CNOOC Fully Starts Production of Gas Field in East China Sea

BEIJING, Aug 04, 2006, Dow Jones Newswires

CNOOC Ltd. has begun production in its East China Sea gas field, which has been the focus of a dispute with Japan, according to a statement posted the website of CNOOC's parent company.

It's the first time CNOOC has publicly acknowledged it launched production at Chunxiao. The field is a rich source of gas reserves for China as it grapples with high fuel prices amid strong demand.

"The first phase of Chunxiao gas field has fully entered operation," said Zhang Guobao, vice minister of the National Development and Reform Commission, the country's top economic planning agency. Zhang was quoted during a visit to the gas field last week.

In April, Dow Jones Newswires reported that the Chunxiao field had been producing - at a rate of 250,000-300,000 cubic meters a day - since January. At the time, CNOOC declined to comment. On the website, Zhang didn't say how much the field is producing now.

Since April, China and Japan have met six times to try to iron out their territorial dispute.

On Friday, a CNOOC official told Dow Jones Newswires that a second phase of development aimed at expanding Chunxiao's gas output is in the planning stages.

On the website, Zhang said the field's first-stage development is being hampered by "insufficient downstream users." He said CNOOC hopes to solve the problem soon so the nearby provinces of Jiangsu and Zhejiang, and the city of Shanghai, can be better supplied with gas.

Asked about Zhang's comments, the CNOOC official said only, "CNOOC may have not yet reached agreements with some local end-users consisting of factories, power plants and households, on price and the supply time-frame," said the CNOOC official.

Ongoing construction of a pipeline to key population centers may be another reason for the Chunxiao field's slow development. When completed, the pipeline will link Ningbao port, which is at the end of the East China Sea undersea pipeline, to Hangzhou city in Zhejiang province, according to Zhejiang-based Xiaoshan Daily.

Copyright (c) 2006 Dow Jones & Company, Inc.

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