IEEJ：November 2009

Northeast Asia Petroleum Forum 2009
Deepening Energy Cooperation, Facing Challenges Together
Speech delivered at Northeast Asia Petroleum Forum 2009
Mr. Wang Yilin, Vice President of China National Petroleum Corporation
Good morning Honourable Chairman, distinguished guests, ladies and gentlemen.
I am honoured to be invited to participate in Northeast Asia Petroleum Forum 2009.
The characteristics of Northeast Asia countries are very diverse. We differ in stages of development,
political systems, economic structures, and we have a complex historical relationship. Despite all ofthese, a great potential for cooperation is leading to deeper regional economic ties. Energy
cooperation is an important aspect of Northeast Asian economic cooperation. Northeast Asia
countries all share a desire to deepen energy cooperation and to promote harmonious regional
development. The Northeast Asia Petroleum Forum is an important means of achieving this, and assuch has gained the attention and enthusiastic participation of the energy sector in each of themember countries. Today, we are in the process of gradually shaking off the effects of the financial
crisis, petroleum and refining industry are slowly recovering, and the Second Trilateral Summit
Meeting among People’s Republic of China, Japan and the Republic of Korea was closed just two
weeks ago. As such, this Forum is of particular practical importance.
Crisis also brings opportunity. I would like to take this opportunity, on behalf of the China National
Petroleum Corporation (CNPC), to firstly introduce CNPC’s current development position in thewake of the financial crisis, and then to discuss some ideas for a collaborative approach to postcrisis challenges, and for strengthening intra-industry cooperation amongst member countries.
1. Turning Crisis into Opportunity: the continued increase of CNPC’s scale and market
influence
CNPC is China’s largest oil and gas producer and supplier, as well as one of the world’s major
integrated international energy companies, with business covering oil and gas exploration anddevelopment, refining and chemicals, pipeline transportation, products marketing, oilfieldengineering technical service, petroleum machinery manufacturing and international trading. In
2008, our revenue reached1.27 trillion Yuan, of which profits were 134.8 billion Yuan, taxes were239.5 billion Yuan, and the value of total assets reached 1.8 trillion Yuan. At the end of 2008, theAmerican periodical Petroleum Intelligence Weekly ranked CNPC number five in its list of the 50
largest oil companies in the world, up two places from the previous year, and making it the eighthconsecutive year the company has been placed in the top ten. In 2009 Fortune Magazine ranked
CNPC number 13th in its Fortune 500 rankings, up twelve places from the previous year.
Since the outbreak of the global financial crisis, CNPC has faced a turbulent international anddomestic oil market, but has remained market-oriented and efficiency. It adjusted production andstrategies in a timely manner, and has maintained smooth and orderly production.
The domestic oil and gas operations have maintained steady growth, and the growth ofreserves remains at a relatively high level. In 2008 our proven reserves exceeded five tons for thefifth consecutive year, and proven reserves of natural gas exceeded 30 million cubic metres for the1

IEEJ：November 2009
forth consecutive year. The production of crude oil emphasises the continued stable yield of existing
fields, and the efficient exploitation of new fields. Domestic production of crude oil is in excess of
100 million tons. Production of natural gas reached 61.7 billion cubic metres, the sixth consecutive
year of double digit growth.
Refining and market sales have got a solidity development, and the competitiveness continues
to increase. In 2008, 125 million tons of crude was processed, producing 79.22 million tons ofrefined oil products. A series of strategically important pipeline and refining projects have been
implemented, with work on the entire length of the China-Turkmenistan pipeline and the second
West-East Gas Pipeline commencing. The project to process a further ten million tons of sour crude
by Dalian Petrochemical Corporation has achieved full investment. The reliability and market
competitiveness of technical projects, project design and equipment production have all beenfurther enhanced.
