ARCO'S 10-YEAR EFFORT BEARS FRUIT WITH PACT TO DEVELOP FIELD OFF CHINA

ARCO'S 10-YEAR EFFORT BEARS FRUIT WITH PACT TO DEVELOP FIELD OFF CHINA

Finding a sizable natural gas source just off a fast-growing economic area hardly sounds like a curse, but it may have seemed that way to Atlantic Richfield Oil Co. for nearly a decade.

Now, years of wrangling appear to be over, and the gas will be put to use in Hong Kong and China.Agreement in principle was reached last week for Los Angeles-based Arco and two partners to develop the Yacheng 13-1 project in the South China Sea off the Chinese island of Hainan.

The $1.2 billion project will be China's largest offshore energy development. The Yacheng field has reserves estimated at 3 trillion cubic feet.

Arco holds 34.3 percent of the project. Its partners are Kuwait Foreign Petroleum Exploration Co., with a 14.7 percent interest, and state-owned China National Offshore Oil Corp., with 51 percent.

The output will be bought on a 20-year contract to fuel the Black Point power station, a joint venture by China Light & Power Co., one of Hong Kong's two electricity utilities, and the Exxon Energy Ltd. unit of Exxon Corp.

The combined cycle thermal power plant, to be built west of Tuen Mun, is planned for completion in 1996, pending approval by the Hong Kong government. Final details should be settled by the middle of the year, Arco said.

Construction of the first of two platforms will begin next year. Production is expected to begin in January 1996 and reach a peak of 330 million cubic feet a day, the partners said.

Of the total, 280 million cubic feet a day will come to Hong Kong through a 475-mile undersea pipeline and 50 million cubic feet to Hainan through a 60- mile undersea pipeline.

Hainan, lying off northern Vietnam, is China's largest island. It is designated a special economic zone intended to lure foreign investment, but development still lags in part because of a poor infrastructure.

The gas, aside from providing power, could be used as feedstock for a number of petrochemical proj- ects the Chinese say will be built on Hainan.

Arco discovered the field in 1983, much to the annoyance of the Chinese who were desperately seeking oil. China told the U.S. company in effect to put a plug in it because there was no way to get the gas ashore and no money to build pipelines.

By 1987, China was insisting the price charged for the gas be considerably reduced or it would not accept supplies.

"At the original cost estimates and current oil and gas prices, the project won't be profitable for us," declared He Yuanqing, chief of the Hong Kong office of China National Offshore Oil.

"We've had this field for almost a decade, but we have not had anyone to sell the gas to until now," an Arco spokesman said after formal signing of the accord.

It was attended by Chinese Premier Li Peng, an indication of the importance Beijing places on the deal. Lodwrick M. Cook, Arco chairman, and Faisal al- Kazmawi, Kuwait Petroleum's chairman, also took part.

China Light & Power now uses naphtha, a byproduct of petroleum, and coal to fire its plants. Persuading it to accept natural gas for its new plant was a key to the deal.

A more ambitious plan calls for Tokyo Gas Corp. of Japan to help develop a liquefied natural gas plant on Hainan using some of the gas, according to Chinese sources. The US$800 million installation would have a capacity of 1.5 millions tons a year.

The liquefied gas would be exported to Japan, which imports millions of tons a year on long-term contracts from Indonesia. A feasibility study was completed in 1990, but no progress has been reported since then.