China invests big money in desert oil field, but results are economic trickle

June 18, 1995|By Ian Johnson | Ian Johnson,Sun Staff Correspondent

TAKLIMAKAN DESERT, China -- As a windstorm gathers force and the sand begins to swirl, it's hard to imagine that much lies up ahead on the road. There is more sand and more wind -- and China is banking on there also being affordable oil.

The Taklimakan is home to one of China's costliest engineering efforts, a multibillion-dollar crash project to find the oil needed by the country's booming economy.

Developing the desert's resources would also go a long way toward blunting Muslim unrest in this corner of China.

China's oil officials assert that success is at hand. Oil production in the Tarim Basin, of which the Taklimakan is a part, increased 15 percent in 1994 and this year may rise another 30 percent.

But a closer look at this mammoth project suggests that the Taklimakan is hardly ever likely to be the "Saudi Arabia of the Orient," as China used to predict. After four decades of exploration, and expenditures of more than $20 billion, the oil being pumped out of the desert still accounts for a small fraction of China's total production -- and seems likely to remain so.

And despite government claims that the venture is profitable, unreleased official figures suggest that it is heavily in the red. At the same time, however, money is being lavished on massive prestige projects, such as a gleaming new town on the edge of the desert for 20,000 oil workers who have yet to be hired -- a boom town waiting for a boom.

"The question with the project is who will benefit," said the manager of a Beijing-based oil exploration company. "So far the only clear winners are the companies selling equipment.

"It's not clear at all whether the Chinese taxpayers will get much out of this. It's a project that has more to do with national pride than with the efficient exploitation of natural resources."

The pride is nowhere more evident than at Tazhong 4, the sprawling desert headquarters of the government-run Tarim Petroleum Exploration and Development Bureau.

Wang Zhaolin, the self-proclaimed "desert king" who runs Tazhong 4, happily displays the $30 million worth of trucks that his men drive around in the desert.

The trucks are impressive, but outside experts familiar with the project say they speak more of waste than progress.

Trucks in row after row sit idle all day, every day.

Asked what use the trucks have, an official says they are "assets" -- a statistic for China's central planners but of little use exploring for oil.

"China's oil industry is not run according to profits and losses," said John Lau, head of the Beijing office of Haliburton, an American oil equipment and services company. "It's still very much the command economy, so wastage is still very prevalent."

Officials maintain that the Tarim project is different. Senior Vice President Zhong Shude says his bureau may be part of the famously inefficient China National Petroleum Corp., but is run along the lines of a Western oil company.

At first glance, the bureau's financial results -- after-tax profits of $180 million last year -- support Mr. Zhong's claim. But the figures do not include the $400 million spent on exploration, or government loans and grants.

Officially, the company says that the government's generous support is at least paying off in surging oil production. Officially, production capacity will be 5 million tons by the end of 1996, only 3 percent of the national total but double this year's production.

But the official figures are not correct. The oil company says it will not actually produce the 5 million tons of oil. Transportation bottlenecks -- primarily a lack of rail capacity to move the oil east -- will limit Tarim's production to 3.6 million tons.

"There is much risk involved in the petroleum industry," Mr. Zhong explains. "You often see fluctuations in estimates. This is normal."

A sign of unease about the slow pace of development was a decision made in 1993 to allow foreign oil companies to explore and develop sections of the desert.

Foreign interest, however, has been small because the tracts of land made available were not considered promising. Most of the desert remains under central government control.

Oil experts who have observed Chinese drilling teams say the country's desire to go it alone has resulted in nine out of 10 wells having to be redrilled.

Oil in the Tarim basin is under high pressure, and the wells are unusually deep.

The result is that most of the oil remains locked beneath some of the world's most inhospitable terrain -- and that China must buy oil from abroad.

This year, oil imports are likely to top 20 million tons -- or nearly six times the Tarim's production, according to the official Xinhua news agency.

Contracts have already been signed with gulf states for delivery.

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