Published by: THE WORLD UYGHUR NETWORK NEWS, June 17, 1997

The Washington Post, 6/9/97

By Steven Mufson

Washington Post Foreign Service

BEIJING, June 8 -- China is negotiating long-term oil-supply contracts with Middle Eastern countries and is considering the establishment of a strategic reserve to meet its growing thirst for imported petroleum.

The official China Daily Business Weekly said today that China will need to import nearly a million barrels a day by 2000, twice the current level. With China's domestic oil industry struggling to maintain production at about 3.1 million barrels a day, imports will have to increase sharply to keep up with the demands of a rapidly expanding economy.

The report comes at the end of a week in which China agreed to invest $5.2 billion in foreign oil-exporting countries to secure future supplies. The sum is an important commitment for a developing country such as China, which is trying to lure investment to its own domestic projects.

_China needs a stable crude-oil supply, reliable sea transportation lines with oil tanker fleets and sufficient loading, storing and processing facilities," said Zhu Yu, president of the China Petrochemical Consulting Corp., the think tank for China's state oil firm, China Petrochemical Corp. He added that _the reserve is crucial because the gap between domestic production and demand is widening" and _without a reserve, China could be affected by drastic market fluctuations."

China was self-sufficient in oil from the mid-1960s, after the discovery of the huge Daqing oil fields, through the mid-1990s. With Daqing having reached maturity, oil exploration offshore and in China's northwest has not produced discoveries big enough to maintain self-sufficiency, which was once a much valued political goal.

But today's pragmatic economic planners appear reconciled to growing imports and are moving to strengthen ties with suppliers. Last Wednesday, Iraq and China signed a $1.2 billion contract to develop the billion-barrel Ahdab oil field in southern Iraq. Reports from Iraq said the field is ultimately expected to produce 90,000 barrels a day. China is also interested in the development of the Hlfay field in southern Iraq, which could produce about 250,000 barrels a day, some analysts said.

Development of both fields was disrupted by fighting during the Iran-Iraq and Persian Gulf wars. American and European oil companies were among those that conducted initial exploration of those fields in the late 1970s.

Also on Wednesday, Kazakstan announced a $4 billion oil deal with the Chinese National Petroleum Corp. that includes an ambitious plan for an oil pipeline that would extend to China's northwestern Xinjiang province.

China's state oil firm has promised to invest $4 billion in the Kazak Aktyubinsk oil enterprise over the next 20 years, with $585 million to be invested from 1998 to 2003, in return for a 60-percent share in the company. Aktyubinsk is in western Kazakstan and has substantial reserves. Current crude oil output of 44,000 barrels a day will double by 2000, according to Chinese estimates.

An oil pipeline from Xinjiang through Kazakstan could mark a shift in plans for China, which is developing a major oil field in Xinjiang's forbidding Taklimakan desert. China originally planned to build a pipeline from Xinjiang across China to eastern coastal regions. But the expense of the pipeline, combined with technical difficulties, have dimmed prospects for the pipeline across China.

China is also exploring oil prospects in Nigeria. Following a visit by Premier Li Peng to the Nigerian military government, China's state oil firm is preparing for oil exploration and production there.

The oil deals follow a series of political gestures by China toward those nations. China has signed political and military agreements with Kazakstan, calling for stronger ties and a reduction of troops along their common border. Kazakstan has also agreed to help prevent people from crossing the border to aid separatist ethnic Uighurs in Xinjiang.

China also came to the defense of Nigeria when the West African nation was criticized for throwing out election results and engaging in human rights abuses. And Beijing also has voiced tentative support for Iraq's efforts to expand its oil production, which is limited by U.N. sanctions to levels that allow it to import food and medicine without rebuilding its military complex.