China’s Energy Push

Following my recent post about China’sscramble for energy and their nonrenewable energy plan, I cover here the nonrenewable push. Renewable energy supplies about 7.5% of all energyneeds for China, says the EIA, close to our 7% figure in the U.S. Hence, nonrenewable energy sources are especially important over the next fewdecades for both the U.S. and China while the green industry ramps up.The two countries are already bumping up against each other overresources.

The Wall Street Journal reported on March 15th, 2010 thatChinese state-owned oil company Cnooc Ltd. is taking a 50 percent stakein Argentina’s Bridas Energy Holdings for $3.1 billion. Cnooc is theHong-Kong listed unit of China National Offshore Oil Corp. It willfinance the joint venture through “internal sources,” and the project is expected to move along quickly. The reserves of Bridas include anestimated 636 million barrels of oil; the company has activities inArgentina, Bolivia and Chile.

Chinese Momentum

The major Chinese state oil companies are China National PetroleumCorp. (CNPC), China Petrochemical Corp (Sinopec), the aforementionedCnooc and PetroChina. These companies have been chasing down contractsaround the world and have made acquisitions in such countries as Angola, Azerbaijan, Canada, Chad, Indonesia, Chad, Iraq, Iran, Kazakhstan,Myanmar, Nigeria, Peru, Russia, Singapore, Saudi Arabia, Sudan,Turkmenistan, Uzbekistan, Venezuela and now Argentina. They have beenlocking in resources, supply agreements and infrastructure deals.

Significant Deal in Iraq

China recently signed a deal in southern Iraq to develop the 2.5billion barrel oil field called Missan. Winning oil deals in Iraq isextremely difficult. But in fact, in 2008, China was the first foreigncountry in 35 years to make an oil deal with Iraq. At that time theysigned a whopping $55 billion dollar, 22-year deal, which was considered very significant. This transaction put the world on notice that Chinawas in serious pursuit of oil for its massive energy needs. In the 2008deal, China will not apparently share in profits with Iraq.

There have been signs that China understands that petroleum is finite and will not last forever, and their aggressive focus on the renewableworld is part of their long-term plan. Meanwhile, pursuing oil deals has been aggressive too. They have cash, they have the will and they seemto be succeeding in seeking and locking up energy of every source.

Needs Gap

China has been worried since 2007 when they experienced oil shortages and prices shot up. In response, China invited foreign investmentinside their borders to build an oil infrastructure and six countriesjumped in. China’s energy consumption has been rapidly increasing, withno signs of slowing. The gap between what they produce and what theyconsume has widened, says the Energy Information Agency (EIA). China isthe world’s second largest consumer of oil after the United States. Seethe chart below, courtesy of the EIA, which illustrates this gap.

China Travels the World to Lock Up Oil

To understand the scope of their efforts, review some of the dealsand transactions that China has made in the last few years (collectedfrom various news sources):

  • Last week, Cnooc joined with large French oil company, Total SA, toacquire access to oil in Uganda.
  • In December 2009, Cnooc developed a deal in Venezuela for the oilblock in the Orinoco belt.
  • In spring of 2009, China announced construction in Myanmar of an oil and gas pipeline to southwest China. It also secured a 30-year deal for natural gas off the coastline of Myanmar.
  • Iran supplied 11% of China’s imports by mid 2009. Sinopec made anagreement seemingly worth more than $70 billion dollars in mid 2009, one of the biggest energy deals by an OPEC member. China agreed to develop a large oil field over the next 30 years, and buy 275 million tons of LPG during that time. In addition, Iran agreed to export 150,000 barrel ofoil per day at market prices for 25 years. According to analysts, Irancould become the 2nd largest supplied to China after SaudiArabia as early as 2012.
  • China has dealt with Sudan in an “oil for guns” program, with Chinaowning 40% of the Greater Nile Petroleum Operating company (a dominantforce in Sudan). By summer of 2009, China had invested about $8 billionin the oil sector there, including building a tanker terminal and somepipeline infrastructure. It is the largest foreign investor in thecountry
  • In 2008, a large deal was penned between Russia and China. Theagreement was for a Siberia – Pacific Ocean pipeline deal. The pipelinewill run from the Skovorodino refinery in Russia’s east to China. Attime of the transaction, the Russian Deputy Prime Minister said theagreement “creates a new foundation for developing our energycooperation.” The pipeline will have a capacity of 15 million metrictons of oil per year and China agreed to give $25 billion in loans. A20-year contract to pump Russian oil to the China market was included.Then Prime Minister Putin believed this would give Russia a stable andreliable market for its oil, while China would get an assured inflow.
  • Since May 2008, China has been investing in Venezuela’s oil sectorthrough PetroChina.
  • Cnooc purchased a 45% stake in major oil and gas fields in the Niger Delta in 2008. Nigeria is a large supplier to the U.S. and there couldbe some competition for supply, say analysts. (Journal of EnergySecurity. “China’s Oil Supply Dependence”, by David Hayward. 18June 2009). In addition to the oil deal, China provided militaryassistance to Nigeria (jets and patrol boats).
  • In 2008, China was given oil exploration rights in Niger.
  • China started developing partnerships with Saudi Arabia in 1999;Sinopec would cooperate with Saudi ARAMCO to develop fields in Saudiwhile ARAMCO would invest in refineries and plants in China. By 2003,ARAMCO became part owner in a petrochemical complex in China. And thecooperation has continued.
  • China has been buying oil fields in Kazakhstan.
  • China has also been active in the Caspian Sea dating back to 1997,with some delays of work. A pipeline may be complete by 2011, and Chinaagreed to 20 years of development aid to a Kazakhstani oil firm afterbuying 60% of it.
  • Nigeria signed an oil exploration deal in Kenya in 2006.
  • After Angola ended its civil war in 2002, China rushed in offering a loan to rebuild the infrastructure, and gain oil.

More on this tomorrow.

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