China May Allow Foreign Oil Firms to Search on Mainland

China plans to allow foreign oil companies to expand their activities by permitting them to search for oil on the mainland as well as offshore, the official China Daily newspaper said Saturday.

The decision “is one of the most important” China has made since first inviting foreign companies to join the search for offshore oil in 1980, the English-language newspaper quoted an official of the Petroleum Industry Ministry as saying. It did not identify the official.

An area of 732,000 square miles in 10 provinces will open for foreign cooperation, it said. The provinces involved are Anhui, Fujian, Guangdong, Guangxi, Guizhou, Hunan, Jiangsu, Jiangxi, Yunnan and Zhejiang, all in east-central, southeastern and southern China.

The report said China’s own exploration techniques “are not sufficiently advanced to tap the immense potential of the vast areas which have yet to be exploited.”

‘Flexible Policies’

“China will adopt flexible policies in order to encourage foreign oil companies to join us in the exploration and development of inland oil and gas fields,” the petroleum ministry official was quoted as saying.

In Shanghai and other industrial areas, many factories operate at 75% of capacity because of a shortage of electricity. While China is the world’s third-largest coal producer, much of the coal is in remote regions and is difficult to transport to industrialized areas.

China’s coal and oil output increased by 8% last year but failed to keep pace with the 14% increase in industrial output.

Offshore oil exploration has failed to produce the large supplies the Chinese hoped for. So far, only one large gas field and two medium-size oil fields have been found.

However, on the mainland the Chinese already have found 10 new oil and gas fields in Guangdong, Guangxi and Jiangsu, the report said.

Some foreign firms already are working on contracts for surveying and drilling in scattered locations, including China’s largest oil field, Daqing, which is located in the northeast province of Heilongjiang.

But large-scale foreign involvement has been restricted to offshore wells. Thirty-one foreign companies have spent about $1 billion on the effort since 1980. A second round of bidding for offshore exploration rights is in progress.