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2008-06-19 | All chapters

EU Chamber: China Isn't Doing Enough To Maximize Oil Output
Aaron Back and David Winning, Dow Jones Newswires, 19th June 2008

BEIJING -(Dow Jones)- China isn't doing enough to boost its oil output because it continues to restrict foreign investors' access to oil blocks, an official at the European Chamber of Commerce said Thursday.

Xavier Chen, chairman of the European Chamber's Energy Working Group and vice- president of BP Plc's (NYSE:BP) (BP) China unit, said China should learn lessons from Brazil which ended the state monopoly of the oil sector and became a net exporter of crude.

"As far as China is concerned, opening the upstream blocks for more bidding and international participation would increase domestic production," Chen said.

China is the world's second-largest energy consumer and its rising demand, driven by record economic growth, is partly blamed for the surge in oil prices. The Asian nation is the world's third-largest crude oil importer and it bought 163.17 million tons, or 3.3 million barrels a day, from overseas last year.

Chen's comments come less than two weeks after China joined the Group of Eight leading nations plus Japan and South Korea in calling for the world to pump more crude to take the steam out of record oil prices.

"We affirm the need to maximize investment in our own domestic production," the G8, China, Japan and South Korea said at the conclusion of the meeting on June 8.

With oil prices still at elevated levels, settling Wednesday at $136.68 on the New York Mercantile Exchange, major oil producing and consuming nations will meet in Saudi Arabia's port city of Jeddah on Sunday.

Onshore oil exploration in China is tightly controlled by PetroChina Co. (NYSE:PTR) (PTR) and China Petroleum & Chemical Corp. (NYSE:SNP) (SNP), known as Sinopec. Cnooc Ltd. (NYSE:CEO) (CEO) has a monopoly on drilling in the sea where water depths exceed five meters.

Foreign companies wishing to enter China's upstream oil sector need to sign production sharing contracts with these domestic giants. Increasingly, they need to share technology that Chinese companies don't already own, such as equipment to produce high-sulfur natural gas safely.

The National Development and Reform Commission, China's economic planning agency, wasn't immediately available to comment.

Chen told reporters that China wasn't alone in putting up artificial barriers to outside investment in oil production.

He cited the U.S. as an example, stating 80% of the U.S. continental shelf is closed for drilling and exploration.

Brazil was a net importer of crude oil until 10 years ago when it ended the monopoly of Petroleo Brasileiro SA, known as Petrobras (NYSE:PBR) (PBR), in developing upstream oil blocks and opened them to international firms, Chen said.

"Brazil became a net oil exporter in South America, and Petrobas has become a very competitive internationalized oil company, with advanced technology in drilling," he said.

Source:http://www.istockanalyst.com/article/viewarticle+articleid_2298197~title_EU-Chamber:-China-Isn't.html

Click to know more about the European Chamber's Energy Working Group.