The security dimension of China’s offshore oil development

Abstract

On February 15 and March 15, 1982, the People's Republic of China opened the first round of bidding on some 150,000 square kilometers of offshore oil exploration contract areas in the South China Sea and Yellow Sea. Of the 46 foreign oil companies that had participated in broad seismic surveys of the Chinese continental shelf in 1980, 35 indicated intent to submit bids. Concurrently with the first round of bidding, Beijing promulgated offshore petroleum regulations and a comprehensive corporate profits tax law, and then announced the formation of the China National Offshore Oil Corporation (CNOOC) with authority to negotiate oil exploration and development contracts with the foreign oil companies. These dramatic events heralded the largest single commercial venture ever undertaken in concert between China and the outside world, and perhaps the largest industrial project ever attempted by China itself. Conservative projections place the cost of initial exploratory drilling in the range of $3-5 billion in the first five years.' Assuming substantial commercial discoveries, the exploration phase will be followed by investments of an additional $10-20 billion (1980 U.S. dollars) for the production platforms, subsea pipelines, coastal refineries, and other installations required for offshore development. Early estimates of the resource potential of the Chinese continental shelf vary widely, but the seismic surveys and early drilling results indicate that discoveries could be comparable to the petroleum potential of the Gulf of Campeche (Mexico) or the North Sea.' In any event, the total surface area of the Chinese continental shelf is as large as Texas and Oklahoma combined, and the shelf itself is underlaid with vast sedimentary basins ranging in