China looks to ASEAN for more oil

China looks to ASEAN for more oil

Xu Yihe, Dow Jones, Singapore

Having failed so far to secure a commitment for Siberian oil from its northern neighbor Russia, China is now looking southward to help meet its rapidly growing energy needs.

Last week at the annual summit of the Association of Southeast Asian Nations (ASEAN) on the Indonesian resort island of Bali, Chinese Premier Wen Jiabao urged the group to work closely with China, saying his country was aiming to boost trade with the region to US$100 billion by 2005, up from almost $55 billion last year.

Much of that trade is expected to be in the form of Chinese crude oil imports.

While the bulk of China's crude imports still come from the Middle East, its crude imports from Asean have been rising steadily, reaching 7.51 million tons in the first eight months of this year, up 4 percent from the same period last year. Its total crude oil imports amounted to 57.4 million tons in the January- August period, an increase of 26 percent on year.

Beijing also is pursuing cooperation with ASEAN to secure oil and gas believed to exist in the disputed area of the Spratly Islands in the South China Sea.

China-based industry officials said China reached a consensus with the Philippines and Indonesia at the summit for the joint exploration and development of oil and gas reserves in the Spratlys.

"It is a milestone development, though it may take another five years before they could actually start producing oil there," said an official at China National Offshore Oil Corp., the country's sole offshore oil operator.

Chinese geologists have conducted surveys of the waters around the islands, and there is speculation the area could contain hydrocarbon resources of as much as 70 billion barrels of oil equivalent some 200-1,000 meters below the surface of the sea.

China already is an energy player in some of the 10 countries that belong to ASEAN. It has oil and gas operations in Thailand and Myanmar and is now the largest offshore oil producer in Indonesia after having invested about $1 billion in oil projects there.

Purnomo Yusgiantoro, Indonesia's energy and mineral resource minister, told Wen at the Asean summit that his country is looking to export up to 5 million tons of liquefied natural gas to Shanghai and other Chinese cities annually over the next 20 to 25 years. Last year, Indonesia signed a contract with China to export 2.6 million tons of LNG annually to Fujian province by 2007.

Wen said China also was interested in energy cooperation with the sultanate of Brunei when he met with Sultan Haji Hassanal Bolkiah at the Bali summit.

"China is willing to import more petroleum from Brunei and take part in Brunei's oil and gas development," he said.

Last week, China agreed to enter into a strategic partnership with ASEAN for cooperation on political, economic and social issues. This includes the Spratly Islands, which continue to be the center of a six-sided dispute over their ownership. China, Vietnam and Taiwan claim sovereignty over all the tiny islets and rocks in the 800-kilometer-long chain, while the Philippines, Malaysia and Brunei claim at least some. In the past, the dispute has led to naval skirmishes in the area.

At last year's ASEAN summit in Cambodia, China and the trading group signed a landmark Declaration on the Conduct of Parties on the South China Sea - the location of the Spratlys. At the Bali meeting, ASEAN and Wen agreed to follow up on this declaration, and ASEAN leaders said they hoped this would lead to the establishment of a code of conduct in the South China Sea.

"China and ASEAN have created a very favorable political environment" for exploration and production in the area of the Spratlys, the CNOOC official said.

The country's renewed interest in the Spratlys reflects its red-hot economy's growing demand for energy as well as its increasing frustration over Russia's failure to commit to building a proposed 2,400-kilometer pipeline to transport oil from fields in Siberia to Daqing in northeastern China.

Later this year, CNOOC is scheduled to meet with officials from the Philippines' Department of Energy to discuss joint oil and gas exploration in the Spratlys. Analysts say China is keen to work with the Philippines to create a model for cooperation in the Spratlys that could be extended to Vietnam and other claimants.

Discussions among the claimants of their territorial dispute over the Spratlys could begin as early as January.