China eyes controls as ConocoPhillips apologizes for spill

Chinese Premier Wen Jiabao said on Wednesday that the government would strictly control new petrochemical projects around northern China's Bohai Bay, as energy giant ConocoPhillips apologized for an oil spill there.

Wen, speaking at a Cabinet meeting, said Beijing would strive to cut pollution in and around the bay to ensure harmony between man and sea, according to a statement on the central government's website (www.gov.cn).

Strictly control new petrochemical projects, the statement said without elaborating but in reference to the Bohai Bay.

The government will also establish a pre-warning mechanism for the bay's marine environment, and improve controls to prevent heavy metal pollution, it added.

ConocoPhillips moved to repair its frayed relations with Chinese regulators earlier on Wednesday, apologizing for the oil spill and saying it will establish a fund to cover the clean-up costs.

The company said the proposed fund would be designed to address its legal responsibilities and benefit the general environment in Bohai Bay, but it did not say how large the pot would be.

ConocoPhillips deeply regrets these incidents and apologizes for the impact that the incidents have had on the Chinese people and the environment, Chief Executive James Mulva said in a statement.

A ConocoPhillips subsidiary said on Tuesday that all operations at an oilfield in Bohai Bay had been shut down, as ordered by China's marine authority.

The State Oceanic Administration (SOA) last week ordered ConocoPhillips China to halt injection, drilling and production at the Penglai 19-3 oilfield -- China's largest -- because it had failed to seal leaks that have lasted for nearly three months.

ConocoPhillips owns a 49 percent stake of the oilfield and acts as the operator, while China's top offshore oil and gas producer CNOOC has a 51 percent stake.

Major Western firms, including ConocoPhillips, Unilever and Yum Brands have lately been under increasing scrutiny from China's state media.

ConocoPhillips has been a particular target, enduring withering criticism from Chinese commentators and regulators. On Monday, a commentary in the People's Daily, the mouthpiece of China's Communist Party, accused the company's China operation of delays, negligence, cover-ups and cheating.

Analysts say that Western firms, lacking political protection, are easier targets for criticism. State-owned CNOOC has received comparatively little criticism, despite its joint ownership of the oilfield.

It was not immediately clear whether the apology and move to establish a fund for the bay would be enough to mollify the company's critics.

The key is the scope of this fund, whether it can really compensate losses of fishermen and ecological damage in Bohai Bay, said Li Yan, head of Climate and Energy Campaign in Greenpeace in Beijing.

If they can really establish this fund, then we can say they are doing the right thing. But it's too early to draw this conclusion now.

An official of ConocoPhillips China told Reuters that the company was currently working on the details of the fund.

BIG FACILITY

Penglai 19-3 oilfield is one of ConocoPhillips' biggest oil production facilities in Asia.

According to a statement posted on CNOOC's website, the Chinese company's chairman met ConocoPhillips last week to express its willingness to cooperate on a Bohai Bay fund.

ConocoPhillips China would seek to work with Chinese authorities and CNOOC regarding the establishment and operation of the fund, the company said in the statement.

As oil spills go, the Bohai Bay leak is not among the largest. ConocoPhillips China said on August 31 that as much as 3,200 barrels of oil and mud had leaked into the sea, and Chinese authorities said some 5,500 sq km (2,120 sq miles) of water had been polluted.

By contrast, the massive 2010 BP oil spill spewed more than 4 million barrels into the Gulf of Mexico.

The Penglai 19-3 oilfield is the country's largest offshore oilfield, with total output of 8.4 million tonnes per year (168,000 bpd), about 20 percent of total crude oil production in Bohai Bay.

CNOOC has said it would lose 62,000 barrels per day of output because of the suspension at the field.

It had already been losing 22,000 bpd since the regulator ordered a halt to operations at two PL19-3 platforms on July 13 because of the leaks. CNOOC's Hong Kong listed shares were trading 2.3 percent higher on Wednesday afternoon, after having fallen more than 10 percent following news of the output suspension.

The oilfield was producing 150,000 bpd before the oil leak, Standard Chartered Bank said in a research note on Monday.