CHINESE OIL AND NATURAL GAS IMPORTS, OVERSEAS SOURCES AND POLITICS

CHINESE OIL IMPORTS

China is the world’s second largest importer of oil after the United States. It imported 3.2 million barrels a day in 2005, a 35 percent increase from the previous year. It imported 110 million tons of oil 2004, a 21 percent increase from the previous year. Around 42 percent of the 6.7 million barrels of oil consumed in China in 2004 came from imports.

China is becoming increasingly dependent on foreign oil. It went from being a net exporter of oil to the second largest importer in a little over a decade. It was self sufficient in energy until 1993 when it became a net importer of oil. China’s booming economy and an efforts to use less coal has created huge demands for oil. China’s demand for imported oil is expected to triple between 2008 and 2030. In 2020, China is expected to import 85 percent of its oil needs.

China imported more than half its oil in 2010. China buys half of its oil and gas from the Middle East, and now buys more oil and oil products from Saudi Arabia, for example, than the United States does. China also buys sizable quantities of oil from Libya, although less than it buys from Saudi Arabia. China purchased $4.45 billion worth of Libyan crude oil in 2010, according to data from Global Trade Information Services Inc.

Largest suppliers of crude oil to China from January to November 2004 (millions of metric tons); 1) Saudi Arabia (15.0); 2) Oman (14.7); 3) Angola (14.1); 4) Iran (12.2); 5) Russia (10.2); 6) Sudan (5.1); 7) Yemen (4.5); 8) Congo (4.0); 9) Equatorial Guinea (3.2); 10) Indonesia (3.1).

Sudan, Venezuela and Angola are major oil suppliers for China. In the mid 2000s, China’s No. 1 supplier of crude oil was Angola. Saudi Arabia was No. 2. In September 2009, China said that it would invest $16 billion in Venezuela’s eastern Orinoco oil belt. Kazakhstan is viewed as a safe source of oil.

China gets a significant amount of oil from relatively small time producers. It buys 20 percent of Gabon’s annual petroleum output; and it purchases 80,000 barrels from Cuba under flexible financial terms. China buys about half of Sudan’s oil exports---about 70,000 barrels a day, a relatively small amount---and has a major stake in drilling operations there. China has repeatedly blocked United Nations efforts to impose sanctions on Sudan for atrocities committed in Darfur. See International. Government.

Global Impact of China’s Hunger for Oil

China’s hunger for oil has created higher prices around the globe as demand has increased. The increase in prices for oil in turn has caused the prices of other things made from oil likes petrochemicals and gasoline to rise. Some analysts say that the huge price hikes in oil that took place in the mid 2000s, when the price of oil reached $80 a barrel, was caused less by the war in Iraq and political instability in Venezuela than by hoarding in China.

World oil demand is expected to increase dramatically as China and India become more industrialized and car-oriented.

China does not want to become too dependent on foreign oil and let its economy be influenced too much by the rise and fall of oil supplies and prices. Most of its oil comes from the Middle East, which is particularly volatile. Over the next 10 years China plans to spend $100 billion on oil exploration and building pipelines.

Energy, China and International Relations

Increases in demand by China has set off a mad scramble among major oil consuming nations such as the United States, Japan and countries in Europe to lock up guaranteed supplies of oil through deals, investments, development and exploration projects and elbowing rivals out of the way.

China and Japan are competing over oil and gas pipelines from Russia and supplies in the Middle East and are fighting over off shore sites in the East China Sea. China is also pursing deals with countries such as Myanmar and Sudan that are regarded as pariahs in the West and taken advantage of discontent with the United States to muscle into areas long regarded as U.S. domains such as Canada and Venezuela.

Explaining the appeal of working with China, an oil consultant in Saudi Arabia told the Los Angeles Times: “The Chinese don’t get involved with religion, they don’t get involved with political democracy arguments...They accept, and we accept, that we’re different. They are very technically competent and the stay out of politics.” Not everyone sees China’s behavior in the same light. Some have compared China’s behavior today---its grab for energy supplies, the build of its of its navy---with Japan’s behavior before World War II.

Chinese companies have been aggressively buying oil fields in Indonesia and Australia and trying to buy oil fields in the Middle East and Central Asia. Most of the fields that China has “locked up” are relatively small and don’t contain that much oil.

