June 18, 2010 3:06 am

China to step up exploring in deep water

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The Gulf of Mexico is still under a drilling moratorium after the BP oil spill but plans to step up deep-water exploration on the other side of the world, in the South China Sea, remain largely unchanged.

CNOOC, the Chinese state-controlled company with exclusive rights to develop China’s offshore resources, ordered safety checks on all its rigs after the BP disaster. But long-term plans still aim to step up deep-water exploration.

“Offshore and especially deep-water oil and gas discoveries have great significance for replenishing China’s and the world’s oil resources,” said Zhou ­Shouwei, CNOOC vice-president, in comments posted on the company’s website on June 10.

“We can’t cancel or stop deep-water oil and gas extraction because of the accident in the Gulf of ­Mexico.”

China’s potential offshore reserves account for between a quarter and a third of the country’s hydrocarbon resources.

So far, China’s main deep-water discoveries have all been made by a foreign company, Calgary-based Husky Energy, but CNOOC is positioning itself to become more active in the sector. Its first deep-water ship to lay pipeline was launched in May. CNOOC is also acquiring its first deep-water drilling rig, which is under construction in Shanghai and due to be operational by the end of 2010 or the beginning of 2011.

Several deep-water blocks in the South China Sea are under exploration by foreign companies, including the UK-based BG Group, but under Chinese law CNOOC has the right to acquire up to a 51 per cent stake in the event of a commercial discovery.

A big challenge for China’s deep-water prospects is that the known reserves are mostly natural gas, which must be transported through expensive pipelines on the ocean floor.

“The main engineering challenge is to lay out the pipeline on the sea floor,” said Changlin Wu, a geologist and founder of Longwoods group, an energy company based in Beijing and Chicago. “There are a lot of submarine valleys and the currents are pretty strong in the South China Sea.”

Mr Wu said the BP disaster would not discourage China’s deep-water ambitions.

“I think the BP accident is actually a good alert to the Chinese players and also the international players in China. Everyone now realises that safety is more important than anything else ... I don’t think BP’s accident will be driving anyone away from China deep water.”

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