Western firms step up hunt for oil in China's `Wild West'

The great oil hunt in the heart of China's ``Wild West'' has begun in earnest. At stake is a potentially huge source of petroleum -- larger than all the oil in Saudi Arabia, according to some Western estimates made in the 1970s.

China needs the oil. Although it is one of the world's top 10 oil producers, turning out 2.3 million barrels a day, it exports a quarter of its production (principally to Japan) in return for as much as 20 percent of its annual foreign exchange income.

The recent decline in the worldwide price of crude has cut heavily into China's foreign exchange earnings.

At the same time, China's major oil fields show signs of having reached their production peak.

The Daqing field in Manchuria, which produces 1 million barrels a day, may be exhausted by the 1990s. Shengli, near Bohai Bay, is a younger field but produces only 460,000 to 500,000 barrels a day.

``An oil field has a life of about 30 years,'' says a Western oil company representative in Peking. ``The major Chinese fields are reaching that age. The problem is that the Chinese, like the Russians, don't know how to use secondary and tertiary recovery techniques to get more out of their wells. They need new finds.''

Western oil firms could also use a new Chinese oil find right now. Many of them believe that China is the last great untapped oil region in the world.

But Western oil firms are still smarting from disappointing finds off the coast of South China.

In the past few years some of the world's leading oil companies have shelled out more than $1.5 billion in expenses -- only to drill dry holes or wells that yield modest amounts of oil.

Last year, China opened up 10 southeast provinces to foreign firms for onshore exploration and began a second round of bidding for new offshore concessions.

But many foreign oilmen are not impressed.

``I doubt we'll find too much in those areas,'' says a Western oil executive in Peking. ``Everybody suspects the real action is in Xinjiang.''

The Xinjiang Uygur Autonomous Region is still off limits to Western oil companies to develop. But since 1980, Peking's Ministry of Petroleum Industry has hired Western survey companies to look for oil in the region.

Even though Soviet drillers first discovered oil in Xinjiang in 1956, the intervening years of economic and political upheaval in China prevented Chinese surveyors from adequately exploring the area themselves.

Now, Peking is using foreign crews to look for oil and also to train young Chinese in the latest geophysical techniques.

French geophysical survey crews working in and around Karamay -- a day's drive north of this capital of Xinjiang -- and American crews in the Tarim Basin to the south have yet to find solid evidence to support the claim that China could be another Saudi Arabia.

``However, it's possible,'' says Bernard Duverge, a geophysicist with Compagnie G'en'erale de Geophysique, a French oil survey firm. His company keeps a crew of six at Karamay year-round.

Schlumberger, the giant French oil-drilling and equipment company, maintains a survey crew of three there. Both companies have been surveying northern Xinjiang's Junggar Basin since the early 1980s.

More recently, US firms have begun surveying the Tarim Basin and the harsh Taklimakan Desert south of Xinjiang's forbidding Tianshan mountain range, which slices across the region from west to east.

Delivering oil from Xinjiang to the outside world will be a struggle for anyone who makes the attempt.

The nearest major refinery for the 40,000 barrels of oil pumped each day at Karamay is in Lanzhou, Gansu Province, a day's trip by train. Either Western firms or the Chinese government would have to build a pipeline from Xinjiang across China to the major cities of the east coast in order to export the crude.

And there are no guidelines for developing the area.

Asked about China's Xinjiang oil policy, a spokesman for the Ministry of Petroleum Industry replied, ``We don't have one.''

In addition, ``the Chinese are not likely to draw up a model contract for Xinjiang any time soon,'' says a Western oil firm official in Peking.

The autonomous region's location and the fact that most of the Junggar Basin's known oil reserves are scattered in pockets along Xinjiang's borders with the Soviet Union and Soviet-controlled Mongolia make Xinjiang vulnerable to invasion. Incidents on the Xinjiang-Mongolia border lead the Chinese to believe the Soviets have designs on Xinjiang oil fields.

The Chinese also face the possibility of an uprising from Xinjiang's indigenous Muslim Uygur population.

Since 1955, when China first occupied the area, Han Chinese and Uygurs -- who speak a Turkic dialect, write in Arabic script, and have Caucasian features -- have clashed each year. A pitched battle between the two sides in Kashi (Kashgar) in the mid-1970s closed the city to outsiders for several years. Since that time, the two groups have maintained a wary coexistence.

Of course, these considerations would pale beside the reality of a major oil find. That prospect keeps the survey crews working.

Being an oil geophysicist ``is like being a thief who breaks into a safe,'' says Mr. Duverge, a 25-year veteran of oil surveys in Africa, Asia, Europe, and the United States.

``You drill a hole and hope there's money in there. Sometimes there is, sometimes there isn't.''

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