Many think that China is spending too much to explore sites that have been rejected by Western companies and are too tied up places where extracting oil is difficult and expensive and politically sisky. An analyst at the National Bureau for Asian research in Seattle told the Los Angeles Times the Chinese are driven by “politically-driven panic” and “are in the mode to pay for supply security...and the economics comes second.”

Energy and International Disputes See Japan and the Spratly islands, Under Government, International

Energy, India and China

Chinese and Indian energies companies are competing head to head for energy resources around the world. Chinese companies have beat Indian companies in drilling for big leases in Nigeria, Ecuador and Kazakhstan.

Madhu Nainan, editor of the Indian newsletter Petrowatch, told the International Herald Tribune: “Wherever the Indians have gone, the Chinese are already there. Mostly, it is India that breeds cooperation with China---and not the other way around.”

China and India are competing head to head for oil assets and deals in Nigeria, Kazakhstan and Myanmar. China National Petroleum Corporation (CPNC) and India’s Oil and Natural gas Corporation (ONCG) both went after $3.2 billion PetroKazakhstan and tried to obtain the $700 million Chevron stake in a Myanmar gas field. that Chevron was selling.

China and India have signed energy cooperation deals. In January 2006 they agreed to team on projects such as an $800 million deal between Sinopec and ONGC in Columbia. In December 2005, India and China collaborated on a joint bid for PetroCanada’s Syrian oil and natural gas assets.

Natural Gas Outside of China

China imports liquified natural gas from Australia, Indonesia and the Middle East. China began importing liquid natural gas (LNG) in the mid 2000s and is expected to import 20 million tons within five years.

The first shipments came from Australia and were handled at facilities n Guangdong. Another terminal to being built in Jilian which will take imports from Indonesia. In 2007, construction began on a large natural gas terminal outside Shanghai. It is expected to be operational in 2009. About two dozens similar facilities are either under construction or proposed.

In August 2009, PetroChina signed a $41 billion natural gas deal with Australia to buy gas from the Gorgin gas field off Australia’s far northwest coast.

In October 2009, China and Russian decided that the price of gas coming from Russia would be based on the price of oil on the Asian market. Russia’s Gazprom and the China National Petroleum Corporation agreed that China would be supplied with 70 billion cubic meters of gas a year. Gazprom had wanted to charge China the same market-based prices that had caused such hardship in Europe. China bargained hard to get the deal it got.

There are proposals for pipelines than can deliver natural gas to northern China from Siberia. China is expected to enter the Sakhalin Island gas project in Russia.

China has won a multi-billion deal to develop gas concessions in Turkmenistan. In April 2006, China and Turkmenistan signed a deal in which Turkmenistan would sell natural gas to China and China would help Turkmenistan build a pipeline to deliver it. China has been invited to develop Bolivian gas fields.

China's Middle Eastern Sources of Oil

China gets much of its imported oil from the Middle East---45 percent in 2006. In the past it has gotten as much as 85 percent. In December 2005, OPEC began negotiating directly with China. OPEC nations are looking to work out long-term contacts with China.

Saudi Arabia and Kuwait are investing heavily in Chinese refineries to keep China as a reliable customer. Kuwait has agreed to build a $5 billion refinery and petrochemical plant in Guangdong Province; Saudi Arabia has promised to spend $3.5 billion upgrading a refinery in Fujian Province.

In January 2006, during a visit by King Abdullah of Saudi Arabia to Beijing, China and Saudi Arabia signed an energy deal that call for “cooperation in oil, natural gas and minerals” that paved the way for guaranteed energy supplies from Saudi Arabia to China and investment by the Chinese in energy development projects in Saudi Arabia.

As of 2006, China got 14 percent of its oil with Iran. A large area in Iran’s Azadegan field that originally was going to be developed by Japan was given to China

See China’s Search for Oil Abroad Below

See Middle East, International

China’s Search for Oil Abroad

China seems to be making deals with every oil producing nation there in an efforts to secure enough oil for its long term needs. As of 2004, China had invested more than $15 billion in global oil exploration ventures and had plans to spend 10 times that amount over the next decade. It was also throwing about large amounts of money to secure long term contracts for oil.

China is cooperating with 27 other countries in oil exploration ventures. Chinese oil companies have invested heavily in projects in Kazakhstan, Iraq, Iran, Venezuela, Russia, Nigeria, and Kuwait and unlikely places like Sudan, Myanmar, Peru, Australia and Syria. In many of these places it is building roads and ports in exchange for oil supply contracts. Human right records, good or bad, make little difference to China.

