Tag Archives: Energy

China’s Roll-Up Of The World’s Oil Rolls On

Sinopec is buying 40% of the Brazilian subsidiary of Spanish oil company Repsol for $7.1 billion, a deal that provides Repsol with funding to develop its vast offshore Brazilian fields and Sinopec, China’s largest oil refiner, with more guaranteed access to crude supplies via what is one of Latin America’s largest foreign-controlled energy companies. (Repsol’s announcement.)

This is Sinopec’s second large deal. It bought Swiss-based Addax Petroleum for $7.2 billion last year, the most expensive oil company acquisition by a Chinese firm to date. This latest deal takes the total foreign investment spending by China’s three big state-owned oil companies to some $36 billion since the beginning of last year — and that excludes $77 billion-worth of long-term oil-for-loans deals struck with a number of countries such as Russia (and including Brazil) and $18 billion in committed investment in Iraq and Iran’s oil fields.

As those numbers suggest, taking equity stakes in an operating company is a growing part of the strategy for the Chinese oil majors to secure oil supplies, as opposed to cutting long-term supply deals, as Sinopec has previously done with the Brazilian state oil company, Petrobras, or buying stakes in oil fields, again has Chinese oil companies have been doing in the waters on both the Latin American and African sides of the South Atlantic.

Brazil’s offshore fields are particularly challenging to exploit. They lie not only in deep water but also below a thick layer of salt (see diagram, left; the units are in meters; it is a snapshot from a fuller explanation by Repsol here). Deals like Sinopec’s with Repsol offer the opportunity for China’s oil companies to get that sort of technical operating experience. As China continues to scour the world to secure the energy supplies it will need to fuel its development, its oil companies are only going to have to look in places where the crude is ever more difficult to extract.

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Russia Looks East To China’s Energy Markets

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The oil pipeline from Siberia to Skovorodino on the Chinese border that Russia’s prime minister, Vladimir Putin, opened on Sunday, is a further sign of how Russia, like everyone else, is looking east for its trade as China’s economy becomes the epicenter of Asia’s growth. The line is a short 67 kms spur of the 2,750 kms pipe from Taishet in eastern Siberia to Nakhodka on the Sea of Japan that Russia will use to supply up to 1.6 million barrels a day to the growing Asian market once it is completed in 2012. The picture above shows a pumping station at Skovorodino under construction in April.

Last year, Beijing provided Moscow with a $25 billion loan repayable in oil that will let China import 300,000 barrels a day of Russian oil for 20 years from 2011, one of a series of oil-for-loans deals that Beijing has struck. Ten billion dollars of those loans, made via China Development Bank, are to Transneft, the pipeline operator. (The other  $15 billion went to the oil producer Rosneft). That flow of oil will start later this year, once China has built the 930 kms link from its own oil pipeline network in Daqing to the Skovorodino spur.


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China’s Growing Sway Over World Energy Markets

A decade ago China consumed half as much energy as the U.S. Now, as the International Energy Agency reported earlier this week, China has become the world’s largest energy consumer having passed the U.S. last year (on raw volume if not on per capita consumption). That is what a decade of robust growth will do allied to better gains in energy efficiency in the U.S. that in China.

The implications of all this, apart from gaining some dubious bragging rights, is that China and its mostly state-owned energy companies will hold more sway over global energy markets and that the country’s efforts to increase energy efficiency, now distorted by price controls, will increasingly shape global efforts to that end, including international climate policy. This is just one more example of how emerging markets in general and China in particular are reshaping the global economy.

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PetroChina’s New Venezuela Oil JV

PetroChina has signed a 40-60 joint venture agreement with Venezuela’s state oil company PDVSA to develop the Junin 4 block in the Orinoco belt, the massive offshore field that has proven oil reserves of 8.7 billion barrels. The goal is to extract  2.9 billion barrels of crude over the 25-year term of the JV. In parallel, China Development Bank will make $20 billion of soft loans to Venezuela secured against oil sales from the JV, part of the broader oil-for-loans accord between the two countries struck last year similar to those Beijing has with Russia, Kazakhstan and Brazil.

Venezuela President Hugo Chavez said at the weekend that $16 billion of Chinese investment will help develop not only Junin 4, but also a 500MW thermal plant in Merida state to be built by CAMC Engineering, while the soft loans will be used to build housing, roads and three 300MW power generation plants to alleviate Venezuela’s electrical power shortages.

Venezuela has become Beijing’s fifth largest trading partner in the region with bilateral trade toping $7 billion last year. Venezuela now exports 460,000 barrels of oil a day to China, up from 200,000 barrels in 2006, and the oil-for-loans accord sees that rising to 1 million barrels a day eventually.

Chavez was hoping to tout all this while playing host to President Hu Jintao, but Hu cut short a visit to South America to return to China to visit victims of the Qinghai earthquake.

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Slowing China Growth Remains A Global Risk, WEF Says Again

The yearly Global Risk Report issued by the World Economic Forum ahead of its annual meeting in Davos (again) lists “China’s growth falling to less than 6%” as one of the key risks facing the world economy. The report doesn’t give a probability of that happening, beyond indicating it is unchanged from a year earlier, though it does lay out how it could occur:

[China’s growth] derives from high credit growth, which entails an increased risk of misallocation of capital and renewed bubbles in financial asset prices and real estate. These can always carry the risk of a sharp and potentially recessionary correction.

