Japan plays big role in China's oil reserves exploration+
Japan plays big role in China's oil reserves exploration+
By Geoffrey Murray
BEIJING (Kyodo): China is stepping up its exploration for oil in the vast but inhospitable Tarim Basin in the remote northwestern autonomous region of Xinjiang Uygur by opening up the area to foreign companies, notably Japanese.
This is part of a new drive to open up all of China's mineral resources to foreign capital in line with the ongoing economic reform program.
Much is expected of the barren Tarim region -- part of the Gobi Desert -- where, based on fairly vague seismic data, experts reckon there are reserves of up to 100 billion barrels of oil and 8,300 billion cubic meters of natural gas.
Even if it eventually turns out to contain only a faction of this amount, the region could still become one of the world's biggest oil and gas fields.
In anticipation of this, a brand new city, Korla, has already sprung up in the desert with a group of oil refining and petrochemical plants under construction.
Earlier this year, the China National Petroleum and Natural Gas Corp. (CNPNGC) signed a trend-setting agreement with Esso of the United States and the Japan-Indonesia Petroleum Co., a subsidiary of Sumitomo Corp., to jointly prospect for oil in an area of 14,500 square kilometers in the southeastern part of the Tarim Basin.
The contract was significant in that it was the first covering an inland area to be concluded through international bidding.
At least 68 companies from 17 countries expressed interest and many of them conducted feasibility studies before being asked to submit formal tenders a year ago.
According to Wang Tao, CNPNGC general manager, this represents a new stage in trying to release Tarim's treasures through the introduction of foreign capital and technology and joint exploration efforts.
The foreign partners will bear total costs and risk during the eight-year life of the contract, under which the three sides will jointly produce any oil or gas discovered and share the crude oil in proportion to capital contributions.
As part of the effort to dispel any foreign worries about transportation, the Chinese government has agreed to purchase their share of the crude at international oil market prices.
A major impetus for the exploration program was a government decision in 1993 to finally begin freeing up prices of domestically produced oil and gas and allow them to float in line with world market trends.
Chinese oil producers have traditionally sold their output to the state at prices set by the latter which bore no resemblance to international indicators. This became a significant discouragement for the producers, who found it increasingly difficult to meet the rising costs of equipment and technology.
Typically, the government began timidly, introducing a payment system to 14 small and medium-sized oil fields at something close to world market prices, while most of the country's oil output was kept at mandatory levels -- although with a promise that the system would gradually evolve to cover all.
Xinjiang Uygur Autonomous Region is one of five in the northeastern hinterland, comprising a fifth of China's land mass, where the central government is trying to achieve development largely through foreign investment as part of efforts to overcome the nation's increasing energy shortage as industrialization speeds up amid market reforms.
The area is largely virgin territory rich in minerals, oil, gas, coal and nonferrous metals. Many of the 3,000 foreign- funded ventures registered in the region last year -- a 10-fold increase over the previous year -- were in the areas of resource exploitation and processing.
As a further incentive, the state is giving up its prospecting and exploitation role, a legacy of a planned economy, and basically turning the task over to local and foreign entrepreneurial capital.
"Whoever offers terms for the lowest input and the best economic and social benefits will be allowed to develop the mineral resources in a specific area," explained He Xianjie, a senior official of the Ministry of Geology and Mineral Resources, which is currently drafting the rules for the experiment.
All the 160 mineral resources so far identified on Chinese territory, and any others that may be found in the future, will be treated as state-owned assets which developers will have to pay for. Prospecting, exploitation and utilization will be open to bidding.
A company gaining the rights will then be able to transfer them to a third party, however, on whatever terms they can get.