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The Australian: Silk Road leads to China’s oil riches

EXTRACT: Shell, Europe’s second-largest oil company, might bid when PetroChina’s Tarim areas were offered, said Lim Haw Kuang, executive chairman of the company’s China operations.


Beijing wouldn’t let the world’s biggest sandy desert stand in the way of its energy ambitions
Monday November 13, 2006

CHINA will complete a highway across the world’s biggest sandy desert, near the ancient Silk Road, six months before schedule to tap oilfields in the west of the country and reduce reliance on imports.

The road across the Taklamakan desert, near China’s nuclear bomb test site in Xinjiang, would open in June after 22 months of construction, said Li Lixin, head of the highway project office. The journey for rigs and oil workers from Aksu city in the north to the Tarim Basin in the south, where a third of China’s oil reserves are, would be halved.

China’s second highway across Taklamakan will increase access to the basin, the size of France, for Royal Dutch Shell, Chevron, Total SA and other potential bidders for exploration rights in the area. Dependence on oil imports in the world’s fastest-growing economy would almost double by 2030, the International Energy Agency said yesterday. “Poor infrastructure is always a concern for oil developers,” said Liu Gu, an oil analyst with Guotai Junan Securities. “The investment on this highway is small compared with the huge exploration costs.”

The 560,000sqkm Tarim basin had 520 million metric tonnes of proven oil reserves, enough to supply China for 1 1/2 years, and 724.1 billion cubic metres of gas, enough for 12 years, based on present consumption, said Sun Longde, president of PetroChina Tarim Oilfield, a unit of the nation’s largest oil company. He said the basin had estimated reserves totalling 8 billion tonnes of oil and 10 trillion cubic metres of gas.

PetroChina’s parent, China National Petroleum, planned to offer 12 oil-drilling areas, covering a fifth of Tarim, to foreign investors because the unit lacked experience and technology to develop desert wells, PetroChina director Sun Tairong said.

The new 424km, 797 million yuan ($132 million) highway will connect Aksu city, on the northern rim of the Tarim basin, next to mineral-rich Kyrgyzstan, with Hotan in the south.

“It will facilitate the transportation of goods, including energy products,” Mr Li said. “It will reduce the distance between Aksu and Hotan from 1000km to between 400 and 500km.”

The Government of Xinjiang, China’s largest province, provided 80 per cent of the funding for the road and took bank loans for the remainder, Mr Li said. “We bought the tar from China National Petroleum. “The company sourced it from its Karamay field in the Junggar Basin, the first large oilfield found in the region.”

The first 567km, 800 million yuan highway across Taklamakan was built by China National Petroleum in 1995 to connect Hotan to Karla in Xinjiang, and link with transport networks in Mongolia. The road needed constant maintenance to prevent it from being buried under shifting desert sands, adding to development costs, Mr Li said.

A rose willow “defence forest” alongside the highway that helps to keep the sand back cost PetroChina more than 200 million yuan, he said. The company hires labourers to look after 101 wells that help irrigate the 400km forest. The workers were paid a barrel of water, delivered every 10 days, food and 1200 yuan a month, Mr Li said. “On our road, we will use dry reeds instead, which are cheaper than rose willow,” he said.

China is tapping fields in the remote Tarim Basin as domestic output has failed to keep pace with soaring demand, forcing imports to more than double in a decade.

China’s reliance on imports would rise to 77 per cent by 2030, Paris-based IEA, which advises 26 industrialised nations, said in its World Energy Outlook report yesterday. China imports about 40 per cent of its oil now.

President Hu Jintao earlier this month pledged investments and aid to Africa as China scours for oil assets overseas to supply an economy that grew 10.7 per cent in the first nine months this year.

Daqing oil field in eastern Heilongjiang province, accounting for a quarter of China’s output, is in decline as it ages. The field, which has been pumping since 1959, may slip to 40 million tonnes by 2010 from peak production of 56 million tonnes in 1997.

PetroChina expects output in the Tarim basin area to reach the equivalent of 15 million tonnes of oil this year, up from 10 million in 2005. That’s about 10 per cent of China’s 2005 oil consumption. “PetroChina will rely on the output growth in western China, including Xinjiang, to offset the drop in Daqing in the east,” Mr Liu. “The company will be able to maintain the current output and see a slight increase in future.”

PetroChina pipes natural gas from Tarim through the 4000km West-East pipeline to users in the east, including Shanghai. Gas is also carried to northern China, including Beijing, through a network of pipelines.

Shell, Europe’s second-largest oil company, might bid when PetroChina’s Tarim areas were offered, said Lim Haw Kuang, executive chairman of the company’s China operations. “We have started the bidding process,” Mr Sun said. Total and Chevron are among foreign companies that have requested details..

Meanwhile, PetroChina is tapping overseas firms to help reach the oil needed in China. The company hired Schlumberger, the world’s largest oilfield services provider, to drill about 100 wells in Tarim, paying $10 million every year in fees, said Han Fei, a director of Schlumberger’s Xinjiang operations.

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