Tag Archives: oil and gas

China’s CNPC Takes Advantage Of Total Retreat From Iran

WITH WASHINGTON AGAIN turning the financial screws on Iran, China stands to pick up a lot of the pieces that will get broken in the process.

The Iranian state news agency yesterday announced that China National Petroleum Corp. (CNPC) would take over Total’s 50.1% share of the $4.8 billion Phase 11 (of 24) development of the giant South Pars gas field, the world’s largest unitary gas reserve.

Terms, including financial ones, are unknown. Neither Total nor CNPC has made a public comment at this point. Confusingly, the Iranian oil ministry subsequently said that the terms of the contract remain formally unchanged, though that is not necessarily inconsistent with CNPC taking over.

Last year, in signing on, the French energy company became the first sizeable Western oil and gas company to invest in Iran following the lifting of sanctions on Tehran the previous year.

Now the Trump administration has pulled out of the nuclear agreement that enabled those sanctions to be lifted, fresh US sanctions have been imposed that force companies to choose between trading with Iran and trading with the United States.

For most Western companies, it is no choice at all. Total had already indicated that it would have to walk away from the South Pars project in the new circumstances.

CNPC, which has had a presence in Iran since 2004, already had a 30% stake in Phase 11. Iranian state-owned Petropars owns the rest.

The project is intended to supply gas to the domestic Iranian market from 2021 with excess to that requirement being exported, now assuredly eastwards rather than westwards. That gas could either be shipped or sent to China via the network of pipelines existant, under construction or planned across Central Asia and Pakistan.

China is already the largest market for Iran’s exports of crude oil and condensates, taking 24% of the total last year.

In addition, Chinese banks have extended $25 billion in credit lines for infrastructure investment, suggesting Chinese firms will easily be able to slip into the spaces vacated by Western multinationals and be in a position to negotiate favourable terms now they will be the only game in town for Tehran.

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CNOOC Looking For Partners To Drill For Oil In The South China Sea

China’s recently abandoned tactic of asserting its territorial claims to the South China Sea through fishing rather than minerals extraction is well and truly dead. State-owned China National Offshore Oil Corp. (CNOOC) started drilling in the disputed waters in May. Now it is inviting bids from foreign oil companies for the joint exploration and development of nine blocks off the coast of Vietnam that would appear to lie south of the Paracel Islands and cover 160,000 square kilometers where Beijing’s claim to the South China Sea and the 200 mile zone claimed by Hanoi under the UN Law of the Sea overlap. Clash might be a more appropriate word. The diplomatic protests from Vietnam have already started. State-owned PetroVietnam also says CNOOC’s tender blocks overlap its own. This map from CNOOC shows the locations.

Footnote: CNOOC has invited such tenders in the South China Sea before but only in waters incontrovertibly Chinese.

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China’s New Resources Tax Won’t Extend Beyond Oil And Gas For Now

China’s new resources tax regime has came into effect, taxing oil and gas producers on the value of what they produce, instead of its weight or volume. It is the royalties model on extractive industries that is common in much of the world. The change will significantly boost provincial governments’ revenues at a time when local-government debt is of growing concern to central-government policymakers. Forget the official explanation that this is about environmental protection and resource conservation.

Or at least it will raise the revenues of the coastal and western oil-producing provinces. Inland coal-mining provinces will not benefit as much. China’s coal mining companies just don’t have the profits to absorb the tax hit in the way the big state-owned oil and gas companies do, for all Beijing’s efforts to consolidate the coal industry. This Bystander is also tempted to think that applying the resources tax to coal now would work through to consumer prices in a way that the oil and gas SOE’s won’t be allowed to pass on. So we don’t expect the tax, which is starting at a flat 5%, to be applied to coal, or metals, companies anytime soon.

Eventually it will come, though. The pressure from provincial governments will be intense. A pilot scheme raised Xinjiang’s government’s take from 370 million yuan in the first half of 2010 to 2.3 billion yuan in the same period this year. The near-term question is whether oil and gas companies will shut down economically marginal fields as a result of the new tax.

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Where China Put Its Big Bucks In 2010: Down South America Way

South America dominates the list of the biggest overseas acquisitions by Chinese companies this year. The two biggest to date: Sinopec’s $7 billion purchase of 40% of the Brazil assets of the Spanish energy group, Repsol; and the $5.6 billion CNOOC is spending in two phases for 50% of Bridas Corp., the investment vehicle of the Argentine vertically integrated energy group, Bridas. Bridas Corp.’s primary asset is Pan-American Energy (PAE). The partners are buying out BP’s 60% stake in PAE as BP raises cash to put in a piggy bank for any obligations arising out of the Deepwater Horizon accident, turning what looked in March like an iffy investment by CNOOC into something much more promising by the end of November.

Sinopec has since also picked up the U.S. oil company Occidental’s production and development assets in Argentina for $2.5 billion, the fourth biggest overseas investment by a Chinese company this year. The third biggest was Sinochem’s $3.1 billion purchase of a 40% stake in Statoil’s Peregrino subsalt field off the Brazilian coast. Add in a couple of smaller deals in Venezuela and Chinese firms have secured this year stakes in six projects that will eventually be producing upwards of 570,000 barrels of oil a day.

China’s state oil companies have long had a toe-hold in the region, but this year represents a big step forward, including diversifying China’s energy dependence on Venezuela. These deals have not only secured future oil supplies, they are also piecing together a vertical supply chain that includes refining, trading and storage — and further downstream power generation and distribution. State Grid, the world’s largest power utility and another state-owned behemoth, spent nearly $1 billion to acquire seven power distributors in Brazil as part of a deal it has won to be operate the power distribution system in densely populated southeastern Brazil.

Taken together those seven acquisitions would make a list of the ten largest overseas acquisitions by Chinese companies in 2010. As well as securing energy supplies for China’s own fast growing economy, Chinese companies will be well positioned to profit from the domestic growth of the emerging economies of South America.

In comparison the other big overseas acquisitions of the year seem small beer. PetroChina spent $1.6 billion to acquire Arrow, an Australian coal seam and power distribution company, in a joint bid with Royal Dutch Shell valued at $3.2 billion overall. Chinalco spent $1.3 billion to buy 45% of Rio Tinto’s Simandou iron ore business in Guinea through its Chalco subsidiary. China Huaneng Group, the country’s largest electricity producer, paid $1.2 billion for GMR Infrastructure’s 50% stake in InterGen, a U.S.-based utility that runs power plants in Britain, the Netherlands, Mexico, Australia and the Philippines.

The biggest industrial foreign acquisition was Geely’s $1.8 billion acquisition of Volvo from Ford Motor, the largest piece of business done by a company not state owned. The next largest industrial acquisition was the purchase of Nexteer, a parts-maker bought from GM by Pacific Century Motors, a joint venture between Tempo Group and the investment arm of the Beijing municipal government, a deal valued at less than $500 million.

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