Company hopes for pipeline into northern China

A Mongolian oilfield first discovered in the early 1990s has proven far more promising than originally believed, prompting calls for a pipeline linking it to northern China, RFA’s Mandarin service reports.

The UK-based Soco International oil company said it had drilled four exploration wells in the Zuunbayan field, at the northeastern tip of Mongolia, during 2003. It said it had found significant reserves of a higher quality and greater predictability than was previously known in the area.

"We've discovered oil in a much better reservoir, at a shallower depth than the previous wells and one which we think we'll be able to predict with much greater certainty where to drill in the future," Soco International's president and chief executive Ed Story said in an interview.

"The key in what we've been about is to get enough quantity, proven reserves, to then go forward to build a pipeline so you can move larger quantities to sell to China," Story said, adding that Soco and its Chinese and Vietnamese partners had long had an eye on the China market.

China is facing skyrocketing oil bills as a result of strong economic growth, overtaking Japan in 2003 to become the world's second-largest oil importer. So far, its attempts to negotiate pipeline deals with major producers like Russia and Kazakhstan have not yielded fruit.

Wang Baoji, a Chinese representative at the project for the Huabei Petroleum Management Bureau, agreed that the oilfield was a significant find. "We've been cooperating with Soco since 1989," he told RFA. "As for production, it's been coming onstream fairly fast now. It's not bad... particularly Area 19 [in the Tamtsag Basin area]." He said the project had also promoted cooperation between China and Mongolia.

Huabei currently holds a 10 percent stake in the venture, with PetroVietnam holding 5 percent, and Soco 85 percent. The oilfield currently exports around 500 barrels daily by truck to China.

Story said Soco had chosen to work with Huabei—which provides drilling services—partly because of their previous experience drilling in a similar deposit in China, and partly for economic reasons.

"We use Chinese rigs and Chinese personnel who've come over actually from the Huabei area, and that's the key, so we've got the costs down," he said, adding that Soco was probably the first oil company even to use Chinese drilling rigs outside China.

Those savings meant that Soco could afford to drill more wells in any given year, with a potential to export as much as 10,000 barrels per day if a pipeline were built. He said that now that the potential of the Mongolian oilfield was known, a pipeline would stand a good chance of attracting development funding.

"From the standpoint of China... it would be the closest source of additional oil reserves, although not on the scale of those in Russia, but certainly it could become significant, it could be very secure, and really support a trading relationship between China and Mongolia," Story said.

China's oil imports soared far above official forecasts last year, prompting concerns that the energy deficit could damage the country's economy. Crude oil imports rose by 31 percent in 2003 to more than 91 million tons, compared with the previous year. And the overall bill for foreign oil rose by 55 percent year-on-year to almost U.S.$20 billion.

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