Teikoku Oil gets drilling rights in East China Sea

MAYUMI NEGISHI – The Japan Times

Staff writer
The Ministry of Economy, Trade and Industry granted Teikoku Oil Co. rights Thursday to explore in disputed waters in the East China Sea near Chinese drilling platforms.
News photo
A chinese drilling pla tform site over the pinghu oil and gas field in disputed waters in the East China Sea a few kilometers from where Teikoku Oil Co. plans to test drill.
METI, with tacit approval from Prime Minister Junichiro Koizumi, gave Teikoku the go-ahead to drill in three areas totaling 400 sq. km in waters midway between Okinawa and mainland China.
Teikoku will begin exploring the area within six months, measuring the size of any natural gas or oil deposits in the three areas and assessing the profitability of retrieving the resources.
Two of the three areas run alongside the Chunxiao and Duanqiao gas fields, where China has drilling rigs in place and reportedly is ready for full-scale production.
Experts question both whether it is necessary or profitable for a Japanese firm to drill in the area.
“The sites are too far from mainland Japan. Unless the deposits are huge and high-grade, the shipping costs alone would mean a loss to Teikoku,” said Li Zhidong, an associate professor at Nagaoka University of Technology’s management and information system science department and a visiting researcher at the Institute of Energy Economics, Japan. “Teikoku would have to sell whatever they drill to China.”
Teikoku was the only company to respond when the government asked in April for energy companies to renew their applications for drilling rights in the area.
Three other companies along with Teikoku applied in the 1960s and 1970s for exploratory rights in the area, but METI put the applications on hold for over 30 years, partially out of fear of offending China as the demarcation line between the exclusive economic zones was not agreed upon.
Officials at the three other firms said concerns about security and profitability prevented them from reapplying.
U.S. oil company Unocal and Dutch company Shell withdrew from a joint East China Sea gas project with Beijing last September, hinting that cost-efficiency might be a challenge for Japanese firms as well.
Economy, Trade and Industry Minister Shoichi Nakagawa told reporters Thursday that granting test-drilling rights was “in the national interest.”
“It is not for me to say how China will respond. China is preparing to tap an undersea gas vein that may straddle our two countries’ exclusive economic zones,” Nakagawa said.
The two countries have not been able to agree on the dividing line between China and Japan’s EEZs. Japan says it is the median line between the two coastlines, while China claims its EEZ extends to the edge of the continental shelf, encompassing Taiwan and near to Japan.
Teikoku plans to test drill just inside Japan’s claimed boundary. China’s platforms are just on its side of the line.
Thursday’s decision, however, constitutes the last move Japan can make to show China it means business, Li said.
“Now is the time for the two sides to come to the table and truly negotiate for joint development of the area,” he said.
The Japan Times: July 15, 2005
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