China often goes to places the major oil companies have skipped over because they are not profitable enough. China is building roads, electricity facilities and nice homes for government officials in Africa in return for permission to drill in remote sites. China has committed $2 billion in Angola on field that only has an output of 10,000 barrels a day and has a 40 percent stake in the Greater Nile Oil project in Sudan. It also has deals with Gabon and Cameroon and is planning to help Niger look for oil.

China has a $1 billion deal with Brazil that includes building a pipeline and is developing fields in Venezuela. It is negotiating a $2.3 billion investment in an oil and gas field in Nigeria; exploring for oil in the Congo; looking for natural gas in Bolivia; securing gas rights from Uzbekistan; investing $200 million in oil and gas in Myanmar; and working out deals with Mexico and Cuba. .

China has taken great interest in the oil sands in Canada and has invested in mining companies there and on a pipeline that moves oil from the interior of Canada to shipping ports on the Pacific where the oil can be transported to China. China is deeply involved in developing the Athabasca oil sands---the world’s largest petroleum resource--- in Fort McMurray in northern Alberta Canada with the Syncrude, a giant Canadian oil producer. Part of the projects has included wooing an Indian chief that controls the land where the development is taking place.

China is aggressively going after natural gas in Turkmenistan, investing a lot of money to develop a site there and build a pipeline from Turkmenistan to China. This puts it at odds with Europe, which also wants gas from Turkmenistan, which is roughly equidistant between Europe and China. Unlike the European Union, a 30-nation consortium, that takes its time to make a decision, China can mobilize its resources quickly and move decisively which it has done on Turkmenistan. Getting gas from Turkmenistan also makes China less reliant on gas from Russia.

In April 2009, the China National Petroleum Corporation (CNPC) outbid rivals from India and Russia to obtain Mangistaumunaigaz, Kazakhstan’s fourth largest oil company.

China’s Search for Oil in the Middle East

China is drilling for oil in Saudi Arabia and entering into energy development deals with Iran. In October 2004, Beijing signed a 30-year, $70 billion deal to give Chinese companies a 51 percent stake in the huge Yadavaran oil field, Iran’s largest offshore field. along with a promise to develop an untapped area. Parts of the deal were finalized in 2007 while the United States was disouraging such deals as it tried to isolate Iran and impose sanctions on it overs its nuclear weapons program.

China is a major trading partner with all the countries in the Persian Gulf, supplying them with a wide range of products and getting oil and gas in return. Trade between the Persian Gulf states and China reached $20 billion in 2004, up from $16.9 billion in 2003. Trade between Iran and China reached $7 billion in 2004, up from $5.6 billion in 2003. China has angered Washington by offering to help Iran with its nuclear program.

In July 2009, Chinese and Iranian officials signed a deal that would give China most of a new concession in Iran’s Azadegan oil field, largely seen as a blow to Japan which had wanted the stake.

Iraq-China Oil Deals

In August 2008, China and Iraq signed an oil deal with an estimated worth of $3 billion. The first major oil deal that the Iraqi government made with a foreign country since the U.S.-led invasion in 2003, the deal was signed by the Iraqi government and the China National Petroleum Corporation (CNPC) and is largely seen as a Chinese beachhead into oil-rich Iraq.

According to the terms of the 20-year deal China will help Iraq develop the Ahdab oil field southeast of Baghdad and be paid for the service not a share on the profits. The deal is a revival of a contract struck with te Saddam Hussein in 1997 that was sidetracked by United Nations sanctions and the invasion. It calls for production to begin at 25,000 barrels a day and advance to 125,000 barrels a day.

In October 2009, Iraq signed a deal with CNPC (China National Petroleum Corporation) and Britain’s BP to develop the massive Rumaila oil field. CNPC and BP promised to invest $50 billion in developing the Rumalia oil field in Iraq, a plan that could triple the oil field’s output. The agreement was the first big oil deal for Iraq since the 2003 invasion. It appears that China was able to win the deal and get a jump on its rivals because of willingness to put up with security risks.

China had a deal with the Saddam Hussein government in Iraq to develop oil fields there. But everything changed after the U.S. invaded Iraq and threw the Saddam government out. China’s experience in Iraq was valuable lesson. It showed Beijing that it needed to find oil outside the Middle East and that it was in head to head competition with the United States for the world’s oil.