Not an unconventional concern.

The report lists the drivers and developments to watch as follows, with a plus sign denoting drivers of increasing risk; minus signs drivers that reduce risk:

+ Excess ex-ante savings over-investments in China
+/- Chinese government’s ability to stabilize domestic demand in the wake of loss in export momentum
+/- Ability of Chinese government to maintain stable renminbi in the wake of high foreign reserve accumulation
+/- Ability of Chinese government to maintain political stability in the wake of sizable loss in growth momentum.

China’s growth falling to less than 6% has turned up in each of the five past Global Risk reports, a fact that the WEF acknowledges in its latest one:

The implication of a decline in China’s growth has been a constant since the first edition of the report. Thus far, this risk has not materialized but it is clearly one that would have considerable implications for China and also for the global economy.

Nor an unconventional analysis.

One other table that caught our eye in the report was a listing of stimulus packages for the energy sector. China has committed $46.8 billion for 2009-11, second only to the U.S.’s $66 billion, but way more than third placed Japan’s $8 billion. America’s money is going to clean energy generation; China’s to energy efficiency.

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Hu Adds Heft To China-Central Asia Pipeline Opening

We’ve noted before China’s expanding reach into energy-rich Central Asia. A sign of how strategically important that is to Beijing is President Hu Jintao’s presence (again) in the Kazakhstan capital Astanta on Saturday to open the Kazakh leg of the new 1,800 kilometer pipeline connecting China and Turkmenistan.

Hu will be going onto Ashgabat, the capital of Turkmenistan, for the official opening on Tuesday of the whole pipeline, which runs from a CNPC-operated gas field there back to Xinjiang, itself a reminder of the delicate balance Beijing has to strike between its handling of its Muslim minorities and its Muslim Central Asian neighbors whose oil and gas it is extracting.

Another sign of the shifting sands in the region is that while in Turkmenistan Hu will attend a summit of Central Asian leaders. They rarely gather except at meetings organized by Russia.

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Natural Gas In Chongqing, Or Hot Air?

Given China’s rush to secure energy resources overseas there would be a certain irony to finding a massive natural gas field in its own back yard. Yet that is what may — or may not — have happened.  Chengdu Commercial News quotes a local official saying a Sinopec official had told him that the company has found the largest natural gas field in Asia in Chongqing. That came as news to Sinopec officials in Beijing, who told Bloomberg that the company is checking the report. PetroChina operates China’s largest confirmed gas field, the Sulige field in Inner Mongolia with proven gas reserves of 534 billion cubic meters. The next largest is Sinopec’s Puguang field in Sichuan, which has  verified reserves of 356 billion cubic meters.

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CNOOC Ventures In Nigeria

Unlike in other parts of Africa, China’s economic push into Nigeria, sub-Saharan Africa’s leading crude producer, hasn’t made much headway.

In 2006, Chinese companies won four oil-drilling licenses in an oil-for-infrastructure deal that would have had Beijing building a hydroelectric power plant, a railway and a refinery in Nigeria. But the plug was pulled on that deal when Nigeria’s government changed and found some murkiness in the way it was put together. Then last November, Nigeria’s Chinese-built communications satellite had to be switched it off after a faulty power supply put it at risk of space collisions.

The FT now brings news of what could be a game changer: a possible $30 billion-50 billion deal with state-owned energy giant CNOOC covering as much as one sixth of Nigeria’s proven reserves. Sixteen production licenses, mostly held by Shell, Chevron, Total and ExxonMobil in joint ventures with the Nigerian state oil company, are up for renewal, and a handful of new licenses are also available. Negotiations have been underway for some months seemingly but how far they have got or even their scope is far from clear. The Nigerian government has had an uneasy relationship with Shell, the dominant western oil major operating in the country, and would welcome some competition for it.

Should CNOOC land some leases, they will be stepping into the political unrest and kidnappings that have crimped output by 500,000 barrels a day, the International Energy Agency estimates, in the oil-producing Niger Delta. But Chinese companies are getting used to being not so warmly welcomed on the continent.

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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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New Fuel Tax Introduced With Offsetting Price Cuts

The long-anticipated fuel tax rise has come into effect, with, as expected, an offsetting cut in gasoline pump prices.

The National Development and Reform Commission has announced that fuel consumption tax will increase from 0.2 yuan a liter to 1 yuan a liter on gasoline and from 0.1 yuan  a liter to 0.8 yuan a liter for diesel.  At the same time, the retail price of gas has been cut by 0.91 yuan  per liter, and of diesel by 1.08 yuan, as of midnight Thursday.

Corresponding tax rises and price cuts for commercial gasoline and diesel and jet fuel were announced the day before to take effect on January 1st. Six categories of tolls for road and waterway maintenance and management will be scrapped the same day.

The changes are part of a drive to make China’s energy use more efficient through market based pricing, but the actual impact will be small to start with. No chances are being taken with depressing demand given the overall economic slowdown.

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