The recent breakdown of trade negotiations between China and
Japan has roused concerns in the two countries. Disagreement
between the two sides on the quantity and price of China's crude
oil export to Japan has led to a de facto suspension of the oil
export to Japan early this year, which has been going on for some
30 years.
A halt of crude oil export to Japan once in
history
There ever happened the suspension of crude oil export to Japan
at the beginning of 1999. The reason lay in China's soaring demand
for oil due to its boosted economy on fast track after putting into
practice the reform and opening-up policy.
Since 1993, China turned into an oil importer from an exporter.
By the end of 1998, China had been exporting its oil at a price 30
percent lower than its domestic market. In addition to this,
Chinese state-run enterprises in this field were mostly suffering
from bleeding losses. In 1999 China had to officially inform Japan
that it would export zero crude oil to Japan as from February that
year.
According to the extension terms agreed upon by the end of 2000,
China was expected to export 3m tons to 4m tons of crude oil to
Japan annually from 2001 to 2003. China and Japan discussed the
issue of crude oil export for 2004-2005 by the end of last year.
Remarkable disagreement began to appear between the two parties on
the quantity and price of the crude oil trade.
Japanese media reported that Tokyo proposed an annual export of
1.85m tons of Chinese crude oil in 2004 and 2005. But Beijing
quoted an annual supply of 500,000 tons at the most at per barrel
price about US$6 higher than that in the world market. The
difference over these questions between the two sides finally
resulted in the suspension of China's 30-year crude oil exports to
Japan from January this year.
China faces an insufficient supply for domestic
needs
China has scarce oil resources endowment. Its oil output lags
far behind the domestic needs as demanded by its economic
development. Since 1993, China's oil import has been on the rise.
Take last year for instance China imported nearly 100 m tons of oil
to meet its domestic needs, a record high in history.
After China's WTO membership, China's oil policy and the price
fluctuation of the world oil market combined to impact heavily on
Chinese oil producers. Insiders said enterprises were not motivated
as much as they had been before and the government has reduced the
tax rebate for resources export including crude oil, making the
crude oil exports no longer a lucrative trade for exporters.
Some analyses on the Japanese side hold that the crude oil
output from China's Daqing Oilfield plummeted to 48.4 m tons last
year, below 50m tons for the first time since 1975. Its annual
output will be on a down slope in the future according to China's
energy strategy and long-term production plan. For a long time, it
will keep its yields at about 35m. tons a year. This plan means
that Daqing will no longer be able to export its crude oil to Japan
on the one hand and hardly can it supply crude oil to other areas
of China.
Japan attributed China's reduction of its crude oil export to
two reasons. One is that China's soaring domestic demand has made
lowered availability for export. The other is that the disagreement
on the price between the two sides has led to the breakdown of the
trade talk.
There is another analysis. Although Daqing Oilfield yields less
output and the price is a little bit lower than the domestic
market, as a producer with an annual production capacity of about
48m tons, the export of 1.85m tons means only a drop in a bucket.
China's reluctance to export its oil to Japan may be caused by the
competition between the two sides for Russia's oil pipeline.
Daqing oil attractive to Japan
Japan is extremely hungry for energy resources. Over half of its
energy, 52 percent, depends on oil. And it has nearly 100 percent
dependence on imported oil. 88 percent of its total oil import is
from the Middle East. To ensure its oil supply Japan has been
trying hard to tap for more oil import channels to reduce its over
dependence on the Middle East oil.
A boss from a Japanese oil trade firm said frankly that in Japan
either the government or non-government all attached great
importance to seeking for various channels for crude oil import.
Anyway, Japan's domestic consumption of crude oil completely
depends on imported oil.
Daqing Oilfield used to be the exporter to Japan and its oil
quality is quite attractive to Japan. Two facts underlie Japan's
choice of Daqing as its oil exporter according to Japanese
insiders. One is that the relatively short distance between China
and Japan saves shipping cost.
The other is that Daqing produces quality oil with low sulfur
and high paraffin wax which condenses crude oil easily at normal
temperature, making the shipment very easy. In addition, price of
oil from China has been lower than or approximated to that of the
international market. As a result, Japan found the oil from Daqing
more attractive as compared with crude oil from any other
regions.
Some Japanese firms hold on
Although the talks on Daqing's oil export to Japan have been
fruitless so far, some Japanese firms will not give up and keep
their contact with various parties in China to buy the quality
crude oil from Daqing.
At the end of January, a non-governmental delegation comprised
of major Japanese crude and produced oil traders visited Chinese
officials of Ministry of Commerce in a bid to resume the oil
export. Even after the setback, its backbone members still stay in
China for further talks with China. Talks are still going on.
China's economic development has also whetted its appetite for
energy, a report of Japanese media pointed out. This will effect
more pressures on the shortage of energy supply in Asia. For better
cooperation and development, it is necessary for Japan to step up
its collaboration with China on promoting energy saving
technologies and power generation equipment of high efficiency.
(People's Daily February 22, 2004)