1. SUMMARY. AN OFFER OF CHINESE CRUDE FROM SAHNATUNG
IN LATE OCTOBER 1974 WAS NOT ACCEPTED BY NEW ZEALAND BE-
CAUSE OF HIGH WAX AND WATER CONTENT, AND TANKER LIMITA"
TIONS. NEW ZEALAND OFFERED TO TAKE THIS TYPE OF CRUDE
AFTER 1980 WHEN REFINER EXPANSION IS COMPLETED AND OFFERED
TO ACCEPT A DIFFERENT QUALITY CRUDE BEFORE THEN. THE OFFER
CAME AT A TIME WHEN THE CHINESE WERE SEEKING TO INTRODUCE
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SHENGLI CRUDE TO THE INTERNATIONAL MARKET, BUT
APPARENTLY THE EFFORT MET WITH MORE PROBLEMS THAN THE
PRC MAY HAVE EXPECTED . END SUMMARY
2. NEW ZEALAND COMMISSON OFFICER RHYS RICHARDS (PRO-
TECT) PASSED CONGENOFF COPIES OF NEW ZEALAND GOVERNMENT
MESSAGES CONCERNING A PRC OFFER OF CRUDE TO NEW ZEALAND
IN LATE OCTOBER 1974. BASED ON THE MESSAGES AND FROM
DISUCSSION WITH RICHARDS, IT IS APPARENT THAT THE OIL,
FROM AN UNSPECIFIED FIELD IN SHANGUNG PROVINCE (PRESUMABLY
SHENGLI), WAS NOT SUITABLE FOR NEW ZEALAND'S REFINERIES,
AS THE WAX CONTENT (15.35 PERCENT) AND THE WATER CONTENT
(ABOUT 2 PERCENT) WERE TOO HIGH. (THE WAX CONTENT IS
USUALLY NOT STATED IN THE STANDARD PRC SALES CONTRACT, WHICH
INCLUDES ONLY SPECIFIC GRAVITY, AND SULPHUR AND WATER
CONTENTS SPECIFICATIONS.) ALSO THIS TYPE OF CRUDE WOULD
PRODUCE MORE RESIDUAL OIL THAN THE NEW ZEALAND MARKET (OR
MANY OTHER LESS INDUSTRIALIZED MARKETS IN ASIA) REQUIRED.
(THE SULPHUR CONTENT WAS GIVEN AS 1.35 PERCENT, WHICH IS
HIGHER THAN OTHER SAMPLES OF SHENGLI CRUDE THAT HAVE BEEN
ANALYZED IN JAPAN AND MUCH HIGHER THAN THE USUAL RANGE OF
TACHING CRUDE.)
3. ANOTHER COMPLICATING FACTOR WAS THAT THE CHINESE
SAID THEIR PORTS ARE ONLY EQUIPPED TO HANDLE TANKERS UP
TO 20,000 TONS. THE PRC STATED IT DID NOT HAVE ANY TANKERS
AVAILABLE TO HANDLE THE CRUDE. TO NEW ZEALAND, WHICH
PRESENTLY USES 100,000 TON TANKERS, THE SIZE LIMITATION
ADDED AN ADDITIONAL $8.00 PER TON FREIGHT COST OVER
THE COST OF IMPORTING EQUIVALENT OIL FROM THE PERSIIAN
GULF, WHICH IS ABOUTTHE SAME DISTANCE FROM NEW ZEALAND
AS SHANTUNG. SINCE NEGOTIATIONS DID NOT PROGRESS TO
THE POINT OF DISCUSSINGPRICE, IT WAS NOT CLEAR TO NEW
ZEALAND WHETHER THE PRC WOULD ADJUST ITS PRICE ACCORD-
INGLY.
4. THE NZG, HOWEVER, LEFT THE DOOR OPEN FOR FUTURE
DEALS AFTER 1980, WHEN A NEW REFINERY WITH A CATALYTIC
CRACKER IS SCHEDULED FOR COMPLETION AND CRUDE WITH HIGH
WAX AND WATER CONTENT COULD BE IMPORTED AND REFINED.
IT ADDED THAT IN THE "SHORTER TERM" IT WOULD BE INTERESTED
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IN CHINESE PETROLEUM WITH ARABIAN OR IRANIAN LIGHT CRUDE
SPECIFICATIONS.
5. COMMENT. THE CHINESE SEEMED ANXIOUS TO MAKE THE
INTIAL DELIVERY BEFORE THE END OF 1974, APPARENTLY FOR
A QUICK FOREIGN EXCHANGE RETURN. THE CHINESE OFFER TO
NEW ZEALAND CLOSELY FOLLOWED THE FIRST KNOWN SHIPMENT OF
SHENGLI CRUDE TO MANILA IN MID -OCTOBER. RICHARDS, WHO
TRAVELS TO MANILA FREQUENTLY, ADDED THAT THE PHILIPPINES
ALSO HAD TROUBLE, AT LEAST WITH THE FIRST SHIPMENT OF
SHENGLI CRUDE, AND REQUESTED THAT THE PRC SUPPLY A BETTER
GRADE. MOREOVER, DURING THIS SAME PERIOD, THE JAPANESE
BOUGHT A 10,000 TON SAMPLE OF SHENGLI CRUDE AT THE FALL
CANTON TRADE FAIR, BUT ALSO FOUND IT UNSUIABLE (1974
PEKING 2283). THE PRC MAY WELL HAVE NOT EXPECTED MUCH
DIFFICULTIES IN MATCHIN SHENGLI CRUDE WITH MARKET RE-
QUIREMENTS AND THIS MAY , IN PART, HAVE ADDED
TO ITS CONCERN OVER FOREIGN EXCHANGE IN LATE 1974.
(REF 1974 PEKING 1923, 1999.)
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