International business development is accelerating, and the scale of operations continues togrow. Adherence to the principle of mutual benefits and developing together, we, gained oil
reserves grew by 655 million tons in 2008. Crude oil output was 622 million tons and natural gas
output was 6.73 billion cubic metres. Projects for developing new fields made significant headway,with the signing of contracts for 15 new projects in Venezuela, Nigeria, Qatar, Cuba and Costa Rica.
International trade has been growing rapidly, with the company trading 127 million tons of products,
having a total value of 78.2 billion US dollars.
Fulfilling social responsibility seriously, conserving energy and reducing emissions
energetically. CNPC is one of China’s major corporations, and is the main force in the Chinese
Energy Sector. In light of this, CNPC has committed to conserving energy and reducing emissions
and altering the driving mechanism of economic growth. The company has created special
mechanisms for conserving energy and reducing emissions, allocating 12.6 billion Yuan for projects
to conserve energy and reduce emissions, and is steadily working towards ten large projects foremission reduction. From 2006 to 2008, CNPC completed 184 emission reduction projects,
reducing the COD rate by 21.6%,and projects to do with fossil fuel emissions achieved reductionsof 31.2%. The rate of increase in use of energy resources has been brought under control, and thelevel to which a given amount of resources can be exploited has been further increased. The unit
consumption levels of energy resources and water have been maintaining a downward trend. In
2008, CNPC worked together with the Tianjin Property Right Exchanges and the Chicago Climate
Exchange to found the Tianjin Climate Exchange. This is a big step forward for utilizing financial
market mechanisms to solve environmental problems. In order to promote carbon sequestration,
CNPC contributed funds of 300 million Chinese Yuan in 2007 to set up the China Green Carbon
Foundation together with the National Forestry Administration and the China Green Foundation.
The aim of the foundation is to support reforestation, and bio-energy development. In 2008 CNPC,
together with the National Forestry Administration launched Forestry Carbon Sequestration projects
in seven cities or provinces, including Beijing and Hubei Province.
Adjusting the business structure in time and promoting the development of low carbon
economy. China National Petroleum Corporation is vigorously promoting the development of
natural gas operations, which leads the proportion of natural gas in domestic energy consumption
continuing to increase. As new pipelines such as the second West-East gas pipeline come into
operation, it is estimated that China’s consumption of natural gas will be increased from 80 billion
cubic metres in 2008 to 110 billion cubic metres in 2010. In addition, CNPC is proactively working
towards the large scale exploitation of coal bed methane. Currently, 60% of domestic reservescontain coal bed methane. CNPC sees the utilization of new types of energy as an important
strategy for addressing the challenges of future energy supply. It has had success in the development
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IEEJ：November 2009of such alternative energy sources as: biofuels, geo-thermal energy, unconventional hydro-carbon
resources, solar energy and wind power. CNPC’s diligent work in this area makes it an advocate andpioneer of clean energy and clean technology, and the company is gradually achieving its goal of
becoming a comprehensive, international energy corporation.
In the first half of 2009, CNPC correctly ascertained the broad direction of domestic economic
development and continued to turn crisis into opportunity. Based on maintaining stable and orderly
production, CNPC has achieved strategic development in main business. In the first half of the year,
the company’s total revenues were 506.2 billion Chinese Yuan, profits making up 50.6 billion Yuan.
Although this was down slightly compared to the same period last year, it is an improvement on theprevious period, and the overall picture was better than predicted. Domestic oil explorationachieved important successes in oil fields in the Erdors, Bohai Bay, Songliao, Sichuan and theJunggar Basin, amongst others. Crude oil production reached 51.04 million tons, and production
and sales of natural gas maintained yearly growth of 10%. In overseas operations, the corporation
made the most of the oportunities provided by the low price of oil, completing a purchase of sharesin Singapore Petroleum, and made breakthrough cooperation agreements with Iraq, Iran, Central
Asia, Russia and India. Of particular note is our joining hands with BP to succeed in bidding for the
Rumaila oilfield service contract in Iraq, which demonstrates CNPC’s advantage in terms of brandvalue and overall capacity. I strongly believe that CNPC’s vigorous yet steady development strategy
will give its cooperative partners even more opportunities for development.
