China Rolls Out Red Carpet for Foreign Oil Firms to Develop Western Region

China has invited foreign oil firms to collaborate on energy policies for its western region, which holds a significant portion of the country's gas reserves. This unprecedented move is aimed at developing the region's energy sector, which poses new challenges for Chinese leaders in the coming years. The government has revised laws and linked internal pricing systems for gasoline, diesel, and kerosene to international levels, a measure necessary for reducing import tariffs and quotas and opening the retail market to foreign investors.

Key Takeaways:

• China has rolled out the red carpet for foreign oil firms to develop energy policies for its western region, which holds 55% of the country's estimated 38.1 trillion [m.sup.3] of gas reserves.
• The government has sat down with foreign oil companies to help formulate policies for the region, which will be integrated into China's 10th economic Five-Year Plan.
• Laws have been revised, and internal pricing systems for gasoline, diesel, and kerosene were linked to international levels over the last year.
• China has floated its two oil giants, CNPC and Sinopec, on international stock markets through listing vehicles PetroChina and Sinopec Corp, with a 3rd initial public offering (IPO) for CNOOC planned for next February.
• Beijing has laid out a series of incentives to invite more foreign investment into its upstream, notably for gas activities, and has reduced or exempted companies from royalty and prospecting fees for exploration in the western regions.
• Governmental approval for major joint-venture petrochemical projects has speeded up, with several projects receiving approval, including the BASF-Sinopec 650,000 t/yr naphtha cracker and the 600,000 t/yr ethylene cracker between ExxonMobil, Saudi Aramco, and Sinopec.
• China has around 5mn b/d of refining capacity, but a significant portion of it is outdated, with only the coastal refineries being economically viable and approved for expansion.

Statistics:

• 38.1 trillion [m.sup.3] of gas reserves are held in China's western region.
• China has around 5mn b/d of refining capacity.
• 390,000 b/d of small refineries outside PetroChina and Sinopec's control were shut down this year.
• China is planning to import liquefied natural gas (LNG) in 2005.

Sources:

• Financial Times, December 20, 2001
• Oil & Gas Journal, October 8, 2001
• Chinese government reports and documents, referenced in the text.