China and Saudi Arabia Sign Energy Deals In the Midst of Calls for Sanctions on Iran

In January 2012, AFP reported: China signed energy deals with its top oil provider Saudi Arabia as its Premier Wen Jiabao visited the kingdom with tension over Iran's nuclear programme sparking fears of major oil supply disruptions. The Chinese leader met King Abdullah Saudi state news agency SPA said, adding that the two leaders "discussed regional and international developments, as well as cooperation between the two countries." Saudi Arabia is the largest supplier of oil to energy-hungry China and bilateral trade between the two countries amounted to $58.5 billion in the first 11 months of 2011, according to Xinhua Chinese news agency. [Source: AFP, January 15, 2012]

The two countries inked several economic and cultural agreements on Sunday including a Memorandum of Understanding between Saudi petrochemical giant SABIC and China's Sinopec to build a petrochemical plant in Tianjin, SPA said. They also signed a cooperation agreement for the "peaceful use of nuclear energy," it added without elaborating.

The Gulf tour will also take Wen to the United Arab Emirates and Qatar. His trip comes as the West ups the stakes in its standoff with Iran, threatening to impose sanctions on the oil exports of the Islamic republic, which provides 11 percent of China's oil imports. Iran is the third largest provider of oil to China. Qatar and the UAE, although both major oil-producing states, do not yet figure among the top 10 oil exporters to Beijing.

The visit comes days after Wen met with US Treasury Secretary Timothy Geithner, who was in Beijing to drum up support for the new US sanctions that aim to squeeze Iran's crucial oil revenues. The measures bar any foreign banks that do business with Iran's central bank -- responsible for processing most oil purchases in the Islamic republic -- from US financial markets. But China opposes the sanctions on Iran, which Washington and other nations accuse of developing nuclear weapons -- a claim denied by Tehran. Iran has starkly warned Gulf states not to make up for any shortfall in its oil exports under the new US and EU sanctions. If Arab neighbours compensate for a looming EU ban on Iranian imports, "we would not consider these actions to be friendly," Iran's representative to OPEC, Mohammad Ali Khatibi, was quoted as saying by the Sharq newspaper.

China and Sudan Oil

Andrew Higgins wrote in the Washington Post: China imported more than half the oil it consumed last year, with Africa its biggest source after the Middle East. The country’s largest African supplier by far was Angola, but most of that oil was simply purchased, not produced, by Chinese companies. In the Sudan region, by contrast, CNPC---the dominant partner in foreign consortiums operating there---actually pumped the oil from the ground. [Source: Andrew Higgins, Washington Post, December 24, 2011]

China, which gets nearly a third of its imported crude oil from Africa, has invested billions of dollars in the past 15 years to pump crude from this war-scarred land. But the division of what until five months ago was a united country has pushed Beijing into a political minefield in defense of its assets, straining China’s “just business” insistence that it doesn’t get involved in the internal affairs of foreign lands.

Chinese customs figures show that China imported 92 million barrels of crude from Sudan in 2010---or 70 percent of Sudan’s total oil exports as reported by the then united country’s Central Bank. China is also Sudan’s main supplier of arms and has big interests in railways and other Sudanese ventures. China’s economic interests in Sudan are so substantial that, according to a 2008 State Department cable published by WikiLeaks, ICC prosecutor Luis Moreno-Ocampo told the United States that they trump Beijing’s loyalty to Bashir. China “does not care what happens to Bashir, and would not oppose his arrest if its revenues were not interrupted,” Ocampo was cited as saying in a cable under the heading “China only wants oil, it doesn’t care about Bashir.” [Source: Andrew Higgins, Washington Post, June 22, 2011]

China, Oil and Sudan’s President Omar Hassan al-Bashir

Andrew Higgins wrote in the Washington Post: When the International Criminal Court in The Hague indicted Sudanese President Omar Hassan al-Bashir on war-crimes charges in Darfur in 2009, Zhou Yongkang, a member of the Communist Party’s Politburo Standing Committee and a former CNPC boss who had led the company’s 1990s expansion into Sudan, visited Khartoum to attend the opening of a Chinese-built refinery. He declared himself an “old friend of the Sudanese president.” [Source: Andrew Higgins, Washington Post, June 22, 2011]

In June 2011, venturing outside Africa on his first official journey since the International Criminal Court the issued a warrant for his arrest on genocide charges, Bashir visited China confident of one thing: He won’t get arrested. Bashir sorted that out two months before when he sent a trusted aide to Beijing for a meeting with Zhou Yongkang, the Chinese Politburo member responsible for law and order---and the former head of the China National Petroleum Corp. (CNPC), an enormous state oil company with billions of dollars invested in Sudan.