2. Taking preventative measures and facing post-crisis challenges together.
Ladies and Gentlemen, in the past year, the global energy sector has undergone great changes.
Firstly, the effects of the financial crisis will mean that the global oil and gas industry will face
the major challenge of uncertain supply in the post-crisis period. As a result of a collaborative
effort on the part of governments all over the world, the trend towards dramatic economic
contraction has started to come under control. At the end of February, the world oil price hit bottom
and then rebounded, and the world economy showed signs of recovery. However, we should
recognise that the effects of the financial crisis are still ongoing, and that the prospects for global
economic recovery are still not bright. The road to recovery is likely to be rife with setbacks, andwe will need time to deal with systemic problems that arise.
In the short term, global supply and demand for oil is likely to remain in a comfortable andbalanced state. The state of the American economy and changes in the value of the US dollar areimportant factors influencing oil prices. The high level of fluidity has increased fluctuation in the
global oil market, but the relatively high inventory levels and excess capacity will reduce themargin for oil price rises in the future.
In the long term, the current challenges facing the petroleum industry as a result of a sluggish world
economy will not lead to a fundamental change in the long term scarcity of oil supply. Relative tothe price of oil, changes in development costs will lag behind, and the postponement or evenabandonment of some high cost projects will increase the risk of under-supply in the future. Oncethe crisis has passed, levels of oil consumption may rise rapidly. As a result, world economic
recovery might simply be the beginning of a new supply bottleneck. Therefore, maintaining
development of the oil industry is of strategic importance to world economic development as awhole.
Secondly, the financial crisis has made it even more difficult to address the problem of climatechange. Since the climate change conference in Copenhagen, the international community has been
trying to come to agreements about how to meet the responsibilities to address climate change.
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However, the setting of new climate change targets will have effects on modes of investment andincrease investment for energy efficiency projects. The current financial crisis has been the most
severe since world war two, and because countries vary in level and stages of development and inability, the process of deciding on a path to the realisation of climate change targets will be difficultand full of setbacks. The developed countries have a responsibility for accumulated emissions overtime as well as current high levels of emissions per capita. They must take the lead in cutting
emissions, as well as provide funds and technology transfer to developing countries. Whilecontinuing the process of development and poverty reduction, developing countries should makeuse of funds and technology supplied by developed countries to take positive steps to reduce
emissions and make a contribution to the collaborative effort to tackle climate change.
As world energy demands increase, problems regarding resource scarcity, conflict over resources,
and pollution will also increase. These problems pose a threat to our future existence anddevelopment. Energy security is becoming an increasingly important component of political andeconomic security. Climate change poses problems for food security, water security, thepreservation of eco-systems and human existence itself. The burning of fossil fuels is the mostsignificant and direct cause of climate change. Climate change influences energy security, but its
influence is far from contained to this sphere. Energy security and climate change are the two major
challenges to sustainable development in the post financial-crisis period. International cooperation
will be a decisive factor in meeting these challenges. CNPC will continue its new security outlook
which emphasises mutual ltrust, mutual benefit, equality and cooperation and will uphold the“shared but differentiated responsibilities” principle of the Chinese Government. In this way, CNPC
will make a positive contribution to the fight against climate change. We will take on the
responsibility that comes with being a comprehensive global energy company by taking appropriate
preventative measures. These include working hard together with others in the industry to develop
renewable energy sources, setting up a system for the spread of advanced energy technology
development, diversifying energy supply, and promoting the duel aim of economic development
and tackling climate change.
