EXTRACT FROM A RESEARCH PIECE

By G. Lafitte

FROM ITALY TO RUSSIA TO CHINA

Gazprom has big plans for supplying gas from the Siberian far east to China, Japan and Korea. Gazprom speaks of the prospect of supplying as much as 30 billion cubic metres of gas a year, and says construction of a pipeline linking the Sakhalin island gas field to Khabarovsk has already begun.

Gazprom also has plans for supplying China with gas from Kazakhstan, Turkmenistan and Uzbekistan, via a pipeline which would connect with China via Russian territory. This would rival China's own plans for eventually connecting its ambitious transChina pipeline further west into Kazakhstan.

These ambitious plans may lead ENI/Agip to become not only a supplier of Russian and Kazakh oil and gas to China, but a major force within China, in partnership with China's state owned oil corporation CNPC/PetroChina.

Agip's involvement with China has steadily intensified. In 1983 Agip joined with Chevron and Texaco in a consortium to explore and extract oil offshore in Chinese waters, especially in the Bohai gulf close to Beijing, and the mouth of the Pearl River, near the city of Guangzhou. Oil is now flowing from an unstaffed well in the Pearl River mouth, reliant on remotely controlled automated technology to extract the oil. While Pearl River oil has begun commercial exploitation only recently, the consortium exploiting the Bohai gulf has long been profitable. Agip China is a partner, in Bohai, with Esso, Chevron and Kerr-McGee, with production now at a level of 2.6 million tonnes of oil a year, plus 400 million cubic metres of gas a year. The Bohai Sea is heavily polluted.

"ENI has capitalized on another quirk of its Italian state proprietor: the birthplace of Michelangelo and Gianni Versace also housed the West's largest communist party throughout most of the Cold War. That helped ENI wrangle its way into China and the former Soviet Union while oil firms in a hostile united States were sometimes shut out."

ENI/Agip has also been drawn deeply into China by the prospect of oil and gas far inland, in the Tarim Basin of Xinjiang, or east Turkestan; and in the nearby Tibetan Tsaidam Basin, in Qinghai province. Agip was among the many transnational oil companies which paid to explore the Tarim, but with few commercial results. Agip China seems to have had greater commercial success in its contract with China National Petroleum Corporation giving Agip the right to be sole operator of a 7,000 square kilometre block in Tibet, in the eastern part of the Tsaidam Basin, where gas reserves may be as much as 500 billion cubic metres. This is the area immediately to the north of the project area designated by the World Bank for a controversial resettlement project which, after much protest, the World Bank cancelled, but which China intends to complete. The area where Agip is involved is called the Sebei block by Chinese authorities, and is the customary winter grazing ground of Tibetan and Mongolian nomads who in summer trav

el south up into the mountains for summer pasture, then back in late fall to overwinter at lower altitude.

"Italy's Agip has signed an agreement with the China national Petroleum Company to explore the Sebei block in the west China's Qaidam (Tsaidam) Basin. Agip has already been actively developing China's onshore oil resources and is currently taking part in five oil projects in the country."

Agip China has the responsibility of proving the commercial value of the Tibetan field, and making it productive. If it succeeds it will be in legal partnership with CNPC/PetroChina as joint owners, with PetroChina entitled to 51 per cent stake.

ENI is now in partnership with two of China's state owned oil giants, China National Offshore Oil Corporation and China National Petroleum Corporation. ENI is now at roughly the stage it reached early in its relationship with Gazprom in Russia. As with Gazprom, there are opportunities for that relationship to grow. ENI/Agip may leverage its 37 years old connection with China's oil industry into something more.

ENI has a one-third stake in a major $1.6 billion refinery on Hainan Island in southern China. ENI subsidiary Saipem was awarded a $160 million contract to lay a $1.2 billion pipeline to get gas ashore to Hainan from the Arco (now part of BP) joint venture gas field in the South China Sea, the Yacheng 13-1 gas field, in 1993.

"Last year, Chevron's Huizhou joint venture with CNOOC [China National Offshore Oil Company], Italy's Agip China Co., and Texaco Petroleum of the United States produced a record 37 million barrels of crude also a record for a Chinese offshore field, Mr Lohec said."