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Cablegate: Prc/Taiwan Joint Venture to Explore Oil in Taiwan

VZCZCXRO2103
RR RUEHHM RUEHLN RUEHMA RUEHPB RUEHPOD
DE RUEHIN #1317 1630236
ZNR UUUUU ZZH
R 120236Z JUN 07
FM AIT TAIPEI
TO RUEHC/SECSTATE WASHDC 5599
INFO RUEHZN/ENVIRONMENT SCIENCE AND TECHNOLOGY COLLECTIVE
RUEHBJ/AMEMBASSY BEIJING 6900
RUEHUL/AMEMBASSY SEOUL 8713
RUEHKO/AMEMBASSY TOKYO 8850
RHMFIUU/DEPT OF ENERGY WASHINGTON DC

UNCLAS TAIPEI 001317

SIPDIS

SENSITIVE
SIPDIS

DOE FOR INTERNATIONAL PUMPHREY

E.O. 12958: N/A
TAGS: ENRG EPET ECON CH TW
SUBJECT: PRC/TAIWAN JOINT VENTURE TO EXPLORE OIL IN TAIWAN
STRAITS

1. SUMMARY. The PRC and Taiwan are both actively seeking
new energy sources and compete for oil
concessions in the same countries. However, the PRC and
Taiwan are cooperating to explore for petroleum in the Taiwan
Strait. This is part of an effort to triple energy
exploration spending by Taiwan by 2010 and is the first
instance of cross-Strait joint exploration for energy
resources and may be a portent
of things to come. END SUMMARY

TAIWAN TRIPLING ITS OIL AND GAS EXPLORATION BUDGET
--------------------------------------------- -----

2. Taiwan, which imports more than 98 percent of its energy
needs, hopes to double its oil and gas reserves in five years
to provide a cushion against rising costs of oil. Part of
the plan is to more than triple annual exploration spending
to NT$10 billion (about US $300 million) by 2010 from the
current NT$3 billion. The doubling of oil prices over the
past five years has triggered the unprecedented quest for oil
and gas. According to CPC's Director of Overseas Operations
John Hsu, the investments are mostly joint-ventures to lessen
the risk. Currently, Taiwan has oil fields in the following
countries (figures indicate Taiwan ownership percentage) :
Venezuela 17.5 %, Ecuador 61 %, Indonesia 16.7 %, Australia
25 %, and the U.S. 22.5 %. Because investments in volatile
regions such as Southeast Asia and Latin America run the risk
of expropriation and civil unrest, Taiwan is focusing on
stable areas such as the Gulf of Mexico and Australia for
exploration, and it has not neglected its own backyard--the
Taiwan Strait.

JOINT VENTURE WITH THE PRC IN TAIWAN STRAITS
--------------------------------------------

3. In 2002, Taiwan's CPC and PRC's China National Offshore
Oil Corp (CNOOC) signed a joint venture contract to establish
the "Tainan-Chowshan Petroleum Operation Company" to explore
for oil in the Taiwan Strait. CPC through its overseas
wholly-owned subsidiary, Overseas Petroleum Investment
Corporation (OPIC) signed the contract with CNOOC. The
joint-venture company is registered in the British Virgin
Islands. The joint venture is a 50-50 profit sharing
arrangement by both parties. The PRC provides logistical
support at the port of Shenzhen where CPC has set up an
office, whereas Taiwan provides technical experts. According
to CPC's Hsu, PRC drilling companies won the bidding since
they have the
advantage of low cost and proximity to the exploration tract.
The tract lies SW of Taiwan at the territorial sea border
between Taiwan and the PRC (21-23 degrees North Longitude;
116.5-118.5 Latitude). The first well drilled on the PRC
side in November 2003 was dry, but geological data obtained
was useful for subsequent drilling. The second well will
begin drilling on the Taiwan side at the end of 2007. The
exploration area has estimated natural gas reserves of 6
billion cubic meters.

FEAR FOR NATIONAL SECURITY
--------------------------

4. (SBU) Taiwan authorities initially withheld approval of
this project for fear that national security might be
compromised. The Mainland Affairs Council (MAC) supported
the move although it took nearly to approve the drilling for
the second well (DP21-1-1). While cooperation has been good
so far on this joint venture, CPC's Hsu told AIT that when
CPC tried to get into Angola to discuss oil exploration,
visas for its technical personnel were denied under PRC
pressure.
YOUNG

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