Chinese official calls for joint US-China oil fields

Sept 11, 2006 (HANGZHOU, China) — A senior Chinese official for energy policy said China and the U.S. should jointly develop oil fields to protect against the risks of supply disruptions and the rising costs of production both countries face.

Zhang Guobao, vice chairman of the National Development and Reform Commission, said the U.S. and China, the world’s two biggest oil consumers, “need to oppose the cold war mentality” and work together to guarantee stable world oil supplies and prices. His comments, at an industry forum yesterday in the eastern Chinese city of Hangzhou, came days ahead of a planned meeting between top U.S. and Chinese energy-policy makers.

Mr. Zhang’s remarks appeared aimed at growing anxiety in the U.S. over China’s energy ambitions. China’s oil demand has surged in recent years, far outstripping domestic supplies, as automobile purchases have boomed and the economy has grown around 10% or more annually. That has prompted China’s energy companies to pursue more overseas oil deals, triggering concern in the U.S. Those worries last year forced Cnooc Ltd., China’s largest offshore oil producer, to drop a bid to buy California-based Unocal Corp.

U.S. and other foreign oil companies are already working alongside Chinese counterparts in developing some Chinese oil fields. It isn’t clear if Mr. Zhang’s suggestion to increase cooperation will be backed up by any concrete proposals when he meets tomorrow with his counterpart, Karen Harbert, U.S. assistant secretary of energy for policy and international affairs.

China’s overseas energy push is expected to be a central topic at that meeting, the second in what is called the U.S.-China energy-policy dialogue, which will include Chen Deming, who is in line to succeed Mr. Zhang when he retires this year.

China’s big oil companies, all of which are government-controlled, are relatively minor international players. But they have deep pockets, an ability to sweeten deals — with perks like government loans or infrastructure projects — and a readiness to go into countries that the U.S. shuns such as Sudan or Iran. Those factors are making them serious competitors. Some U.S. officials fear China’s quest to own energy sources in places like Africa and Latin America could keep out U.S. oil companies and undermine U.S. foreign-policy efforts.

U.S. energy firms also are concerned about China’s policies governing its domestic market. U.S. oil producers have quietly complained to U.S. officials about a windfall energy tax imposed last March on both domestic and foreign companies without any advance warning. Oil companies are getting the bills, but they still aren’t certain exactly how the new tax — which is assessed on a sliding scale on oil sold for more than $40 a barrel — is being calculated. “The single biggest message that I have heard from U.S. [oil] industry here is the need for better transparency when doing business in China,” said Jeffrey Jarrett, assistant secretary of fossil energy at the U.S. Energy Department. The new tax “snuck up on them,” he said.

Separately, Mr. Zhang predicted yesterday that China would be able to reach its goal of increasing its energy efficiency despite an early setback. “The saving room is great. We can reduce energy by using imported technology,” he said. “We have confidence we can reach this goal.”

(Dow Jones)