Tag Archives: CNPC

A Map Of The Political Relationships Of China’s State Oil Companies

We noted the growing global reach of China’s big three national oil companies earlier this week. It is tempting to see them as a monolithic arm of state policy, and their overseas acquisitions of oil and gas assets as a centrally directed execution of strategic national policy. Yet both those views miss the complexity of their domestic political relationships. We thought this diagram from the International Energy Agency captured them well.

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China’s Oil Production Outside China To Rival Kuwait and Mexico’s

While it is no secret that China’s state-owned oil giants, CNPC, Sinopec and CNOOC, have been on a buying spree of overseas assets over the past three or four years, not much consideration has been given outside the industry to what that means in production terms. Now the International Energy Agency (IES) has done just that. And it is eye opening.

The IEA estimates that by 2015 China will be producing 3 million barrels of oil a day outside its borders, twice what it produces today. Quite what that means is well illustrated by some comparisons. Three million barrels per day is roughly what the United Arab Emirates, Mexico and Kuwait each now produce. They are currently the world’s eighth, ninth and tenth largest producers. It would be comfortably more than Brazil, Nigeria and Venezuela’s output. They are the eleventh, twelfth and thirteenth largest producers. It would also be three quarters of the way to what China already produces; China is the world’s fifth biggest oil producing nation.

This ranking hasn’t come cheap. The M&A consultancy Dealogic (via the Financial Times) says that China’s state oil companies have spent $92 billion since the start of 2009 on oil and gas assets in countries from Angola to the U.S.  There is little to suggest that number won’t pass the $100 billion mark sometime later this year as they continue to buy oil and gas in the ground, be it under water or shale, and the expertise to get it out.

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China, Russia Settle East Siberian Oil Pricing Dispute.

Workers inspect PetroChina oil tanks in Daqing, northeast China's Heilongjiang Province, Jan. 10, 2011. Some 390,000 tonnes of crude oil have been delivered to China as of 22 p.m. Monday through an oil pipeline linking Russia's far east and northeast China, since it began operating on Jan. 1, 2011. The pipeline which originate in the Russian town of Skovorodino in the far-eastern Amur region, enters China at Mohe and terminates at Daqing, both in northeast China's Heilongjiang Province. The 1,000-km-long pipeline will transport 15 million tonnes of crude oil from Russia to China per year from 2011 until 2030, according to an agreement signed between the two countries. Some 72 kilometers of the pipeline is in Russia while 927 km of it is in China. (Xinhua/Wang Jianwei)

The long-troubled negotiations over China’s purchases of Russian oil have reportedly taken a step forward. Russian press reports say a new deal ensures a below-market price for China’s oil imports from East Siberia. Russia’s largest state-controlled oil company, Rosneft, and the pipeline monopoly, Transneft, are to give China National Petroleum Corporation (CNPC) a $1.50 a barrel discount on the oil it gets via the East Siberian-Pacific Ocean pipeline relative to the market price of Russian oil shipped to other buyers from the Pacific Ocean port of Kozmino.

China receives the vast majority of its Russian oil via a spur on the pipeline from Skovorodino to Daqing, shown above, that opened in January, 2011. But it is starting to buy Kozmino cargoes as an alternative to Iranian oil. Rosneft reportedly says the deal will cost the Russian side $3 billion a year in revenue. That seems haggling hyperbole, rather than a real number. The arithmetic suggests $3 billion over the life of the contract would be closer to the mark. Whatever the true figure, the Russians may just have to write it off as the cost of ending the dispute. China funded the building of the pipeline with a $25 billion loan but claimed Transneft overcharged for transport costs. These are part of the formula for pricing the oil with which the loan is to be repaid at a rate of 15 million tonnes of crude a year from 2011 to 2030.

The two countries still have outstanding negotiations over natural gas. Price is a point of contention in those discussions, too. However, there has been agreement that Russia will start supplying China with Eastern Siberian gas in 2015.

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Myanmar Said To Compensate China For Myitsone Dam Suspension

This Bystander is starting to pick up details of a settlement between China and Myanmar following Naypyidaw’s unilateral suspension of construction work on the Myitsone hydroelectric dam on the Irrawaddy river. State media report that the two countries “agreed to properly settle matters” at a meeting between Foreign Minister Yang Jiechi and his Myanmar counterpart, Wunna Maung Lwin, who had been dispatched to Beijing as a special envoy of Myanmar President Thein Sein for talks China had demanded. This followed a meeting between President Thein and Beijing’s ambassador to Naypyidaw at the weekend.

