China in $6b drive to develop disputed East China Sea gas

BEIJING (REUTERS) - Chinese state-run oil companies hope to develop seven new gas fields in the East China Sea, possibly siphoning gas from the seabed beneath waters claimed by Japan, a move that could further inflame tensions with Tokyo over the disputed area.

Beijing had slowed exploration in the energy-rich East China Sea, one of Asia's biggest security risks due to competing territorial claims, but is now rapidly expanding its hunt for gas, a cheaper and cleaner energy to coal and oil imports.

State-run Chinese oil and gas firm CNOOC will soon submit for state approval a plan to develop Huangyan phase II and Pingbei, totalling seven new fields, two industry officials with direct knowledge of the projects told Reuters. The approval would bring the total number of fields in what is called the Huangyan project to nine. China is already working on Huangyan I, which has two fields approved. The Huangyan project is expected to cost more than 30 billion yuan (S$6.15 billion), including 11 production platforms now under construction at Chinese shipyards.

If approved, the seven new gas fields would not see a big jump in China's total gas output, supplying only a fraction of last year's 106 billion cu m and dwarfed by operations in the disputed South China Sea and Bohai Bay off north China. Chinese geologists said gas deposits in the East China Sea region were much smaller and more scattered.

The greater issue is the political risk if Beijing approves the new gas fields. Tensions over the East China Sea have escalated this year, with Beijing and Tokyo scrambling fighter jets and ordering patrol ships to shadow each other, raising the fear that a miscalculation could lead to a broader clash.

"It's a sign of impatience on the side of the Chinese, stemming from a lack of movement on the Japanese side on the gas fields issue," said Professor Koichi Nakano, of Sophia University in Tokyo.

China and Japan in 2008 agreed to jointly develop hydrocarbons in the area, but Tokyo wishes to settle the issue of maritime boundaries before developing the gas fields.

"The question is what will be Japan's response and whether they would be able to talk China out of a unilateral move," said Prof Nakano. "But escalation of tensions leading to a war? I don't think so. The Americans will be watching this situation with grave concern and may play a role of a mediator here."