CHINA'S SEARCH FOR CLEAN ENERGY CENTERS AROUND GAS DEVELOPMENT FOREIGN HELP WILL BE NEEDED

CHINA'S SEARCH FOR CLEAN ENERGY CENTERS AROUND GAS DEVELOPMENT FOREIGN HELP WILL BE NEEDED

China is looking for foreign help to develop its natural-gas deposits, long a neglected resource.

The search for clean energy will open opportunities for foreign cooperation in gas exploration and development, Ye Qing, deputy director of the State Planning Commission, told a seminar in Beijing in August.He also told the session, sponsored by the Amoco Orient unit of Amoco Corp. of Chicago, that China will import natural gas and liquefied gas to relieve severe energy shortages in some areas.

Development of natural gas is an important part of the ninth five-year plan covering 1996 to 2000, Mr. Ye said. By 2010, China intends to raise natural gas usage to 10 percent of total energy compared with only 2 percent now.

Coal currently is king in China, with oil the main backstop.

Transporting coal from remote mines in north-central China is slow and expensive. And pollution caused by the use of coal is becoming a heavier burden, in many places literally.

Oil has become less attractive because production is stagnating as demand soars to fuel China's booming economy. China became a net importer of oil last year after years as a supplier.

ROOM TO GROW

China has plenty of room to increase natural-gas usage, which stood at 0.8 percent of total world consumption in 1994.

Officials project 1995 output of natural gas at 16.5 billion cubic meters (577.5 billion cubic feet). It hopes to raise output to as much as 35 billion cubic meters by the end of the decade.

"Although gas use remains small in China, we are optimistic since there is high interest and high demand here," said Rebecca McDonald, president of Amoco's natural-gas division.

Amoco is interested in reserves in southwestern Sichuan and northern Shaanxi provinces, said Garry Mihaichuk, Amoco Orient's chairman.

Landlocked Sichuan was producing natural gas centuries ago. There are more than 40 billion cubic meters in reserves, but the authorities still bar foreign involvement in the region.

China's largest onshore reserves, about 200 billion cubic meters, are in Shaanxi, which is also a coal producer.

ARCO INVOLVEMENT

Offshore, Arco China Inc., an arm of Atlantic Richfield Co. of Los Angeles, has a piece of the Yacheng 13-1 field with reserves of almost 100 billion cubic meters near Hainan Island in the South China Sea.

Arco discovered the field in 1983 in a joint venture with China National Offshore Oil Corp. and the U.S.-based Santa Fe International Corp. unit of Kuwait Oil Co.

The field was slow to be exploited, partly because China did not have the facilities onshore to use the gas and had been hoping for oil.

Yacheng 13-1 will start operation in 1996, supplying a power plant and fertilizer factory in Hainan and a power plant in Hong Kong.

Arco and its partners are investing US$100 million in receiving station on Hainan for the field.

The South China Sea near Hainan boasts other promising fields. China said earlier this year it discovered the second-largest offshore gas field in the area, Dongfang 1-1 in the Yinggehai Basin.

Other potentially rich sources of natural gas are the East China Sea and Xinjiang in remote northwest China.

Even with all these fields, however, China will need to import natural gas to meet its needs.

Imports Planned

Tang Zhenhua, vice president of China National Offshore Oil Corp., told a conference in England in July that China is planning to import liquefied natural gas by ship to use in power plants.

China had contacted Oman, Qatar and Russia for imports and was considering Malaysia as possible suppliers, he said.

The country needs more than just ample supplies - domestic or foreign. Arco found that out as it sat on its huge Yacheng 13-1 find for more than a decade.

Mr. Tang acknowledged that China needed an immense amount of investment supported by end-users. Power generation is a possible downstream use, he said.

"A precondition to making such a project successful is whether foreign companies with natural gas resources are willing to cooperate on liquefaction and participate in downstream utilization of the gas," Mr. Tang said.

A Question of Time

''We will definitely succeed. It is only a question of time and of

finding the right partner."

Japanese firms hope to be partners in liquefied petroleum gas (LPG) projects.

Nissho Iwai Corp. said in July that it would participate in an LPG project to build a terminal, storage tanks and berthing facilities at Zhenjiang in coastal Jiangsu province. The US$13.4 million project includes three bottling plants.

Its partners are China National Offshore Oil Donghai Corp., Malaysia's state-run Petronas (a likely supplier) and China's Danyang Petroleum Gas Corp.

Mitsui & Co. is another of the big Japanese trading houses beginning to get involved in the LPG sector.