We understand, however, that Myanmar has agreed to compensate Beijing through further natural-resources concessions, including giving China an increased share of its revenues from the $2.5 billion oil and gas pipeline being built through central and northeastern Myanmar by state-owned China National Petroleum Corp to connect Yunnan to terminals it is building on the Indian Ocean. This will be done under the guise of repaying the loan agreement between China and Myanmar’s former military rulers to fund Myitsone, most of whose electricity is intended to be exported to China.

It is unclear when work will resume at Myitsone, in which state-owned China Power Investment Corp. is the main investor. The original announcement said the project would be suspended for the remainder of President Thein’s term of office, which ends in 2016. We also understand that work will continue on six other Chinese-backed hydro-power dams in Kachin State.

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Shifting Sands Of China’s Relationship With U.S.

Reuters’ report that China’s three big state-owned energy companies, CNPC, Sinopec and CNOOC, have had their arms twisted by the U.S. to suspend new investments in Iran causes this Bystander to raise an eyebrow. CNPC has reportedly delayed work on a 4.7 billion dollar deal; Sinopec has postponed a 2.0 billion dollar oil development, and CNOOC has halted a gas venture according to the news agency after U.S. officials threatened sanctions against the SOEs’ U.S. investments. This they apparently did by bypassing official diplomatic channels and going directly to the companies.

Now, Washington has not had much success in getting Beijing to go along with its efforts to thwart Iran’s nuclear programme. Beijing opposes proposed UN sanctions, which would jeopardize the oil supplies it buys from Tehran, it’s third biggest supplier. Plus there is the general reluctance on Beijing’s part of being seen to be doing anything at Washington’s behest, and a general tendency to stick with old friends, especially those hostile to the U.S., (a policy that is causing some second thoughts, or at least some readjustment, in the light of events in places like Pakistan, Libya and Syria, all of which also have implications for the leadership’s legitimacy at home).

Even if there may be some shifting of the geo-political sands occurring, there is no way that any or all of CNPC, Sinopec and CNOOC would take it upon themselves to undermine official policy without at least tacit approval from Beijing. Which then makes the question, why would Beijing do this now. Is it just letting some of those swirling geo-political sands settle until prospects become clearer, or is using supposedly business decisions as a smokescreen, if we may mix and match our metaphors, for some back-channel cooperation with Washington that it sees to be in its short- or long-term advantage but which it can’t bring into the open? Or is it, as Reuters implies, just part of Beijing’s desire, seen since late last year, to ease tensions with the U.S.as it heads into it’s own leadership transition?

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China, Russia Make Scant Progress In Resolving Energy Disputes

The agreement signed with Russia after the latest round of Sino-Russian energy cooperation talks just concluded in Moscow papers over some wide cracks. For one, there doesn’t seem to be much more to the agreement than that the two countries will continue to try to conclude their long running discussions over two long-term gas-supply deals. Xinhua’s report is all cheer and no content.

What the two sides have been talking about, seemingly since when the Siberian forests that became the oil and gas were still forests, is to expand an outline agreement under which from 2015 Russia’s gas monopoly Gazprom would supply 30 billion cubic meters a year–roughly one-third of China’s 2009 consumption and a quarter of Russia’s total exports–to more than double the volume, supplied via two direct pipelines from Siberia to western and central China. The formula for determining the price has been the main sticking point.

Been there, done that, got nowhere. Pricing is at the heart of the dispute over the Russian oil China has recently started getting via the Daqing spur to Russia’s East Siberia Pacific Ocean pipeline (ESPO). The deliveries are the result of $25 billion-worth of loans in 2009 from China National Petroleum Company (CNPC) and the China Development Bank to the energy company Rosneft and the state-owned pipeline monopoly Transneft that was to be repaid in oil, expected to be 15m tonnes a year (150,000 b/d) for 20 years starting this year.

The oil started flowing at the start of the year, but since then China has accused Russia of overcharging it for the deliveries, and demanded more oil as a make-up, while Russia said China was way underpaying given market conditions. The pricing formula has broken China’s way and Russia can sell to Japanese, South Korean and American customers far more profitably. It certainly has no intent to double up on its losses supplying China. Transneft has threatened to sue CNPC in court. Hard ball meets hard ball.

