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.