A growing stain on China's energy sector

 

It took a month to admit that there was an oil spill in China’s Bohai Bay, from June 4 – when it happened – to July 5 when China’s The Global Times, in an unusual reaction from a presumably government controlled newspaper, wrote: ‘We cannot help but wonder: is the SOA [the State Oceanic Administration] a serious watchdog that exists to prevent bigger incidents from happening, or a loving parent who is overprotective of his own child?’

On July 20 the spill reached shore.

In China, one must not just read between the lines. An entire psychology must be surmised and nothing is left to chance. When a government newspaper criticizes the state it is quite a feat. There are no newspapers in China that either do not belong to or are controlled by the government. China may have liberalized many things – and the Chinese can enjoy many things, some that cannot be legally acquired in the West – but not the media.

The object of wrath, which has now been echoed in many other news outlets, has been the oilfield’s operator ConocoPhillips but, even more pointedly, also its leaseholder CNOOC, China’s major offshore oil company. The actual spill is probably minor, maybe 1500 barrels total. No BP well in sight here with millions of barrels leaking into the water; the geological characteristics of Bohai Bay oil reservoirs do not come close to the flow capacity of Gulf of Mexico wells. But both ConocoPhillips and CNOOC did not resist the temptation to say as little as possible – not a cover up by any means, but certainly no volunteering of information. They also did not shy away from downplaying the event. On July 5 the oil slick was admitted to be only 800km2. Ten days later it became four times as big, described as ‘four times the size of Singapore, but not serious’. By July 20 it had expanded to six times the size of Singapore.

A week earlier, the SOA asked ConocoPhillips to shut down two of its platforms, while it conducted an investigation. The Chinese blogosphere got saturated with the event. The internet harbors the only really free press within the country and it is often quite lively but, as anywhere, it is hard to distinguish between reality and fantasy. But there is a constant tone doubting government pronouncements which always seek to maintain social order. One analyst asked ‘Why is the public always out of public events?’

The spill provided the impetus for at least a part of the government to show environmental stewardship and concern. China is suffering from all sorts of pollution disasters. When huge companies are caught polluting they become a lightning rod for a public that has seen environmental blight daily. More than 80% of the country has no access to public drinkable water. Millions of Chinese children grow up in urban areas never seeing blue sky or clouds. The entire air is one giant smog. Fifteen of the world’s 20 more polluted cities are in China. The list goes on.

The official press reaction is probably intended to show that the government is becoming sensitive to accusations of collusion, of turning the other eye to corporate mischief. The Chinese national oil companies (CNOOC, Sinopec and CNPC) have a very cozy relationship with the government. They are certainly not subjected to much of a competition in importing crude and in marketing oil products and natural gas. There is nothing close to antitrust in the Chinese energy scene. Certainly, there is not much concern with the environment in Chinese oil and gas production.

The NOCs are carrying the Chinese flag all over the world and they perform an obvious national function, securing energy which the Chinese government has explicitly and, rightfully so, recognized as an essential element in its economic growth. International oil companies operating in China provide the necessary technology admired by the Chinese who definitely look up to their American counterparts. Understandably, IOCs could become less vigilant when cooperating with Chinese NOCs which enjoy such chummy relationship with the government.

It remains to be seen if this Bohai incident may alter the practices of oil production in China and, especially, if it will increase government oversight of domestic operations. However, the international role of the Chinese oil companies is so crucial to the country’s future and self-image that it is almost certain that they will continue to be treated as modern day princes. OE

 

Michael J Economides is a professor at the Cullen College of Engineering, University of Houston, and editor-in-chief of the Energy Tribune. The views expressed in this column do not necessarily reflect OE’s position.

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