Japan and China have agreed to jointly develop gas fields and share profits in disputed areas of the East China Sea, Kyodo News reported on Monday, but the Japanese government said there was no deal yet.
The report of an accord comes after 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 feud over the gas.
Japan puts estimated net known reserves in the disputed fields at a relatively modest 180 million barrels of oil equivalent, but both countries say there might be a lot more oil or gas in the area.
The dispute symbolizes 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 official announcement was expected as early as this week, while Japan's Nikkei business daily also reported that an agreement was being finalized.
China's Foreign Ministry had no comment on the report and an official at Japan's Ministry of Economy, Trade and Industry said no deal had been clinched. "Talks are still going on and nothing has been finalized," the Japanese official said.
At the heart of the dispute is a row over where the border of the two countries' maritime economic zones falls.
Japan says the median line between the two countries' coasts is the boundary. 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 close to the disputed boundary and fears drilling there could drain gas from what it says is its side of the line through a honeycomb of seabed rocks.
Kyodo said Beijing had agreed to let Japan to invest in, and claim profits from projects, including Chunxiao as well as waters around other fields which China calls Duanqiao and Longjing.
Areas east of that line would also be targeted for future joint development, Kyodo added.
Talks between officials from the Asian giants had previously failed to yield a resolution over how to use the resources in parts of the sea over which both sides claim economic rights.
China's state-controlled CNOOC has said it was ready to begin production from the Chunxiao gas field but it was not clear if it had yet.