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China’s Global Oil Assets Growing Rapidly

August 26, 2016
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By Paul Homewood 

 

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http://www.dailymail.co.uk/news/article-3754249/China-BIGGEST-crude-oil-operator-North-Sea-amid-concerns-growing-influence-Britain.html

 

According to the Mail:

China has become the biggest oil operator in the North Sea, with a state-owned company said to be in line for £2billion of tax breaks.

China National Offshore Corporation (CNOOC) runs two of the biggest oilfields in the area.

One of its subsidiaries, Nexen, is responsible for extracting around 200,000 barrels a day – more than 10% of the total.

CNOOC was blocked from buying a US oil company over national security concerns a decade ago.

But no concerns appear to have been raised in Britain when the company bought Nexen, a Canadian oil operator with a large stake in North Sea oil, in 2012.

http://www.dailymail.co.uk/news/article-3754249/China-BIGGEST-crude-oil-operator-North-Sea-amid-concerns-growing-influence-Britain.html

 

Sometimes actions speak louder than words.

Leaving aside the security concerns, this story highlights a much more significant issue. 

 

If we are to believe the likes of Ambrose Evans Pritchard, the Chinese Government has solemnly promised to drastically reduce its consumption of fossil fuels, albeit rather conveniently at some undetermined point in the future. Meanwhile, Mark Carney tells us that fossil fuel reserves will soon be stranded assets.

Yet on the ground the reality is utterly different. Far from pulling back from fossil fuels, China is actively increasing development, not just at home but around the world as well.

According to this International Energy Agency report in November 2014:

 Chinese national oil companies (NOCs) are the new big players on the global energy scene. In the last three years, they spent a total of USD 73 billion in upstream investments and now operate in more than 40 countries to control about 7% of worldwide crude oil output, raising alarms in some quarters about supply security and price.

 

The US Energy Information Administration adds more detail:

China’s increasing dependence on oil imports, the need for Chinese companies to develop technical expertise for their more challenging resources, and attempts to capture value upstream are key factors driving Chinese NOCs to invest in international projects and form strategic commercial partnerships with IOCs. Since 2008, the NOCs have purchased assets in the Middle East, North America, Latin America, Africa, and Asia and invested an estimated $73 billion in overseas oil and gas assets between 2011 and 2013, according to the International Energy Agency (IEA). Most of China’s recent direct acquisitions were channeled to deepwater oil plays off the coast of West Africa and Brazil, natural gas and coalbed methane opportunities in Australia, and oil sands and shale gas projects in North America.

China’s oil production from its overseas equity shares and acquisitions grew significantly over the past several years, from 1.36 million bbl/d in 2010 to an estimated 2.1 million bbl/d in 2013, according to the IEA. CNPC holds the most equity production and investment overseas of all the NOCs, although Sinopec, CNOOC, and other smaller NOCs and private companies have rapidly expanded their overseas investment profiles over the past five years. Chinese companies are participating in upstream activities in 42 countries, and half of the overseas oil production stems from the Middle East and Africa. Iraq is a key country where all three of the NOCs have invested in several large fields where they expect production to increase. About 26% of China’s overseas oil production in 2013 was in Iraq. Kazakhstan, Sudan, and South Sudan are other countries that have contributed to sizeable portions of China’s overseas production.

In the past few years, China has diversified its overseas upstream acquisitions to include new oil formations in Brazil and North America. Not only do these assets provide commercial opportunities, they allow the NOCs to gain technical expertise in challenging and unconventional plays. Although CNOOC contributed just small amounts to China’s overseas hydrocarbon production for several years, the NOC has swiftly increased oil and gas purchases since 2010 in an attempt to gain technical expertise and acreage in shale oil, shale gas, and coalbed methane and deepwater hydrocarbon resources. Following approval from Canada, CNOOC purchased the Canadian oil company Nexen for $15.1 billion (plus $2.8 billion in Nexen’s net debt) in 2013. This deal became China’s largest overseas acquisition. CNPC, Sinopec, and Sinochem have purchased stakes in producing fields in Canada, the United States, and Brazil as well.

Chinese NOCs have also invested in overseas shale gas and tight gas formations to improve their technical capacities for developing these resources domestically and to secure gas supplies. As China rapidly expands its imports of liquefied natural gas (LNG), the NOCs are seeking supply contracts by purchasing stakes in the upstream developments and liquefaction terminals in the Asia-Pacific region, Canada, and the United States.

By the end of 2013, Chinese NOCs had secured bilateral oil-for-loan deals with several countries, amounting to almost $150 billion. China provided loans to countries that need capital to extract energy reserves and build energy infrastructure in exchange for oil and gas imports at established prices. China extended oil-for-loan deals with Russia, Kazakhstan, Venezuela, Brazil, Ecuador, Bolivia, Angola, and Ghana and has had a gas-for-loan agreement with Turkmenistan over the past decade. Venezuela and China signed several deals for more than $45 billion in exchange for 600,000 bbl/d of crude oil and products. Based on China’s trade data, Venezuela falls short of this amount, but the country’s crude oil exports to China have ramped up markedly from four years ago and were 276,000 bbl/d in 2014. The recent low oil price environment is affecting Venezuela’s upstream development and export capacity in the near term, and China provided another $5 million in 2015 for oil investment. Several oil and gas deals have been signed with Russia in the past few years, including two loan-for-oil deals amounting to $50 million, signaling China’s move to diversify its energy supply. Each of the deals includes 300,000 bbl/d of oil transported through the ESPO pipeline from Russia to China. CNPC and Russia’s Rosneft formed a JV, where CNPC holds a 49% stake, to develop Russia’s East Siberian oil fields, which are expected to help meet the export requirements of the deals. These agreements signal the growing energy ties between the neighboring countries and China’s interest in gaining more access to Russian oil.

http://www.eia.gov/beta/international/analysis.cfm?iso=CHN

 

It is worth repeating the statement that oil production from China’s overseas assets amounted to 2.1 million bbl/day in 2013. This equated to 2.4% of global output. China’s domestic output is 4.3 million bbl/day, so clearly the overseas assets are a crucial part of China’s energy strategy.