Oil has for years been the bedrock of China’s warm relations with Bashir, who was first indicted by the ICC in 2008, accused of war crimes and crimes against humanity relating to murder, rape, torture, ethnic cleansing and other actions in Darfur.

CNPC, South Sudan and Sudan

Andrew Higgins wrote in the Washington Post: China’s involvement revolves largely around the interests of a single company, the China National Petroleum Corp., or CNPC, a state-owned giant that, in its quest to match the global reach of Western oil majors and to feed China’s appetite for fuel, has dragged usually risk-averse Chinese diplomats into one of Africa’s most poisonous feuds. [Source: Andrew Higgins, Washington Post, December 24, 2011]

In the vanguard of China’s pursuit of energy and profit overseas, CNPC began looking abroad nearly two decades ago, just as Chinese industry’s appetite for oil started to overtake domestic production. Since then the company has invested in ventures from Peru and Venezuela to Iraq and Kazakhstan. But nowhere has CNPC poured in so much money and caused itself---and the Chinese government---so many headaches as in Sudan.

CNPC first plunged into Sudan, taking over fields originally developed by the U.S. company Chevron, which, alarmed by mounting violence, had pulled out. Shortly after this, Washington in 1997 imposed economic sanctions on Sudan, which it declared as a “sponsor of terrorism and a relentless oppressor of its minority Christian population.”

As Western companies retreated from Sudan as the violence escalated there, CNPC advanced, boosting production and investing in a pipeline to the Red Sea that, in 1999, allowed the first oil exports from Sudan. Stories spread of atrocities linked to CNPC’s oil wells, including accounts of Chinese-supplied helicopters gunning down villagers as the Sudanese military moved in to clear and secure oil-producing areas. Not all of the accounts were true, but CNPC, steeped in the secretive ways of China’s ruling Communist Party, which appoints the company’s boss, mostly ignored pleas from outsiders for information and access.

By the time Sudan and southern rebels signed a peace accord in 2005 to end Africa’s longest civil war, “China was the devil in the minds of many people here,” said Alfred Sebit Lokuji, an expert in local development at Juba University.

China, Oil and South Sudan

Roughly 75 percent of the Sudan regions’s oil wealth lies in now South Sudan, which officially become a separate state in July 2011. Andrew Higgins wrote in the Washington Post: When CNPC first took a stake in oil fields here in 1996, China placed all its chips on a brutal regime in Khartoum, selling arms and providing diplomatic cover as al-Bashir battled to crush southern rebels in what is now South Sudan . “During the struggle of the people of South Sudan, China took the side of the government in Khartoum,” said Pagan Amum, the secretary-general of the Sudan People’s Liberation Movement, or SPLM, a rebel outfit during the civil war that is now South Sudan’s ruling party. “But that is history, a troubled history, and we will not allow ourselves to be hostages of the past.”

With same rebels who battled Khartoum now running ministries in Juba in the new country of South Sudan, China is rushing to hedge its bets, offering Khartoum’s foes in the south a package of development aid and low-interest credit that hasn’t been announced but that officials here say could be worth as much as $10 billion. China has tried to stay neutral but gets sniped at by both sides. “It’s a dilemma for China,” said Cui Shoujun, director of the International Energy Research Center at Renmin University in Beijing. China “tries to balance the south and the north but hasn’t come up with an effective way to do this.”

When it became clear independence for South Sudan was likely, China shifted gears, opening a diplomatic mission in Juba and reaching out to the SPLM. CNPC also set about mending fences, funding a computer center at Juba University. When Sudan split in July, the oil company began moving staff members from Khartoum to Juba, setting up offices, a dormitory and a canteen in a cluster of prefabricated huts at a Chinese-run hotel. China’s embassy is in the same compound. [Source: Andrew Higgins, Washington Post, December 24, 2011]

Newly relocated CNPC staff members are shocked by Juba’s primitive conditions. A poster on their office wall warns of “Five Major Hazards”---a list of diseases endemic in South Sudan. But, one staffer noted, at “least they sell beer,” unlike in Khartoum, where alcohol is banned.

