Tag Archives: China National Petroleum Company

China Looking To Buy More Russian Energy On The Cheap

Russia’s president, Dmitry Medvedev, is due in Beijing at the start of next week for a state visit during which energy deals between the two countries will be on the agenda, particularly kicking on a stalled long-term deal for Russia to supply China with natural gas. The two countries are already striking deals on several energy fronts — coal, oil, atomic power and renewable energies, as well as natural gas — as Moscow seeks to expand its sales to what is now the world’s largest energy consumer and Beijing seeks stable long-term supplies to meet its needs.

At the end of August, a Chinese spur to Russia’s Siberian Pacific Ocean pipeline was completed, part of a 20-year $25 billion loans-for-oil deal between struck in 2008 between China National Petroleum Corporation (CNPC) and Russia’s largest oil company, Rosneft, and its largest pipeline operator, Transneft. Earlier last month, China said it would  lend Russia an additional $6 billion repayable in increased coal supplies over the next 25 years. This week, Russia’s Deputy Prime Minister Igor Sechin has been in Tianjin for an annual bilateral meeting on energy, during which three specific oil and coal deals were signed.

Sechin and his Chinese counterpart, Vice-Premier Wang Qishan, also found time to attend  a foundation-laying ceremony for the centerpiece of the oil deal, a new $5 billion joint venture refinery that will be 49% owned by Rosneft, 51% by CNPC. Rosneft will supply some two-thirds of the 10 million metric tons of crude a year that will be processed  by the Tianjin refinery. This will be the first time a foreign oil company has had such a significant presence this far downstream in the Chinese oil industry, and that will be extended in a planned second stage of at least 500 retail gas stations in China.

The 2008 loans-for-oil deal lets China import 300,000 barrels a day of Russian oil for 20 years starting in 2011 on pricing terms favorable to the Chinese side. Russia is hoping that any natural gas deal it can strike during Medvedev’s visit won’t be so one-sided, though the precedents aren’t encouraging. Late last year, tentative agreement was reached to build two gas pipelines with the capacity to deliver 68 billion cubic meters of Russian natural gas per year, but pricing issued have stalled further progress on a delivery contract for the natural gas. Medvedev is likely to propose a scaled back deal to supply 30 billion cubic meters per year. Given the competition from Central Asian natural gas, he may not be able to make much headway on getting Beijing to pay anything approaching market prices, but even getting the negotiations going again would be progress.

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Dalian Oil Spill Bigger Than Said, But Big Enough For A Minamata Moment?

The pipeline explosion at a PetroChina oil terminal outside Dalian two weeks ago that sent crude oil gushing  in to the Yellow Sea is reckoned to be China’s worst known oil spill. The worst by quite how much is now the question.

Official figures put the size of the spill at 1,500 tons of oil, which would be 11,000 barrels or half a million gallons. Rick Steiner, an American marine conservation specialist consulting for Greenpeace and who has seen the spill, told the BBC that the spill was lager than that caused by the Exxon Valdez, the tanker that hit a reef off Alaska in 1989 spilling an estimated 260,000 to 750,000 barrels of crude into Prince William Sound. At the time it was the largest oil spill in U.S. waters and is still regarded as one of the worst man-made environmental disasters.

[picapp align=”left” wrap=”true” link=”term=dalian%2c+oil&iid=9419277″ src=”http://view3.picapp.com/pictures.photo/image/9419277/worker-cleans-the-oil-from/worker-cleans-the-oil-from.jpg?size=500&imageId=9419277″ width=”234″ height=”349″ /]Steiner guesstimates that at least 440,000 barrels of oil have spilled into the Yellow Sea from the Dalian explosion creating a slick covering some 1,000 square kilometers (400 square miles). Despite the massive clean-up now underway (left), the environmental damage is likely to persist for years and it is uncertain what lasting effect it will have on nearby fishing grounds.

China’s oil companies and officials were already reviewing their contingency plans in the light of the BP oil spill in the Gulf of Mexico, though reports of the clean-up operation in the Yellow Sea suggest it mainly involves throwing thousands of people at scooping up the oil from boats and off the beaches, some with their bare hands, and spraying chemical dispersants on the water.

