⁷¹Cited in David Lague, “China: The Quest for Energy to Grow,” Far Eastern Economic Review (June 20, 2002), accessed at <www.feer.com>. This number is probably exaggerated but represents China’s clear interest in making serious inroads into Central Asian petroleum resources. [BACK]

⁷²“China Ready to Import Up to 50 Million Tonnes of Kazakh Oil a Year,” Almaty Interfax-Kazakhstan,January 29, 2003, in FBIS-CEP20030129000590, is not a disinterested source, but large oil sales to China certainly may be in the offing. [BACK]

⁷³“Kazakhstan-Western China Oil Pipeline Said Medium-Term Prospect,” Kazakhstan Today (Almaty), September 11, 2001, in FBIS-CEP20010912000202. [BACK]

⁷⁴See, for instance, “Chinese Interested in Kazakhstani Oil Projects,” Caspian News Agency, and “Kazakhstani and Chinese Institutes to Cooperate in Oil and Gas Sector,” both in Alexander’s6, no. 20 (October 24, 2001). [BACK]

⁷⁵Cited in “China to Build Oil Pipeline from Kazakhstan if Caspian Reserves Proved,” Almaty Interfax-Kazakhstan,April 16 2002, in FBIS-CEP20020416000327. One interesting factor in the issue of recovering Caspian Sea oil is the apparent agreement between Iranian and U.S. representatives to favor a pipeline to Iran instead of the Chinese project (“Kazakhstani Paper Views Possible Export Routes for Caspian Oil,” Kazakhstanskaya Pravda, April 10, 2002, in FBIS-CEP20020410000253). [BACK]

⁷⁶This discussion draws on Rick Parker, “China’s Energy Strategy: Central Asian-Caspian Sea Oil Initiatives,” VIC (January 22, 2001). [BACK]

⁷⁷Greg Austin, China’s Ocean Frontier: International Law, Military Force, and National Development (Canberra: Allen and Unwin, 1998), 262, notes that this area contains “two of the biggest PRC offshore gas fields in the South China Sea,” Yacheng 13–1 and Dongfang 1–1. The best general account of China’s activities in the South China Sea is Mark J. Valencia, China and the South China Sea Disputes,Adelphi Paper 228 (London: Institute for International Strategic Studies, 1995). [BACK]

⁷⁸China and Vietnam continue to contest various prospecting blocks in the South China Sea, although ongoing talks have reduced the number of incidents between the two nations. See Valencia for an account of these conflicting claims; one indicator of continued Chinese interest is “CNOOC Invites Foreign Firms in South China Sea Projects,” People’s Daily, September 25, 2002, in Alexander’s 7, no. 20 (October 15, 2002). [BACK]

⁷⁹“South China Sea Region,” DOE-EIA, August 1998, 2. [BACK]

⁸⁰“South China Sea Oil Fields Produced Over 50 mm Tons in Eight Years,” Alexander’s 3, no. 20 (October 27, 1998). [BACK]

⁸¹Ibid., 3. The author interviewed two analysts in November 1999 who, using similar geological data, came to opposite conclusions about the presence or absence of significant petroleum reserves in the Spratlys. [BACK]

⁸²U.S. Geodetic Survey (USGS), in USCINCPAC memo, September 15, 1999. One optimistic estimate of South China Sea petroleum reserves, 55 billion tons, is in Xinhua, September 5, 1994, in FBIS-CHI-94-172. Also see Michael Leifer, “Chinese Economic Reform and Security Policy: The South China Sea Connection,” Survival 37, no. 2 (Summer 1995), 44; Bruce Blanche and Jean Blanche, “Oil and Regional Stability in the South China Sea,” Jane’s Intelligence Review 7, no. 11 (November 1995), 513. The USGS estimate for South China Sea natural gas is 266 trillion cubic feet. [BACK]

⁸³“Shell Invests $3 Billion for Gas Development in PRC,” Xinhua, September 29, 1999, in FBIS-CPP19990920999635, reported that “the South China Sea Petrochemical Project, co-funded by Shell Group and several large Chinese enterprises...has a total investment of 4.5 billion U.S. dollars.” [BACK]

⁸⁴Brief descriptions of some of this technology is in “Lufeng 22–1,” BP Amoco announcement October 18, 1999, 1–3, accessed at <www.offshoretechnology.com/projects/lufeng/index>. This field is a joint venture between CNOOC and Staatoil of Norway. [BACK]

⁸⁵Author’s conversations with PRC Embassy (Washington) international lawyer and with senior People’s Liberation Army Navy officers at the PLA National Defense University and China’s Naval Research Institute (2000–2002). [BACK]

⁸⁶While such estimates probably reflect political wishes as well as geophysical facts, this number is in “China Kicks Off Huge Offshore Oil, Gas Project,” Xinhua, June 19, 2002, in FBIS-CPP20020619000059. [BACK]