South Sudan, which gets 98 percent of its revenue from oil pumped by CNPC-led foreign operators, has tried to woo Chevron, Halliburton and other U.S. oil companies but found no takers, leaving China as its only real economic partner. “Reality makes us work with people who are not our friends,” said Lual Deng, a southerner who served in Khartoum as petroleum minister before the country split. “We would prefer Western companies, but they are not coming.” South Sudan wants to rework deals that date to when CNPC first plunged into Sudan

China’s money hasn’t opened all doors. Nihal Bor, the chief editor of the Citizen, a local newspaper, recalled how a Chinese diplomat stopped by ahead of an August visit to Juba by Foreign Minister Yang Jiechi and offered to pay for the publication of “an interview” with Yang trumpeting Beijing’s friendship. But there was a snag: The paper would not get to see the minister, only to publish an embassy-scripted “interview” in return for cash. “We are not that desperate,” said the editor, who declined the offer.

Amum, the ruling party’s head, though, thinks China’s deep pockets offer the best hope for development in a country bigger than France but with only a few dozen miles of paved roads. China, he says, can help not just the oil industry, but also mining, agriculture and infrastructure. “There are no hard feelings,” Amum said. He has learned how to use chopsticks.

China’s Latin American Oil and Gas Deals

In March 2010, CNOOC paid $3.1 billion for a 50 percent stake in Bridas Corp., an Argentine energy firm with oil and gas assets in Argentina, Bolivia and Chile.

In October 2010, Sinopec said it planned to spend $7.1 billion for a 40 percent stake in Repsol Brasil’s deepwater oil assets in Brazil. Repsol Brasil is a subsidiary of Spain’s largest oil company. The deal gives China a major stake in one of the world’s largest oil frontiers. By some estimates the vast subsalt areas hold 50 billion barrels of crude.

China receives 460,000 barrels of oil a day from Venezuela to repay an $8 billion loan from China to Venezuela for infrastructure projects. China has a similar deal with Brazil’s state-run oil group Petrobras, giving it a $10 billion loan return for 200,000 barrels of oil a day. In May 2010, Venezuela agreed to a $20 billion loan from China that is part of deal to pump oil from the Orinoco Belt.

In 2009 Venezuela borrowed $6 billion from China and agreed to increase its oil exports to China, bringing China’s total investment in the country to $12 billion.

Natural Gas in Waters Between Japan and China

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Senkaku Islands map
There are large undersea natural gas fields in waters claimed by both China and Japan in the East China Sea about halfway between Okinawa and the Chinese mainland. The Chunxiao and Tianwaitian natural gas fields lie in China’s exclusive economic zone. The Chunxiao field covers 8,500 square miles and holds up to 9 trillion cubic feet of gas, enough to meet China’s needs for seven years.

The area is near a group of disputed islands claimed by Japan and China known as the Senkaku to the Japanese, Diaoyu to the Chinese and Tiaoyutai to the Taiwanese. The actual line of demarcation of the boundary of the exclusive economic zones (EEZ) between China and Japan is a matter of dispute. Japan wants to make a deal but China seems more intent and trying to get away with as much as it can without actually violating international law. China so far has drilled only waters in its EEZ but it has angered Japan because these areas are so close to the disputed border.

According to the United Nations Convention on the Law of the Sea each coastal nation controls a an economic coastal zone that extends 200 nautical miles (230 miles, 375 kilometers) from the shoreline. The distance between Okinawa ad China is about 400 miles. Japan advocated a median line between the two countries. China advocates setting its economic border on the eastern extension of the continental shelf, a concept that pushed the border 50 miles of f the Okinawa archipelago. It seems unlike the two countries will ever agree on the line.

An area of 400 square kilometers, or 150 square miles, lies at the heart of the dispute. Japan has suggested that Japan and China tap the gas fields together. Thus far China has rejected these offers. Japan has also demanded that China make pubic its survey and drilling results because two of the three major gas fields that China found are believed to extend into territory claimed by Japan. Beijing has reportedly awarded exploration right to Chinese companies to explore blocks that extend into Japan’s EEZ.

Four main natural gas fields from north to south (Chinese name in parentheses): 1) Asunaro (Longjing); 2) Kusunoki (Duanqiao); 3) Kashi (Tianwaitian), closest to the Chinese mainland; 4) Shirakaba (Chunxiao)

Drilling for Natural Gas in Waters Between Japan and China

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Senkaku Islands map, areas claimed
by Japan and China
In June 2004, China began developing the Chunxiao site. It is now aggressively drilling at Chunxiao and Tianwaitian while Japan has yet go beyond doing geological surveys partly because the most promising areas for oil and gas are in disputed areas. China has gas production platforms less than a mile west of waters claimed by Japan. Japan claims that this platform is sucking gas from a deposit that extends over Japan’s side of the line.

