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THE WALL STREET JOURNAL: Cnooc Taps Gas Field That Is Part of Dispute With Japan

DOW JONES NEWSWIRES
April 6, 2006
SINGAPORE — China's biggest offshore oil-and-gas producer, Cnooc Ltd., has quietly started pumping natural gas ahead of schedule from a field that is part of a continuing border dispute with Japan, a person familiar with the situation said.
State-owned Cnooc began production at the Chunxiao field Jan. 28, the person said. This occurred just as another round of sensitive talks on China's longstanding border dispute with Japan was to be held — and only a day after a company spokesman said production would be delayed until later in the first half of this year. The person said Cnooc didn't announce that it had begun production to keep from undermining the talks.
The revelation comes as relations between Asia's two biggest economic powers continue to falter. Earlier this week, Japan rejected an offer by Chinese President Hu Jintao to hold a summit, the Chinese foreign ministry said. Tokyo said the offer was conditional on Prime Minister Junichiro Koizumi's moving to halt visits to a contentious war shrine, a demand Japan has rebuffed.
Last year, simmering Chinese resentment over the countries' wartime history spilled over into massive anti-Japanese protests, which threatened the two countries' business links. China alleges that Japan has failed to acknowledge atrocities it committed during its invasion and occupation of China up to the end of World War II. Beijing has worked to block Japan's campaign for a permanent seat on the United Nations Security Council.
As China's economy grows and its own domestic supplies of oil and gas dwindle, it is increasingly competing with Japan for scarce energy resources, such as oil from Russia or natural gas from Australia. Japan is entirely dependent on imports for oil and gas.
The gas fields lie in the East China Sea, which separates China's eastern coast and Japan's southern island chain of Okinawa. The fields lie near what Japan says is the median line between the two countries' 370-kilometer exclusive economic zones. These give a country sole rights to resources, such as fish and minerals. Japan accepts that the Chinese drilling is taking place in Chinese waters, but it is concerned the drilling might suck natural gas out of deposits on the Japanese side of the line.
China doesn't officially recognize the midway line and says its exclusive economic zone includes areas to the east of it. Responding to a question about the start-up of production, an official from the spokesman's office of China's Ministry of Foreign Affairs said yesterday that he didn't know the specifics. But he said generally that “China's natural-gas development is totally within coastal waters which are not under dispute with Japan.”
A spokesman for the Japanese Ministry of Foreign Affairs said he has no comment because the ministry hasn't confirmed that actual production has started. He said the overall gas-field dispute “should be resolved through negotiations, not through unilateral actions.”
Japan refers to the gas field by the name Shirakaba.
A Cnooc official said Chunxiao is ready for operations, but the official couldn't comment on whether production had already started.
Write to Dow Jones Newswires editors at [email protected]

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