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ConocoPhillips ordered by China to stop drilling

September 3, 2011

ConocoPhillips, which has been attempting to gain a strong foothold in the oil production market in China, has been ordered to stop drilling due to a dispute over an oil leak  in Bohai Bay, which is the innermost bay of the Yellow Sea in northeastern China.  The spill occurred in the Peng Lai 19-3 oil field, which is the largest off-shore oil field in China.

ConocoPhillips operates the well in partnership with the China-based company,  China National Offshore Oil Corp.  The spill began on June 4, but wasn’t reported for for a month.  According to China Daily, a group of local fisherman are filing a lawsuit, claiming that the spill had caused significant damage to the environment.

Conoco claims that the leak was stopped and the cleanup was successful.  The Chinese State Oceanic Administration (SOA) disputes that claim.  According to Tom Grieder, an energy specialist cited in the Wall Street Journal, this is a blow to the corporate strategy of ConocoPhillips, which has been attempting to gain a foothold in non-conventional energy sources in China, such as gas from shale.

This story was interesting to me for a couple of reasons.

The first is that it gives a bit of insight into the political situation in China.  For a very long time the attitude in the US seemed to be that China was a huge, uniform, two-dimensional, autocratically run nation, with any internal conflict or dissent immediately crushed.  The actual situation is obviously a bit more complex.  Several of the articles I read mentioned pressure brought to bear on the SOA by Chinese environmentalists.  The very fact that the fishermen are filing a lawsuit directed at a powerful Chinese energy company indicates that some aspects of Chinese economic life have significantly moved into the 21st Century.  My own view is that while the development of markets and corporations in China may resemble the chaotic and freewheeling style of 19th Century American capitalism, the push-back by those affected adversely is starting to take place.

The second thing of interest to me is specific to ConocoPhillips.  As I mentioned in an earlier post I’m reading Daniel Yergin’s book The Prize: The Epic Quest for Oil, Money & Power.  Conoco is historically significant as one of the 34 companies which were formed when Standard Oil was dissolved in 1911 due to a lawsuit brought by Theodore Roosevelt’s administration under the Sherman Antitrust Act.  This, of course, has no bearing on the details of the leak, but I thought it was interesting historical background anyhow.  ConocoPhillips has deep historical roots in the growth of the oil industry.

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