3. Being Positive and Practical, Deepening Northeast Asian Energy Cooperation
Ladies and gentlemen, Northeast Asia is one of the most dynamic economic regions worldwide,
attracting the attention of the international community. There is a strong complementation between
the six countries in the region, in both economic and energy spheres. There is a long history ofcooperation in the region. In recent years, cooperation within the region has been steadily increasing,with Sino-Japanese, Sino-Korean, Sino-Russian, Japanese-Korean and Russian-Korean bilateral
economic relationships all developing successfully. Mutual dependence in the region is constantly
on the rise. We believe that the Northeast Asian economy will develop rapidly in the post-crisis
period, with the result that regional economic ties will grow ever closer and consumption of fossil
fuels will continue to increase. Ensuring stable supplies of oil will become a challenge shared by all
Northeast Asian countries. To this end, all governments in the region should work together with oilcompanies to take positive cooperative measures to meet these challenges. CNPC will continue tofollow the principles of “Positive and practical, mutual benefits and gains, cooperating to win
together”, and will strengthen cooperative relationships with other stakeholders.
CNPC already has an established history of cooperation within the Northeast Asian energy industry.
The sphere and depth of this cooperation is constantly increasing. Japan, for example, signed a longterm trade contract with China in the 1960’s. CNPC was the main executor of the agreement,
making long term exports of crude oil from the Daqing Oilfield to Japan, and we also made use ofloans of Japanese yen to develop oilfields in our possession. Since the 1990’s, our cooperation withJapanese industry has been widened to include oilfield exploration and exploitation, oil and gas
trade and transportation, joint investment in manufacturing, purchases of goods, materials and4

IEEJ：November 2009equipment and technological exchange amongst others. This year, the jointly funded CNPC andNippon Oil project to set up an oil refinery has received permission from the Chinese Government.
This is an important step forward for Sino-Japanese joint-capital ventures.
Northeast Asian countries and oil companies both face the challenge of ensuring energy security as
well as facing climate change. Amongst Northeast Asian countries, China has plentiful coalresources. Coal makes up approximately 70% of China’s primary energy consumption, but oil
makes up less than 20%, and natural gas less than 4%. If China can make appropriate reductions in
the amount of coal consumed, and increase the proportion of oil, gas and other clean energy sourcesin primary energy consumption, this will go a long way in reducing China’s carbon emissions. In
2008 China’s consumption of coal was 2.74 billion tons. If 1% of this can be replaced with naturalgas, and at the same time enhance efficiency in the use of coal, we can decrease carbon emissions
by 500 million tons annually. At the same time as China is making great efforts in energy,
conservation, we are also working hard to improve and optimize the energy structure, working
towards the balanced development of the economy, the energy sector and environmental protection.
We hope that the other countries in Northeast Asia can understand and support China’s arduous
efforts to increase the use of oil and gas, decrease the proportion of coal used and to promote low
carbon economic development. These measures will exert a positive effect on climate change forthe region.
The countries of Northeast Asia already have a solid basis for cooperation in the field of conserving
energy and tackling with climate change. Japan has accumulated a wealth of experience in energy
conservation technology and policies. China, as one of the main carbon emitting countries, hasenormous potential for energy conservation. If the two countries can work together, it would not
only be a great commercial opportunity for Japanese industry, but would also be an important
contribution to reducing strain on the environment in the region.
In the Northeast Asian region, the three countries of China, Japan and Korea are all large importersof oil and gas. Japan and Korea are almost entirely relying on exports for their oil requirements.
China is the fifth largest producer of oil in the world; however, it is currently in the process ofindustrialization. As a result, its need for oil, gas and other energy resources is growing rapidly, and
it is increasingly unable to meet its own needs domestically. The three countries are competitors for
global resources, but there are also opportunities for mutual gains. Northeast Asia countries findthemselves at different stages of development, each having their own competitive advantages.
Collaborating to build a regional system for energy security is an idea with bright prospects. In any
case, if each country only focuses on its individual interests and they compete against each other,
we will all be losers.
In Northeast Asia, Russia has a strong complementation with China, Japan and Korea in terms ofenergy production and consumption. How to ensure long term security in resource supplies is an
important issue for all parties. The effects of the financial crisis have made countries and enterprisesin the region desire even greater cooperation. In their dealings with Russia; China, Korea and Japan
should strengthen communication and coordination, and make practical improvements incooperation by promoting a “win-win” approach.