⁸⁷“Ocean Petroleum Lays Exploration Emphasis on Bohai Bay,” AsiaPort, April 8, 2002, in Alexander’s 7, no. 9 (May 3, 2002), notes that half of these wells would be drilled by “partners.” “In Brief,” China Daily, May 22, 2002, in FBIS-CPP20020522000054, noted that CNOOC and several foreign companies were some of these “partners”; also see “Ultra Petroleum Signs Bohai Bay Agreement with CNOOC,” Ultra Petroleum announcement in Alexander’s 7, no. 19 (October 1, 2002), and “Shell to Invest $400 Million in China’s Bohai,” Neftegaz, July 24, 2002, in Alexander’s 7, no. 16 (August 23, 2002). [BACK]

⁸⁸“China, Vietnam Initial Agreements on Beibu Gulf Demarcation,” People’s Daily, December 25, 2000, accessed at <www.english.peopledaily.com.cn/200012/25/eng20001225_58714.html>. [BACK]

⁸⁹See “Eight Major Highways, 3,000 km of Railways to Speed Development,” China Daily (Hong Kong), May 23, 2001, in FBIS-CPP20010523000067, for a report of the “nearly 20 foreign energy companies” bidding to participate in pipeline projects linking China’s far west with its coastal region; “Kerr-McGee and Partners Strike More Oil in Bohai Bay,” Reuters, in Alexander’s 7, no. 1 (January 9, 2002). “Ultra Petroleum Announces Oil Field Discovery in Bohai Bay,” Ultra Petroleum announcement, in Alexander’s 7, no. 1 (January 9, 2002), describes a company “focused on developing its long life natural gas reserves in the Green River Basin of Wyoming, and oil reserves in Bohai Bay.” The British company BP Amoco has been especially active; see “World Oil Giant BP to Invest More in Chongqing,” Xinhua, October 31, 2001, in FBIS-CPP20011031000043; Xie Ye, “China’s Largest Petrochemical Firm Enters Joint-Venture with UK’s BP Oil,” China Daily, December 11, 2001, in FBIS-CPP20011211000022; Xie Ye, “Sinopec, UK’s BP to Launch Joint Venture,” China Daily, December 12, 2001, in FBIS-CPP20011212000041; and especially “World Oil Giant BP to Invest $5 Billion in China,” Xinhua, November 11, 2001, in FBIS-CPP20011111000060. The author suspects the profit motive outweighs Chinese companies’ concern with “owning” at least 51 percent of a given joint venture. Jing Ji, in “Sinopec, ExxonMobil Sign Framework Agreement to Strengthen Strategic Alliance,” China Daily, October 23, 2002, 2, in FBIS-CPP20021023000044, for instance, reports that ExxonMobil and Aramco would each own 25 percent of “multi-billion-dollar petrochemical and oil product joint ventures” in Fujian and Guangdong provinces, while the remaining 50 percent would be split between Sinopec and “the Fujian provincial government.” [BACK]

⁹⁰Quoted in “Zhu Rongji on China Opening West-East Gas Project to Foreign Cooperation,” Xinhua, July 4, 2002, in FBIS-CPP20020704000114. [BACK]

⁹¹The project is described in “Gas Pipeline Runs Over 4,000 KM Across China,” Renmin Ribao, July 5, 2002, in FBIS-CPP20020705000036; the UNDP study in “UNDP and Shell to Assess Social Impact of China Pipeline Project,” UN News, April 17, 2002, in Alexander’s7, no. 9 (May 3, 2002), is relying on “government organizations, academics, and independent international social experts.” [BACK]

⁹²Oil production is reported in “Another of China’s Xinjiang Fields Passes Million-ton Oil Output,” OGI, in Alexander’s 8, no. 5 (March 6, 2003). See, for instance, “PetroChina Believes Domestic Natural Gas Reserves are Sufficient,” China Daily, July 17, 2002, in Alexander’s 7, no. 16 (August 23, 2002) and “China Negotiating With British Petroleum for Fujian Gas Deal,” China Daily (Business Weekly Supplement), August 20, 2002, in FBIS-CPP20020821000018. [BACK]

⁹³“China, Russia to Jointly Develop Oil Fields in Siberia,” Xinhua, September 27, 2001, in FBIS-CPP20010927000088. The success of these talks was reported in Xie Ye, “Talks on Oil Project Underway,” China Daily, September 24, 2001, in FBIS-CPP20010924000017, and “Russia and China Begin Work on Oil Pipeline Feasibility Study,” Vremya Novostei, in Alexander’s 6, no. 20 (October 24, 2001), which reported the pipeline’s initial (2005) capacity as 20 million tons, increasing to 30 million tons by 2010. [BACK]

⁹⁴“Joint Declaration of the PRC and the Russian Federation,” Xinhua, December 2, 2002, in FBIS-CPP20021202000186. [BACK]

⁹⁵“China to Close More Small Oil Refineries,” AFP, February 28, 2000, quoted in Alexander’s 5, no. 7 (April 27, 2000). [BACK]

⁹⁶Figures cited, but their sources not listed, in Chang, 226. [BACK]