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China's CNOOC says disputed gas field work on track

Written by: Staff

SINGAPORE, Apr 6 (Reuters) China's CNOOC Ltd. said on Thursday development work at an East China Sea natural gas field that Japan says may extend into its territory is progressing as planned, but declined to comment on a report that it had started producing.

Whether or not output has begun, the field should be pumping gas by mid-year, straining already frayed relations between the world's second- and third-largest energy consumers, both racing to secure resources for their economic growth.

The Wall Street Journal on Thursday quoted a person familiar with the situation as saying that CNOOC had begun pumping gas from the Chunxiao field in January, but had not announced it in order not to undermine political talks between Tokyo and Beijing.

''All we can say is that the project is progressing normally,'' said Liu Xianzhong, an investor relations official for China's number-three oil company CNOOC, which operates the field.

''Nothing has changed since we said in our annual strategic review that the fields are due for operation in the first half of this year.'' Liu said CNOOC had completed the production facilities and laid the pipelines, but declined to give details.

Japan says China may tap into geological structures that stretch into its own exclusive economic zone, a dispute that has added to other tensions rooted in Japan's often brutal occupation of parts of China in the early 20th century.

A foreign ministry spokesman in Tokyo said he had not been able to verify whether production at the field had started, but reiterated Japan's objection to the project.

''We do not welcome any unilateral move on this issue,'' spokesman Akira Chiba said, adding that the two governments had agreed to suspend development in the area until a negotiated settlement could be reached.

''It is the Chinese side that has suddenly decided not to keep its word and to start exploiting that area,'' Chiba said.

China's Foreign Ministry spokesman Liu Jianchao reiterated that China's activities in the East China Sea were within its sovereign rights, but referred questions about whether production had started to the companies involved in the project.

JOINT-DEVELOPMENT IDEA Japan has granted test drilling rights to Teikoku Oil Co., bought last year by rival INPEX Corp., to hunt for gas in the disputed waters, although drilling has not started.

Tokyo, which has mooted the idea of jointly developing the gas reserves, protested to Beijing last September after spotting flames over a chimney at the field, indicating that some limited test production had started.

The Wall Street Journal report did not say whether the field was producing gas in commercial quantities for consumers in mainland China or if the facilities were still being tested.

China supplanted Japan as the world's second-biggest energy consumer in 2004 and has been buying overseas oil and gas fields and boosting domestic production to ensure it has enough energy to sustain economic growth.

Japan, much more dependent on oil and gas imports than China, is also aiming to increase the amount of reserves it owns as a way to safeguard energy security.

Japan estimated in 1999 that the region held as much as 200 billion cubic metres of natural gas, enough to supply the country for two and a half years. But CNOOC says on its Web site that proven gas reserves of the Xihu trough are just over 20 million cubic metres.

Sinopec Corp., Asia's largest refiner, has an equal 50 percent equity stake in the project.


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