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China Suspends Oil Exports to Japan

China has suspended oil exports to Japan due to a stalemate in sales negotiation, risking the future of a three-decade long oil shipment programme.

The sales talks were on hold as China, the world's second largest oil importer, demanded a price increase and a cut in volumes to justify exports from its aging Daqing Oilfield, industrial and company officials said.

Analysts said the economic relationship between the two neighbouring countries is unlikely to be affected by the event as the export is small.

"There has not been a reply to our price quote yet," said a PetroChina official.

"We don't know whether we will continue the export this year."

PetroChina, the owner of the Daqing field, represented the Chinese government to export the crude from Daqing, which is China's largest oilfield.

The official refused to reveal the price quote PetroChina had offered.

Earlier reports said China wanted to raise the premium for the crude to US$6.30 a barrel over the average price of Indonesia's Minas and Cinta crude from a premium of just 45 cents per barrel in 2003.

PetroChina also told Japan to cut Daqing supply in 2004 to 500,000 tons from 3 million tons in 2003 as the output of Daqing is declining, the report quoted an unnamed Japanese trader as saying.

"It won't be exported to Japan again based on long-term contracts," the Japanese trader was cited as saying.

China started to export Daqing crude to Japan since 1978 under a long-term government-to-government agreement to promote bilateral trade.

In 2000, the two nations renewed a 5-year contract to export 3-4 million tons of Daqing crude in the first three year starting from 2001. Negotiation on the 2004-2005 contract term started last year.

Export from Daqing now accounts for about 1.5 per cent of Japan's crude imports.
An official from the Ministry of Commerce denied that talks between the two governments have broken down. He added that PetroChina and Japanese companies are holding "some loose contacts."

The PetroChina official indicated that the price hike is understandable since China itself has to import a large amount of oil.

China's oil imports have been surging in recent years as the economy booms. The country imported nearly 100 million crude oil last year, accounting for almost 40 percent of its consumption.

Analysts said the price hike also reflects the cost rise of exporters after China introduced new tax policies this year to remove a 13 percent rebate on crude export. The rebate cut is the result of China's reform on its entire rebate system.

Experts said the production decline of Daqing also forced China to reduce its crude export. Daqing, which represents one-third of the nation's oil output, last year saw its production fall for the first time in 27 years below the benchmark 50 million tons.

Daqing had planned to cut oil output this year by another 2 million tons from 2003 and output may drop to 30 million tons by 2010.

(Xinhua News Agency January 12, 2004)

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