PetroChina,
the nation's largest oil producer, is applying for exploration and
production licenses for the South China Sea, hoping it will become
a cash cow as new onshore supplies have been stagnant in recent
years.
Analysts said PetroChina's move could intensify the competition
in the offshore oil and gas sector, although it will be difficult
to shake the dominance of China National Offshore Oil Corp. (CNOOC) in Chinese
waters in the short term. It will take time for PetroChina to
accumulate experience, technology and skill in offshore operations,
which are more complicated and risky.
PetroChina, listed on the New York and Hong Kong stock
exchanges, has applied to the Ministry of Land and Resources for
oil and gas exploration and development licenses in the southern
South China Sea.
A senior engineer with Exploration and Development Research
Institute of the China National Petroleum Corp. -- PetroChina's
parent company -- said that the government is encouraging domestic
oil companies to accelerate offshore exploration.
The government seeks to increase oil and gas supply to alleviate
the risk of over-reliance on imports.
China's potential undersea oil fields have not been exploited to
the same extent as the land fields.
Offshore oil output last year reached 20.9 million tons, up 4.2
percent from the year before, and accounting for 13.0 percent of
China's total oil output.
CNOOC and its foreign partners produce nearly all of China's
offshore oil.
But the CNPC engineer noted that the offshore area is too large
for CNOOC to work alone. "The government is coordinating the
relationship among Chinese oil companies to allow more players in
the area," he said.
Traditionally, PetroChina conducts its exploration and
development activity onshore and in shallow waters, although there
are no legal or regulatory restrictions to keep it from working in
waters deeper than five meters.
PetroChina's production has been flat for several years and most
of its oilfields are drying out after decades of use. Few
significant new finds have been made.
Analysts said PetroChina chose the South China Sea because CNOOC
has done little exploration in the area, increasing PetroChina's
chance of making new discoveries.
If PetroChina's license is approved, all three of the nation's
largest oil companies will be permitted offshore exploration.
Sinopec, the
second largest oil company in China, won offshore exploration
rights after it acquired China National Star Petroleum Company four
years ago. It is working with CNOOC, Royal Dutch/Shell and Unocal
to search for natural gas in the East China Sea.
Experts said that PetroChina's participation is unlikely to rock
CNOOC's dominance in the short term. Offshore exploration costs
could run five to six times higher than onshore, offshore
exploration entails greater risk.
Also, PetroChina lacks the experience, equipment, talent and
technology to tap the South China Sea where geographical features
are more complicated. Some experts believe PetroChina will have
difficulty unless it teams up with a foreign company.
The current laws and regulations make CNOOC the sole company
eligible to partner with foreign companies to conduct exploration
and development in Chinese waters.
PetroChina's approach paves the way for it to apply for right to
cooperate with foreign partners in offshore production.
(China Daily July 6, 2004)