 

China has three major National Oil Companies, NOCs, China National Petroleum Corporation (CNPC), the China Petroleum and Chemical Corporation (Sinopec), and China National Offshore Oil Corporation (CNOOC).

They are all state owned, and although they have a good deal of operational autonomy, there is little doubt that overall strategy is directed by the state. 

It is the CNOOC which owns the stake North Sea oil. Their Annual Report 2015 shows the map below, giving an idea of just how widespread their global operations are. (For the detail, see page 43).

 

 

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http://www.cnooc.com.cn/attach/0/1606121709183861352.pdf

 

The report also states:

 

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The CNPC has been no slouch either in building up offshore assets. Their Annual Report 2015 discusses new reserves being developed last year in Sudan, Chad, Kazakhstan, Ecuador, Indonesia, Turkmenistan and Brazil. 

 

These are long term investments, designed to provide returns for decades. The idea that China will turn off the spigots and throw this investment away in the foreseeable future is moronic.

10 Comments leave one →
  1. August 26, 2016 12:59 pm

    China also has within its borders the largest shale gas potential in the world.

    • 3x2 permalink
      August 26, 2016 5:08 pm

      Hence getting not only an investment in actual ‘Oil’ exploitation but also buying the technology to extract it. The ff reserve, in a region, may be fixed but the technology to exploit it elsewhere isn’t.

      Two for one.

  2. Tom O permalink
    August 26, 2016 1:53 pm

    The theme of the article is about Chinese National oil companies, meaning, of course, controlled by the government, and its world expansion. What is less obvious is that the moves of these companies benefits Chinese people as a whole in the end. When we look at western corporate oil companies, the moves they make only benefit the stock holders in the end. We tend to look at nationalized assets as bad since they feed a government, but private industry, in the form of multi-national corporations, feed only those wealthy enough to truly invest in them. There is a watershed that helps a nation’s people from government owned assets. That doesn’t exist in corporate owned assets where the corporation takes on the persona of a vampire, sucking the life blood out of the nations and peoples that are reliant upon their products.

    • 3x2 permalink
      August 26, 2016 4:44 pm

      (Tom O) I’m not sure that it works like that. (HMG vs private)

      If you wish, as a ‘private’ entity, to attempt to exploit a ‘potential find’ in eg The North Sea then, ruling out force (War), you come to an amicable deal with HMG. You get what you want, assuming you have correctly assessed the potential risks and rewards, and HMG gets what it is willing to accept.

      ___________________

      Taking this just a little further … Norway found itself in a very advantageous position (ff reserve wise) and set up a ‘national fund’ (various funds) to usefully employ the (National) ‘profit’ from licensing the exploitation of said reserves.

      I would like to see HMG set up something similar (national fund(s)) this time before any fracking moves to production. One could go further and suggest that a condition, existing contracts aside , is that we take what The UK needs before ‘licensing’ any exportation.

      But these are all things that, once we are out of The EU, can, once again, become national debates.

      The one thing I will suggest is that going back to the wonderful world of ‘nationalisation’ is not something I would ever vote for.

    • August 26, 2016 8:37 pm

      And who exactly are these stockholders, Tom O?

      In the UK mainly insurance companies and pension funds. If you want insurance cover and a pension the money has to come from somewhere and governments are notoriously bad at value added and forward thinking. I’d rather take my chance in a properly (lightly) regulated market.

      Where there is a place for government, as 3×2 says, is in making sensible use of assets and Norway is an example worth following. It’s not too late to learn that lesson but the UK government needs to come out strongly on why shale exploration is important, even essential, for the country’s future and why the Green Blob are talking bollocks — like they always do.

    • catweazle666 permalink
      August 27, 2016 5:01 pm

      “the moves they make only benefit the stock holders in the end.”

      A large proportion of whom are the pension funds…

  3. August 26, 2016 2:12 pm

    “When we look at western corporate oil companies, the moves they make only benefit the stock holders in the end.”

    Stockholders are people, though not obviously so, since in most developed nations. pension funds and insurance companies own a substantial percentage of total shares in the energy sector and in the economy as a whole.

    These companies also benefit consumers.

    I suggest you get and study a modern economics textbook.

  4. August 26, 2016 2:39 pm

    They also feed the government ……….. I think you’ve forgotten the tax they pay

  5. Herve permalink
    August 26, 2016 2:56 pm

    Fred, your marvelous view is blown up when one considers that historical trend (past 40 years) of Corporate actions leads to enrich a smaller and smaller fraction of populations.

    • catweazle666 permalink
      August 27, 2016 5:03 pm

      Only in the fevered imagination of the anti-capitalist Left…

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