China Trade Information

Husky Oil China Ltd.’s plan to drill a second deepwater gas exploration well in the South China Sea may be delayed due to a global shortage of deepwater drillships, an official from China National Offshore Oil Corp. said late Thursday.

CNOOC, which lacks the expertise to conduct deepwater exploration, signed a contract in August 2004 to allow Husky Oil China Ltd. to drill three deepwater exploration wells in block 29/26 before 2011.

In June 2006, Husky made a significant natural gas discovery at Liwan 3-1-1 exploration well, which was drilled to a depth of 1,500 meters in block 29/26 in the Pearl River Mouth Basin.
Husky said the discovery could contain potential recoverable natural gas reserves of 4 trillion to 6 trillion cubic feet, making it one of the largest natural gas discoveries offshore China.

However, Husky hasn’t started drilling a second well partly because Chinese drillships can only operate at shallower depths, and there is a global shortage of deepwater drillships, the CNOOC official familiar with offshore exploration said on condition of anonymity.

“In the world, there are only slightly more than 10 deepwater drillships that can operate at such a depth, and most of them are drilling in the Gulf of Mexico or West Africa.”

There are few deepwater drillships globally because of its prohibitive $5-billion price tag, the official said, adding that daily rental typically runs into millions of dollars.

Under the contract with CNOOC, the third largest oil and natural gas producer in China by assets, Husky will fund 100% of the exploration costs, but CNOOC retains the right to take as much as a 51% stake in any oil or gas discovery.

Husky Oil China Ltd.’s Canada-based parent company Husky Energy Inc. (HSE.T). didn’t immediately reply to an e-mail inquiry on the timetable for the second deepwater well.

Husky Oil China Ltd. has exploration rights to seven oil and gas blocks offshore China spanning 7.6 million acres, according to Husky Energy’s Web site.

CNOOC doesn’t conduct deepwater exploration due to its lack of expertise, and has only drilled to a maximum depth of around 500 meters, the official said.

“But it’s just a matter of time before CNOOC starts deepwater exploration on its own,” the official said without providing a timeframe.

China’s price of oil products was steady in July with the average price of major oil products increasing 0.4 percent over the previous month, but drop 5.1 percent from the same period of last year, according to China Logistics Information Center.

The high temperature of summer has spurred demand for oil products.

Statistics show that in July price of diesel oil went up 0.17 percent month on month, but down 5.2 percent year on year; price of petrol up 0.7 percent month on month, but down 5.5 percent year on year; and price of fuel price up 0.3 percent month on month, but down 3.5 percent year on year.

China imported 14.83 million tons of crude oil in July, rising nearly 40 percent from the same period of 2006 and hitting a new record high, according to latest statistics from Chinese Customs.

In the first seven months, China imported 96.37 million tons of crude oil, which is also a historical high.

China’s crude import dependence is sure to break 50 percent this year, experts said.

At the same time, China’s product oil import decreased 1 percent to 21.74 million tons in January-July, while product oil export jumped 26.2 percent to 8.98 million tons.

Huadian Power International Corp Ltd said it will form a power generating joint venture with total investment of 8.5 billion yuan ($1.12 billion) with Yanzhou Coal Mining Co Ltd and a local company.

“The agreement will lay foundations for entering into long term coal supply agreements with Yanzhou Coal, allowing the company to secure a stable and consistent supply of coal for its power plants in the Shandong Province,” Huadian said in a statement.

Strong demand from coal-fired power stations has made China a net importer of coal this year and helped to drive up international spot prices for thermal coal.

Huadian said the venture, which will be 69 percent owned by the company, 30 percent owned by Yanzhou Coal and one percent owned by Zoucheng Municipal Assets Operation Co, will build and operate two ultra super-critical coal-fired generating units each with a capacity of 1,000 megawatts of phase IV of Zouxian Plant in China’s eastern coastal province of Shandong.

Total registered capital of the venture will be 3 billion yuan, of which Huadian will contribute 578.15 million cash and 1.49 billion assets, Yanzhou Coal will pay 900 million yuan cash and Zoucheng 30 million cash.

China Energy Ltd. (AOG.SG) has acquired a dimethly ether or DME facilities for CNY397.8 million from Shandon Jiutai Chemical Technology Co. Ltd. and Jiutai Chemical and Giant Energy Corp. (Hong Kong) Ltd.

China Energy said in a statement to the Singapore exchange over the weekend that the combined capacity of the plants acquired, both in China, is 450,000 metric tons per annum of DME.

Coal-based DME is an alternative fuel to liquefied petroleum gas, liquid natural gas, diesel and gasoline is considered to be environmental friendly.

“The acquisition of new capacity is in line with the group’s strategy to capitalize on the growing demand of DME in China’s alternative energy sector,” Cui Lianguo, Chairman and Chief Executive Officer of China Energy said in the statement.

The statement said that the newly purchased DME production facilities is expected to contribute positively to the group’s earnings in the current financial year.

The draft law on recycling economy of China, made to boost sustainable development through energy saving and reduction of pollutant discharge, was deliberated for the first time by lawmakers on Sunday.

The draft law was submitted to the 29th session of the Standing Committee of the National People’s Congress (NPC), China’s top legislature, for first reading.

The draft stipulates governments at all levels should make plans on the development of circular economy, establish systems to control energy use and pollutant emission, strengthen management on companies with high energy and water consumption, make policies to divert capitals into environmentally friendly industries.

The draft also introduces reward and punishment systems for companies, encouraging them to develop recycling economy and making them responsible for the recycling of their products.

“China has been facing serious environmental and resources problems during the economic development since the 1980s, which were mainly caused by the low resources efficiency”, said Feng Zhijun, vice chairman of the NPC Environmental Protection and Resources Conservation Committee.

He said the average energy consumption per unit product for high-energy-consuming industries, such as steel, electric power and cement in China was 20 percent higher than the advanced international level.

Feng said the development of recycling economy would provide new resources for economic development, effectively cut pollutant emissions and increase economic benefit.

If a steel factory, with a yearly output of eight to 10 million tons, reclaims all of the remaining heat and flammable gas, the energy saved is able to run a 800,000-kilowatt power station, and if China’s energy efficiency reaches advanced international level, it will reduce the emission of sulfur dioxide by 4.5 million tons every year, he said.

“It’s essential to establish a legal system to combine energy saving and environmental protection with economic and social development to ensure a sustainable development,” he said.

The committee started to draft out the law on recycling economy in December, 2005 and collected more than 1,000 suggestions from relevant government departments, colleges, and local people’s congresses this year to perfect the draft.

More than 63 percent of Taiwan entrepreneurs want to scale up their investment in the Chinese mainland, a recent survey of the Taiwan Electrical and Electronic Manufacturers’ Association (TEEMA) showed.

Having inquired its member companies, the Taiwan’s largest industry association found that the number of Taiwan business people who hope to return to Taiwan for business has been decreasing in recent years.

The proportion reduced to 1.83 percent this year from 1.97 percent in 2006 and 2.7 percent in 2005, showed the 2007 survey on environment and risk of investing in the Chinese mainland.

About 34 percent of the respondents said they would continue to invest in Taiwan, the survey said.

Also according to the survey, Suzhou in east China’s Jiangsu Province was among the most recommended cities in terms of hi-tech, service and traditional industries. Shanghai, Beijing, Kunshan and Chengdu were also on the list.

The association, with its member companies contributing to about half of Taiwan’s total industrial value, got about 2,500 questionnaires from industries including electronics, machinery, metal processing and plastic products. It has been conducting such surveys since 2000.