Environmentally damaging industrial accidents are commonplace in China. Just earlier this week some 7,000 barrels of toxic chemicals were swept into the Songhua River in Jilin, a source of drinking water for several million people. But such accidents haven’t yet triggered the political backlash that seems inevitable. John Foley of Reuters Breakingviews suggested that was because China “has not yet reached its ‘Minamata moment'”, a reference to the death of nearly 3,000 residents of a Japanese town caused by the dumping in the early 1970s of mercury into Minamata Bay. The case became the poster child for  the unacceptable environmental costs of rapid industrialization, and made controlling pollution a national political priority in Japan.

In 2007, the World Bank estimated that pollution was responsible for the deaths of 460,000 Chinese a year. Authorities have been trying to curb the worst excess of industrial pollution, but it is a Sisyphean task at this stage of China’s economic development. The Party is well aware of the potential challenge to its power that could come from the emergence of single-issue pressure groups such as environmentalists campaigning for water fit to drink and air fit to breathe. Whether the Dalian oil spill turns out to be big enough to create China’s Minamata moment or not, at some point it will arrive.

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Diesel Spill Halted On Yellow River

The diesel slick from a ruptured China National Petroleum Corp. pipeline near the Weihe River has been stopped downstream by floating dams on the Sanmenxia reservoir on the Yellow River. (Xinhua pictures here.) Reports from the Xiaolangdi Reservoir, 130 kilometers further downstream, say the waters are showing now signs of pollution from the spill.

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Diesel Spill Threatens Yellow River Water Supply

State media are only now reporting a large diesel spill into a tributary of the Yellow River though the accident apparently occurred in the middle of last week. Some 700 workers are said to be working to damn the Weihe River in Shaanxi to contain 150,000 gallons of the fuel that poured from a ruptured China National Petroleum Corp. pipeline into the Chishui River and thence the Weihe. Pollution in the Weihe is reported 30 kilometers down stream and locals are being advised not to use water from the river. The primary goal is to stop the spill reaching the Yellow River 70 kilometers from the spill, a source of water for millions and already, like many Chinese rivers, badly polluted by industrial waste. More than 20% of water tested in nearly 200 Chinese rivers was considered unsafe for use, according to a 2007 report by the Ministry of Environmental Protection.

Update: Xinhua reported Monday that the pollution had reached the Yellow River. Authorities have suspended some water supplies

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China’s Cloudy Investment In Chavez’s Grandiose Vision

Details of the newly struck oil deal with Venezuela remain murky. We don’t know much beyond the fact that there will be $16 billion of Chinese investment over three years to boost production from the Orinoco River basin by 450,000 barrels a day, probably from developing a new field as was the case with a similar recent $20 billion deal with Russia, also intended to add an extra 450,000 b/d. Fuller details are expected next month following talks between Chinese and Venezuelan oil officials.

China National Petroleum Corp. has a previous oil-for-investment deal with Caracas, but we understand the new deal to be separate from that, though CNPC, which also has rights to bid on the undeveloped Carabobo blocks in the Orinoco basin, is the likely company involved in the new deal. It is part of Venezuelan President Hugo Chavez’s attempt to wean the oil industry that bankrolls much of his political power off its dependence on U.S. investment (Exxon Mobil and ConocoPhillips getting the boot) and establish Venezuela as a self-styled energy giant in Chavez’s idiosyncratic vision of a multi-polar world.

The new deal would be the eighth and seemingly largest acquisition of overseas oil and gas assets this year by China’s state-owned companies. CNPC said recently that the first seven had a total value of 82 billion yuan ($12 billion),  80% up on the same period a year earlier. China Daily reported earlier this month that the company has taken a $30 billion loan from China Development Bank to finance overseas acquisitions.

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Oil Money

Reuters reports that China is to provide a $200 million loan to Sudan that would be used to pay compensation in Darfur, the civil war torn region of western Sudan. China usually provides African nations with trade and infrastructure loans and has been criticized for being obstructive to U.N. efforts to arrange a peace settlement in Darfur, so this loan, if it comes about, would be a diplomatic departure for Beijing.

Sudan is China’s fourth biggest oil supplier. China National Petroleum is Sudan’s largest foreign investor, having poured $5 billion into oil-fields development. The company co-owns a refinery with the Sudanese government and has built a pipeline to get its oil from its fields to the coast. A twelfth of China’s imported oil now comes from southern Sudan and CNPC’s concessions stretch deep into southern Darfur. So $200 million would be a cheap chip to throw on the table.

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