In 2004, China began laying 291-mile gas pipeline between Shanghai to Chunxiao. Ironically $120 million for the $1 billion project came from Japanese ad.

Japan has earmarked $125 million to search for oil I the disputed area. In March 2005, the Japanese hired a Norwegian seismic ship to do surveys for oil and gas, While it was doing so it was treated as a spy ship by the Chinese and followed by Chinese ships. Japan is spending $100 million for its own seismic ship.

In 2005, the Japanese government awarded the Japanese company Teikoku Oil right to drill for oil at three sites near the “median line” that Japan says divide the Japan’s and China’s EEZ. In July 2005, China called Japan’s plan for drilling “a violation.”

In September 2005, Japan urged China to stop developing the disputed gas fields and called for joint exploration. In March 2006, China proposed that Japan and China jointly explore for oil and gas at one site the East China Sea together. Japan rejected the proposal. The site proposed by China is thought to be one that doesn’t contain much oil or gas. The disputed areas where gas has been found were not part of the proposal. Japan repeated its suggestion that the disputed areas should be jointly developed.

In October 2006, Chinese President Hu and Japanese Prime Minister Abe agreed to aim to resolve the dispute early with some of joint development. And promised to make the East China Sea a “sea of peace, cooperation and friendship.”

China began production at the Chunxiao field in the first half of 2006. An official with CNOOC said China intends to “launch normal production operations on its own territory.” According to a CNOOC year end report for 2006 listed on its website production at Tianwaitian field was 113,267 cubic meters of natural gas a day and 42 barrels of oil a day. Production is believed to be much higher than that. No production figures were given for the Chunxiao, Canxue and Duanqiao fields.

Natural Gas Deal Between Japan and China

In 2008, China and Japan agreed to share the development of the Shirakaba and Asunaro gas fields. The agreement to develop the Shirakaba field was announced during a visit by Chinese President Hu Jintao to Japan.

Japan has offered to provide much of the funding for joint development of natural gas deposits in the East China Sea. China is reluctant to a agree to joint development because it feels that such an agreement would invalidate China’s claim on the entire continental shelf.

In June 2008, Japan and China reached an accord on developing the natural gas fields in the East China Sea, with Japan investing in a gas field already operated by China (the Chunxiao field) and the two nations jointly exploring an area not yet developed (the Asunaro gas field, which China calls the Longjing field). An agreement was not made on the Asunaro field, in part because of South Korean claims in the area.

After the agreement was made Japan discovered that China was developing a natural gas field known as Tiawaitan to the Chinese and Kashi to the Japanese and lodged a complaint saying development of the site went against the sprit of the agreement. China responded by saying that it had the right to drill at the site.

Pipelines and Energy Transportation in China

See Russia, Japan, Kazakhstan

A new 600-mile pipeline between western China and Kazakhstan opened in 2006. Begun in September 2004, it carries oil from the Caspian Sea in Kazakhstan to the Chinese border, where it connect with the pipeline to China’s east coast. See Kazakhstan

A new 1833-kilometer-long natural gas pipeline between Turkmenistan and Xinjiang in western China visa Uzbekistan and Kazakhstan was opened in December 2009. It is expected to reach full annual capacity of 40 billion cubic meters by 2012-2013. Before the pipe Turkmenistan gas was largely controlled by Russia.

In November 2007, China and Kazakhstan agreed to construct a natural gas pipeline in 2008-2009 that will bring Caspian Sea gas to China. As it stands now Kazakhstan and Turkmenistan rely pipelines controlled by the Russian Gazprom monopoly, to get their gas to China. .

Much of the oil from Russia arrives by train via the Trans Siberian Railroad. After awarding Siberian pipeline to Japan rather than China, Russia promised to increase its oil shipments by rail to 300,000 barrels a day.

See Malacca Strait, Asia

Image Sources:

Text Sources: New York Times, Washington Post, Los Angeles Times, Times of London, The Guardian, National Geographic, The New Yorker, Time, Newsweek, Reuters, AP, Lonely Planet Guides, Compton’s Encyclopedia and various books and other publications.

Last updated April 2012


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