US AND OTHER WESTERN INVESTMENT IN CHINESE OIL: HOW MUCH INTEREST REMAINS?

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP04T00794R000200720001-8
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 24
• Document Creation Date: December 22, 2016
• Document Release Date: May 19, 2011
• Sequence Number: 1
• Publication Date: May 1, 1986
• Content Type: REPORT

Declassified in Part - Sanitized Copy Approved for Release 2011/12/30: CIA-RDP04T00794R000200720001-8
Directorate of
Intelligence
US and Other Western
Investment in Chinese Oil:
How Much Interest Remains?
EA 86-10020
May 1986
C o p y 2 1 1
Declassified in Part - Sanitized Copy Approved for Release 2011/12/30: CIA-RDP04T00794R000200720001-8
 Declassified in Part - Sanitized Copy Approved for Release 2011/12/30: CIA-RDP04T00794R000200720001-8
Declassified in Part - Sanitized Copy Approved for Release 2011/12/30: CIA-RDP04T00794R000200720001-8
 Declassified in Part - Sanitized Copy Approved for Release 2011/12/30: CIA-RDP04T00794R000200720001-8
Directorate of Secret
Intelligence
US and Other Western
Investment in Chinese Oil:
How Much Interest Remains?
Division, OEA~
This paper was prepared by I Office of
East Asian Analysis. Comments and queries are
welcome and may be directed to the Chief, China
Secret
EA 86-10020
May 1986
Declassified in Part - Sanitized Copy Approved for Release 2011/12/30: CIA-RDP04T00794R000200720001-8
 Declassified in Part - Sanitized Copy Approved for Release 2011/12/30: CIA-RDP04T00794R000200720001-8
Declassified in Part - Sanitized Copy Approved for Release 2011/12/30: CIA-RDP04T00794R000200720001-8
 Declassified in Part - Sanitized Copy Approved for Release 2011/12/30: CIA-RDP04T00794R000200720001-8
US and Other Western
Investment in Chinese Oil:
How Much Interest Remains?
Scope Note Domestic demand and foreign exchange needs in recent years have pushed
the Chinese to increase oil production and exploration, and to seek greater
participation by foreign companies. This paper evaluates China's latest
strategies for attracting foreign cooperation in oil, and examines the
threats to these strategies posed by the current falloff in international oil
prices.
Secret
EA 86-10020
May 1986
Declassified in Part - Sanitized Copy Approved for Release 2011/12/30: CIA-RDP04T00794R000200720001-8
 Declassified in Part - Sanitized Copy Approved for Release 2011/12/30: CIA-RDP04T00794R000200720001-8
Declassified in Part - Sanitized Copy Approved for Release 2011/12/30: CIA-RDP04T00794R000200720001-8 _
 Declassified in Part - Sanitized Copy Approved for Release 2011/12/30: CIA-RDP04T00794R000200720001-8
US and Other Western
Investment in Chinese Oil:
How Much Interest Remains?
Key Judgments The Chinese have been trying to attract increasing cooperation in oil
Information available exploration and development-onshore as well as offshore-because
as of 21 April 1986 of their:
was used in this report.
? Reliance on foreign exchange earnings from oil exports.
? Growing domestic demand.
? Disappointment over the results so far of offshore exploration.
We believe, however, that falling world oil prices are undercutting Chinese
hopes of attracting the cooperation they need, at least over the near term.
China, in fact, probably will be forced to grant more favorable terms for
new contracts just to sustain the interest of the few large Western firms-
mostly American-that are still financially able and willing to take the
necessary risks.
maintain production in existing mature fields.
A falloff in Western interest onshore will, we believe, force Beijing to
reexamine its long-term plans for onshore oil development. Most at risk are
Chinese plans for developing in the 1990s the massive oil basins in the re-
mote northwest-considered by many world geologists to have extremely
rich potential. If these plans are pushed back, Chinese efforts to sustain
high oil production beyond 1990 would, we believe, hinge less on new oil
finds and increasingly on the use of improved recovery techniques to
development of these resources by as much as a decade.
China's oil industry officials, meanwhile, probably will devise contingency
plans to develop the northwestern basins with only limited foreign involve-
ment in testing and planning. We believe the Chinese could undertake such
an independent effort only at enormous cost and very slowly, delaying
discoveries to date.
? US firms have sold China over $700 million in oilfield equipment.
US oil firms will be affected more than other foreign companies because
they are more deeply involved in China. They have provided expertise,
equipment, and most of the direct foreign investment in the search for oil:
? US firms have taken the lead on most offshore oil surveys.
? Total US investment obligations for the first round of offshore oil
cooperation ran $800 million, almost half of foreign commitments.
? Consortiums led by US firms have found four of China's seven offshore
Declassified in Part - Sanitized Copy Approved for Release 2011/12/30: CIA-RDP04T00794R000200720001-8
 Declassified in Part - Sanitized Copy Approved for Release 2011/12/30: CIA-RDP04T00794R000200720001-8
As a result of the drop in oil prices, only the large, mainly US, oil
companies are likely in our judgment to maintain an interest in China.
Indeed, most foreign firms so far have found the results of investing in
China's offshore oil industry to be mixed at best, with few of them earning
enough to cover their costs. Many Western firms have sustained losses in
the tens of millions of dollars. And scant reliable data about onshore
prospects-frustrating all attempts to predict oil potential-will, we be-
lieve, discourage all but the largest companies from investing in further
exploration over the short to middle term.
Among US specialty firms, those selling oil equipment face poor prospects
within a year or two. We judge that China will be forced by budget cuts-
despite its priorities-to reduce purchases of equipment for its existing
onshore fields and will increase efforts to obtain manufacturing know-how
to begin producing its own. In the meantime, we expect the Chinese to
meet some of their immediate needs by buying used equipment from small
US independents that are in financial difficulty. As the Chinese are forced
to rely increasingly on their own resources, on the other hand, we think US
oil exploration consultants will be in a strong position to sell their services
to Beijing.
Declassified in Part - Sanitized Copy Approved for Release 2011/12/30: CIA-RDP04T00794R000200720001-8
 Declassified in Part - Sanitized Copy Approved for Release 2011/12/30: CIA-RDP04T00794R000200720001-8
Key Judgments
MOPI's Bureaucracy Battles 7
Declassified in Part - Sanitized Copy Approved for Release 2011/12/30: CIA-RDP04T00794R000200720001-8
 Declassified in Part - Sanitized Copy Approved for Release 2011/12/30: CIA-RDP04T00794R000200720001-8
Figure 1
The Path of Foreign Cooperation in Oil Exploration
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