by Anton Graham in Beijing
When negotiations first began on exploiting China`s offshore oil fields, it was hoped that the crude might start to flow in significant quantities by the mid-l980s. But with endless delays at almost every stage in the complex talks between the Chinese authorities and the foreign oil companies who will do most of the work, the date when commercial production begins is now likely to be closer to l990.
The main problem is that the communist Chinese authorities have absolutely no experience in dealing with oil production joint ventures, and are taking things very carefully in the hope of avoiding major mistakes. But for the oil company representatives, some of whom have been hanging around hotels in Beijing for more than three years now, the wait is very tedious.
In l979, the Chinese parcelled out various areas of seabed in the south China Sea and the Yellow sea northeast of Shanghai, and invited foreign oil companies to conduct seismic surveys at their own expense to determine the most promising areas for prospecting. By the end of l980, the surveys were completed and the information handed over to the Chinese, who then decided which blocks to rent to foreign companies and which to keep for themselves.
In his report to the National People’s Congress last December, Premier Zhao Ziyang played-down the importance of the offshore oil, perhaps out of embarrassment at the crucial role the foreign oil companies will play. He said prospecting would be concentrated in the Songliao Basin in northeast China, the Bohai Gulf, the Puyang region of Henan Province and the Eren Basin in Inner Mongolia as well as the Qaidam Basin in Qinghai and the Junggatr Basin in Xinjiang province, probably the two best potential oilfields on the mainland even though they are both thousands of kilometres away from where the oil is needed.
Despite Premier Zhao’s emphasis on onshore prospecting, there is no doubt China needs the oil believed to lie beyond its coastline very badly. There is much disagreement about how big China’s oil reserves are. One official Chinese magazine, Fortnightly Chats, has put the figure at between 220 and 440 billion barrels ( 30 to 60 billion tons) which would be even more than the proven reserves of Saudi Arabia.
One respected U.S. publication estimated that the offshore reserves may be between four and l4 billion tons. But the fact is that no-one will know until the drilling actually starts. The geology, particularly off the Pearl River estuary, south and southeast of Hongkong, looks promising, but even that is no guarantee.
Outside the scope of the main bidding, a small, select group of foreign oil companies have already signed contracts with the Chinese, apparently to act as “guinea pigs”. Atlantic Richfield, a major American firm, signed a special contract last year allowing it to begin drilling south of Hainan Island. The French company Total started drilling in the Gulf of Tonkin off the west coast of Hainan in l980 and has already found some oil. Another French company, Elf Aquitaine and the Japan National Oil Corporation have been drilling in the Bohai Gulf, to the east of Beijing, but the Japanese have had to invest far larger sums in exploration that had been expected. Rumours that the Japanese agreed to put up the extra money on the understanding that they would be given a good deal in the main bidding for drilling rights prompted the U.S. government to make a formal approach to the Chinese about whether any preferential treatment would be shown the Japanese. The Chinese said no.
Peking finally called for bids early last year on 43 concession areas totalling l50,000 square kilometres of seabed. Last August, 33 oil companies, including most of the major American firms, put in bids, either singly or in partnership and then prepared themselves for another long wait.
The China National Offshore Oil Corporation (CNOOC}, set up especially to handle offshore oil joint ventures, began to sift through the mountains of data presented by the foreign firms, trying to decide which was the best bid for each of the areas on offer. Negotiations were expected to begin about now, but may continue for anything from a few months to more than a year or two before any agreements are signed. Only then will the rigs move out of port and start drilling.
According to oil experts, it usually takes a minimum of five years from the discovery of oil to the start of commercial product ?? a oil field is at Daqing in northeast China, but production there has already peaked at about 50 million tons a year and is likely to start declining in l985 despite strenuous efforts, including massive water injection, to try and maintain the flow. There are no other major onshore fields ready to be brought on line to take up the slack as Daqing fades, and so it is important that the offshore oil fields start producing as soon as possible. There have even been suggestions that China might have to start importing oil again by the end of the decade if things go badly. National oil production peaked in 1979 at 106 million tons and has since dropped to about 102 million tons per annum.
Exports of crude oil and petroleum products, which have already become an important foreign exchange earner for China, may have to be scaled down as the expanding Chinese economy consumes a greater percentage of the dwindling oil production. In l98l, the last year for which there are figures, oil exports accounted for about a quarter of China’s total exports, netting five billion dollars in foreign exchange earnings. Exports came to about 20 per cent of total production and Japan was the biggest market. Smaller quantities were also sold to the Philippines, Hongkong, Thailand and the United States.
The Chinese stance in the bidding has been tough, although the world oil glut has meant the foreign companies don’t need Chinese oil as badly now as they did when negotiations began in l979. Apart from the crucial question of who gets how much oil, the Chinese have been pushing for as much equipment as possible to be built in China rather than imported. Some companies have agreed to build their products here, thereby transfering the technology and giving China the long-term capability to make the equipment themselves. But the drawback with this arrangement from China’s point of view is that it will mean extra delays before oil is produced. The more imported equipment that is used, the faster the oil will flow.