June 16, 2008 / 10:06 AM / 11 years ago

UPDATE 4-Japan, China settle East China Sea gas feud-media

(Adds industry comment)

By Linda Sieg

TOKYO, June 16 (Reuters) - Japan and China have agreed to jointly develop gas fields and share profits in disputed areas of the East China Sea, Kyodo news agency reported on Monday, in a further sign of warming ties between the two countries.

The reported accord follows a May summit between Japanese Prime Minister Yasuo Fukuda and Chinese President Hu Jintao at which the two leaders agreed to settle the long-running gas feud.

Estimated net known reserves in the disputed fields are a modest 92 million barrels of oil equivalent, Chinese figures show, but both countries have pursued the issue, lured by the possibility of much bigger deposits being found.

The dispute has come to symbolise more than an argument over maritime gas rights by the two energy-hungry countries, because it concerns matters of territory and sovereignty.

Quoting sources close to Japan-China relations, Kyodo said the two sides had decided to set aside the territorial feud for now and agree on joint gas field development.

“If it is true, this is a great leap forward,” said Phil Deans, a professor of international affairs at Temple University in Tokyo. “Two years ago, the two sides were so entrenched and incapable of compromise it looked as if they were never going to get anywhere.”

Kyodo said an announcement of the deal could come as early as this week, but Japan’s top government spokesman told a news conference details were still being worked out.

“I have heard that they are at the stage of working out final details,” Chief Cabinet Secretary Nobutaka Machimura said.

China’s Foreign Ministry had no immediate comment.


Sino-Japanese ties chilled during Junichiro Koizumi’s 2001-2005 tenure as Japan’s prime minister, partly because of his visits to a war shrine seen in Beijing as a symbol of Tokyo’s past military aggression in China in the 1930s and 1940s.

But relations have improved markedly since then between the two Asian powers, linked closely by trade and investment.

At the heart of the dispute is a row over where the boundary of the two countries’ maritime economic zones falls.

Japan says the median line between the two countries’ coasts marks the divide. China says the boundary is defined by its continental shelf, extending its zone towards Japan.

Tokyo has objected to Chinese development of the Chunxiao gas field, which lies just west of what Japan considers the boundary, and fears drilling there could drain gas through a honeycomb of seabed rocks from what Tokyo sees as its economic zone.

Kyodo said Beijing had agreed Japan could invest in and claim profits from projects, including Chunxiao, and in waters around other fields that China calls Duanqiao and Longjing.

China’s state-controlled CNOOC Ltd (0883.HK) has said it was ready to begin production from the Chunxiao gas field but it was not clear if it had done so yet.

Nippon Oil 5001.T, Japan’s top refiner, and China’s National Petroleum Corp last year signed an accord for long-term business cooperation, including overseas oil and natural gas resources development. Nippon Oil has a stake in the area but not in the Chunxiao gas fields.

An industry executive in China familiar with the fields said firms were keenly awaiting the results of the talks, but after that more work would be needed on the size of the fields.

“Companies need to sit down and nail down the reserve base for joint development,” he said. (Additional reporting by Yoko Kubota, Chikafumi Hodo and Yuko Inoue in Tokyo and Chris Buckley in Beijing; Editing by Rodney Joyce and Michael Watson)

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