News / Asia

    China in $5 Billion East China Sea Gas Drive

    Woman walks past a poster showing an offshore work platform from of China National Offshore Oil Corp. (CNOOC), outside its Beijing headquarters, Dec. 2012 file photo.
    Woman walks past a poster showing an offshore work platform from of China National Offshore Oil Corp. (CNOOC), outside its Beijing headquarters, Dec. 2012 file photo.
    Reuters
    Chinese state-run oil companies hope to develop seven new gas fields in the East China Sea, possibly siphoning gas from the seabed beneath waters claimed by Japan, a move that could further inflame tensions with Tokyo over the disputed area.
     
    Beijing had slowed exploration in the energy-rich East China Sea, one of Asia's biggest security risks due to competing territorial claims, but is now rapidly expanding its hunt for gas, a cheaper and cleaner energy to coal and oil imports.
     
    State-run Chinese oil and gas firm CNOOC Ltd. will soon submit for state approval a plan to develop Huangyan phase II and Pingbei, totaling seven new fields, two industry officials with direct knowledge of the projects told Reuters.
     
    The approval would bring the total number of fields in what is called the Huangyan project to nine.
     
    China is already working on Huangyan I which has two fields approved. The Huangyan project is expected to cost more than 30 billion yuan ($4.9 billion), including 11 production platforms now under construction at Chinese shipyards.
     
    If approved, the seven new gas fields would not see a big jump in China's total gas output, supplying only a fraction of last year's 106 billion cubic meters (bcm) and dwarfed by operations in the disputed South China Sea and Bohai Bay off north China. Chinese geologists said gas deposits in the East China Sea region were much smaller and more scattered.
     
    The greater issue is the political risk if Beijing approves the new gas fields. Tensions over the East China Sea have escalated this year, with Beijing and Tokyo scrambling fighter jets and ordering patrol ships to shadow each other, raising the fear that a miscalculation could lead to a broader clash.
     
    "It's a sign of impatience on the side of the Chinese, stemming from a lack of movement on the Japanese side on the gas fields issue," said Koichi Nakano, associate professor of political science at Sophia University in Tokyo.
     
    China and Japan in 2008 agreed to jointly develop hydrocarbons in the area, but Tokyo wishes to settle the issue of maritime boundaries before developing the gas fields.
     
    "The question is what will be Japan's response and whether they would be able to talk China out of a unilateral move," said Nakano. "But escalation of tensions leading to a war? I don't think so. The Americans will be watching this situation with grave concern and may play a role of a mediator here."
     
    A spokesman for Japanese Prime Minister Shinzo Abe said: "Our understanding is that Japan and China should continue to have dialogue on the issue of joint exploitation of this area, so any unilateral action should not be accepted."
     
    Even if the National Development Reform Commission gives approval for the new gas fields, the pace of the development could be determined by China's Foreign Ministry which requests oil companies to seek its approval before every drilling. Such permission may be influenced by tensions with Japan at the time.
     
    Major East China Sea expansion

    China and Japan disagree on where the maritime boundary between them lies in the East China Sea. Beijing says its activities are in the Chinese territories, while Tokyo is worried the Chinese drilling near the disputed median line would tap into geological structures in its waters.
     
    Japan lodged a protest early this month after detecting well construction works at Huangyan I about 26 kms (16 miles) west of the disputed median line. China's foreign ministry rejected the protest as a baseless, saying Beijing had the right to drill in its sovereign waters.
     
    U.S. Energy Information Administration estimated in 2012 that the East China Sea has between 1 and 2 trillion cubic feet (28-57 bcm) of proven and probable natural gas reserves, a modest gauge versus estimates by Chinese sources at up to 250 tcf in undiscovered gas resource.
     
    If approved, the new gas fields would supply China's manufacturing hub of Zhejiang province, about 400 km (249 miles) away on the east coast, with production slated to start in the fourth quarter of 2015, said the officials.
     
    The fields would have a combined annual production capacity of nearly 4 bcm, up from the region's current output of less than 1 bcm, and would account for about 2 percent of China's estimated gas output by the end of 2016.
     
    CNOOC and partner Sinopec Corp. are already developing Huangyan I, which was officially approved by the National Development & Reform Commission in June 2012 and is due to start producing gas in September next year. Also on the planning board is Pingbei II, expected to come on line in 2016.
     
    CNOOC media officials declined to comment on the new developments and industry sources quoted for the story declined to be identified due to the sensitive nature of the topic.
     
    China fast-tracking hunt for gas

    China, the world's top energy user, is on a fast track to boost the use of natural gas, with demand for gas forecast to grow more than fourfold by 2030 from the 147 bcm last year. China is the world's fourth biggest gas consumer.
     
    China first started pumping gas in early 2006 from the Chunxiao field, part of the massive Xihu trough, but territorial disputes have hindered an industry keen to explore and develop the region, Chinese industry experts said.
     
    "China has made compromise, having slowed down the works quite a few years," said a state oil official. "The cards are in the hands of Chinese, as companies are capable of developing [this area] after all the explorations done over the years."
     
    China's plan to expand East China Sea operations comes after a near six-year lull in investment in the area, since the 2008 agreement to jointly develop hydrocarbons in the area.
     
    "Since 2008 when the two nations reached a consensus for joint development, Japan has barely made any sincere diplomatic moves towards that direction," said Liu Junhong, research fellow at China Institutes of Contemporary International Relations. "It seems that Japan wants to settle the boundaries first before moving to cooperation, which is totally unrealistic."
     
    Under the proposed expansion plan, Huangyan II, which is adjacent to the disputed maritime border, would consist of two gas fields. Huangyan I has two fields.
     
    Pingbei, an uncontested area located in the western side of the Xihu trough, would have three fields under phase I and another two under phase II.

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    Comment Sorting
    Comments
         
    by: jonathan huang from: canada
    July 18, 2013 1:02 PM
    clearly it is a slap into the face to Japan as a punishment of its wrongdoing at Diaoyu island.
    What I can say, Japan is really stoopid of thinking it can confront against China. If there is no US support, China can terminate Japan in few days.
    In Response

    by: Frank from: O. county, USA
    July 19, 2013 5:01 AM
    No weapons or military forces are required to see China collapses. Air pollution, much bubble money for wasteful investment (shadow banking, military expansion), leaders' corruptions, economic divide, lawless diplomacy, no ethics/manners, contradiction between communism and capitalism, and so on will destruct China; therefore, neither US nor Japan is required to beat Chinese. China is a biggest disliked country in the world.

    by: Kamikaze from: Japan
    July 18, 2013 3:10 AM
    Again, Chinese showed their real characteristics, indicating that Chinese don't understand ethics and manners. Chinese started digging a big hole in the intermediate zone for which Sino-Japan agreed not to develop any gas field without permission from the other party. CPR is struggling with much difficulty in dealing with its bubble economy. CPR has no room to waste money in expanding its investment, because its GDP is going down at high speed.
    In Response

    by: Henry from: NYC
    July 18, 2013 9:24 AM
    Just like the real LDP characteristics of a dolt that ignore ethics and common sense. Japan nationalized the little island in the East China Sea. After China and Japan agreed for decades to shelve the dispute of ownership. Japan has and still is struggling with extreme difficulty in dealing with its ever raising national debt, stagnant GDP and deflation. LDP has no room to wiggle in its attempt to revived the economy by QE on steroids. LDP actions are leading Japan in direct confrontation with 4 of the top 5 export destination for Japan.
    Riddle me this. How do you justify LDP actions when the Japanese economy is based on exports.
    Kamakazi. "The Pot calling the kettle black" is the perfect idiom for any Japanese crying foul!

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