Meanwhile, the deliveries continue at their original levels. Last month CNPC and Rosneft broke ground for a joint-venture oil refinery in Tianjin that will be able to refine 260,000 barrels a day and is due to start operations in late 2013.

On the gas front, China’s increasing ability to source domestically and from Central Asia and some doubts about Gazprom’s capacity to deliver the extra gas has strengthened Beijing’s negotiating hand, while the higher prices Russia can get for its gas in Europe make Moscow in no hurry to resolve the issue, let alone buckle. Vice Premier Wang Qishan said after the Moscow that China “hopes the two sides could make further essential progress in gas talks as soon as possible and that the two sides exchanged views and plans on future energy cooperation, demonstrating mutual trust as well as candid and pragmatic spirit of cooperation between China and Russia”. Which pretty much says there was no progress.

 

 

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Sinopec Chairman Su Shulin Said To Be Next Fujian Governor

The Financial Times reports that authoritative sources in Beijing are telling it that Su Shulin (left), chairman of state oil giant Sinopec, is to become governor of Fujian province, a plum post Xi Jinping, the assumed successor to President Hu Jintao, held in 2001-02.

Su, 49, has long been tagged as a potential political leader. A spell at the top of one of the big state-owned enterprises is regarded as a rite of passage for such rising-star technocrats. Su comes from a farming family in northern China and qualified as a petroleum engineer, making his career at CNPC before being drafted in as chairman of Sinopec in 2007. He has been an alternate member of the Party’s Central Committee since 2002 and was a member of the Party committee in CNPC from 1997 until leaving for Sinopec, where he was Party secretary as well as chairman of the company. He has also been a member of the Party’s standing committee in Liaoning province, all of which underlines the close connection between state-owned industries and the Party.

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CNPC Confirms Attacks On Libyan Operations

China National Petroleum Corp. has confirmed that its facilities in Libya have come under attack. CNPC says that it has repatriated a first group of 24 its 391 Chinese staff across its five facilities in the country. CNPC did not give details of the attacks, which are among many being reported on Chinese owned business operations in the country. As of Thursday, the company says, 47 of its staff have been evacuated.

CNPC has been working in Libya since 2002 when it won a pipeline construction contract to take oil and natural gas from a desert field 1,000 kilometers inland to the coastal terminal at Mellitah. In 2005, the company signed an offshore exploration contract with Libya’s National Oil Corporation. It also provides oilfield services and engineering and construction services to other multinational oil companies working in Libya. It is not, however, an oil producer there. (Sinopec buys 6 million barrels of crude a month from Libya, the backbone of the $6.6 billion a year in two-way trade between the countries.)

In all, Xinhua says, China has so far evacuated 4,600 of its 30,000 nationals working in Libya, mostly in energy and construction. The operation is being said to be the country’s largest overseas civilian evacuation and is being seen as a test of the competence of the government to protect its citizens abroad, tens of thousands of whom now work in politically volatile countries around the world.

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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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CNPC Embeds Itself In Iraq’s Oil Revival

CNPC is only getting $2 a barrel for the oil it will lift from Iraq’s Rumaila field, but the low-ball price puts it and its partner BP into pole position among the world’s oil companies for reviving Iraq’s war-devastated oil industry. Iraq’s cabinet has just confirmed the oil ministry’s decision on Oct. 8th to award the BP-CNPC consortium the only contract offered in the country’s first international oil auction in more than three decades.

Other oil majors had refused to drop their opening bids. An ExxonMobil-led consortium stuck at $4.80 a barrel. But BP-CNPC dropped from its initial $3.99 a barrel, though $2 a barrel will barely clear production costs and the $15 billion of upfront investment needed. The Rumaila field now produces 1 million barrels a day. BP-CNPC aims to raise that to 2.85 million barrels a day, which will lift the country’s total oil production by four-fifths.

The deal put BP back into Iraq 10 years after Saddam Hussein threw it out. For CNPC it is a second deal. It signed a $3 billion agreement to develop the al-Ahdab oil field in the south that it had originally struck with Saddam in 1997 before other events intervened.

A second round of auctions is due in December. CNOOC and Sinopec, both failed bidders in the first round, are likely to take a second crack.

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