In light of the above, we suggest that each of the countries in Northeast Asia start developing
cooperation in the following areas. Cooperation can start with the easier, confidence building
aspects first.
First, increase the scope of oil trade, and increase the strength of international cooperation in
oil and gas exploration and exploitation. In order to secure an adequate domestic oil supply,
China, Japan and Korea are all vigorously developing overseas supply routes. The three countries
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can, according to their needs, bilaterally or multilaterally develop cooperation in areas such as crude
oil exchanges, trade in refined oil products, trade in LNG, and shared transportation. If conditions
are mature, the countries could even start a bilateral or multilateral joint-capital company, and takepart in international tender submissions or exploration together. In this way, we could reduce
unnecessary losses incurred by friction amongst ourselves, and increase our successes.
Second, cooperate in the research, development and application of new technologies. We could
bilaterally or multilaterally select a technology area of mutual interest and come together to tackle
the task together. An example might be to cooperate on the development of technologies to do withoil refinement, such as the production of synthetic rubber, plastics and clean fuels as well as
research and development of catalytic agents and reagents, high performance products etc.
Third, resolve the problem of premium price for Asia together. This is a problem that we all areconcerned about, in response to which we suggest the organisation of research personnel from eachcountry to carry out thorough research, and to build a consensus. The continued presence ofpremium pricing for Asia has to do with Asia’s historical overdependence on Middle-Eastern oil,but also with the fact that Asia lacks its own standard price for oil. Taking American and European
experience as a model, we suggest taking the price of crude oil from representative oilfields inNortheast Asia as the standard for calculating oil price, and setting up a common oil futures trading
centre. At the same time, we should strengthen internal cooperation to speed up the decision of the
Gulf Cooperation Council regarding a free trade agreement, fight for the abolition of destination
clauses in crude oil purchase contracts, and possibly even try to make it possible to pay in Asiancurrencies.
Fourth, support China’s efforts to build an improved system of oil reserves, and attempt tobuild a mechanism for mutual security for China, Japan and Korea. In respect to Oil reserves,
Japan and Korea are both members of the IEA and have set up comparatively large scale reserves ofoil. However, the building of a system for oil reserves in China has only just begun. Japan and
Korea can offer suggestions or participate directly in the areas of warehouse site selection, design,
construction as well as operations and maintenance. The construction and improvement of CNPC
oil reserve warehouses will be of great significance for energy security in the Northeast Asian
region. Japan, Korea and China could even consider a further tri-lateral mutual security mechanism
based on each country’s reserves system.
Fifth, strengthen cooperation regarding energy conservation, emission reduction and newenergy sources. As mentioned earlier; Japan, Korea and China have great potential for cooperationin this area.

Honourable Chairman, ladies and gentlemen:
In the past few decades, China National Petroleum Corporation has carried out effective intraindustry cooperation in each of the Northeast Asian countries. In the future, we hope to continue tostrengthen communication and exchanges with our friends in the petroleum industry of each country.
We hope to further our mutual understanding, build long-term, stable cooperative relationships, andto work hard to achieve mutually beneficial development. We are looking forward to even more
extensive cooperation with each country in the fields of oil and gas exploration and development,
oil refining, the construction of new pipelines and the development of new energy forms. Our
cooperative partners can take advantage of the growth in Chinese market, particularly in the area ofoverseas oil and gas exploration and development. Companies that cooperate with us in the areas ofoil and gas development investment and technical services projects can benefit from our technology,
experience and personnel.
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Ladies and Gentlemen, history tells us that disaster is invariably followed by a new round ofdevelopment. I am optimistic about prospects for cooperation in the energy sector of Northeast Asia.
Let us come together with confidence, strengthen cooperation, overcome difficulties, and usher in atomorrow full of hope and promise.
Thank you everyone!

Contact :7report@tky.ieej.or.jp