China’s race for oil

While Western scholars, consultants and oil companies have been raising the heat and noise in their debate over whether world oil production has, or is, about to reach a permanent peak, they could do worse than focus on what China is saying, or more importantly, what it is doing.

China has taken a ‘no talk, all action’ approach by acquiring as much as possible the oil and gas assets that are available to them around the world. The Chinese government, its state oil companies and think tanks have so far avoided public debate and not made known their thinking on the controversial issue of global oil depletion.

China’s adversaries include the International Energy Agency (IEA), which has warned that world oil production could peak by 2020. It has raised the decline rate in oil production in existing fields to 6.7% a year, from the 3.7% rate it had estimated in 2007.

Various peak oil analysts have estimated that the average depletion rate of the world’s oilfields has risen to approximately 5.5% from 4.5% in 2007, and will accelerate by another 6.5% by 2014. The decline of 5% a year would be equivalent to losing the production of the entire North Sea in approximately 14 months.

However, conspicuously absent from this debate are the Chinese. Since 2005, when the US government blocked CNOOC’s attempt to purchase Unocal, the Chinese government and its state-owned companies have moved impressively and rapidly to capture oil and gas assets in the Middle East, Latin America, Africa and Asia.

China in a hurry
China’s urgency to secure long-term energy supply deals has risen noticeably at a time when most of the world has been struggling to recover from a devastating economic recession. Its planners recognise that this is an opportune time for China to strike deals when its main competitors are hobbled by economic problems or distracted by geopolitical conflicts.

With its economy expected to continue to power ahead, Beijing has to ensure that it has ready long-term access to energy and natural resources.

In November, its apparent oil demand soared 18.7% from a year ago, said oil media Platts. “Lifting demand for oil by double-digits month after month was not Beijing’s goal when it injected half a trillion dollars into its economy this year, but it was one of the most significant consequences.”

Michael Rodgers of PFC Energy estimates that new fields will help China maintain domestic oil production at between 3.6 million and 4 million bpd most of this decade, but rapid field depletion will see it plunge to 1 million bpd by 2020. Imports will have to increase to help meet its rising consumption.

China’s rapid deal making

Iraq: Chinese firms awarded contracts to develop main oil and gas fields
Chinese, Russian and European companies were the biggest winners in Iraq’s much-anticipated auction of some of its largest oil and gas fields in December 2009.

The lone US winner, ExxonMobil, took a consolation prize although it had been tipped to take the biggest prize of Rumaila.

Turkmenistan: new pipeline to China opens up Central Asia gas reserves
On 14th December, Turkmenistan launched a new 1833 km pipeline to export natural gas to China, which is also encouraging the region’s two other gas producers, Uzbekistan and Kazakhstan, to join in.

Effectively, the line ends Russia’s tight grip on the livelihood of Central Asia’s main natural gas producers as they were previously bound to sell most of their output to Moscow, or had to use pipelines that ran through Russian territory.

Apart from Russia, Europe too is counting the cost of China’s sudden access to Central Asia’s coveted natural gas reserves. While China raced to complete the pipeline to Turkmenistan, the EU sat on its long-approved Nabucco pipeline to import natural gas from the Caspian region and the Middle East. The EU has yet to start work on the project, which had been approved nearly a decade ago.

Myanmar: CNPC secures exclusive oil pipeline rights, building port
Last November, China National Petroleum Corporation (CNPC) secured the coveted exclusive rights to build and operate a 771 km pipeline to deliver crude oil from an island off western Myanmar to Yunnan province in western China.

Qatar: ‘centre of new LNG compass’ could overtake Japan as world’s biggest buyer of LNG
Qatar, the world’s largest LNG exporter, has agreed to massive new deals to supply PetroChina and China National Offshore Oil Corp. (CNPC). Qatargas Operating Company Ltd signed a separate Memorandum of Understanding (MoU) with the two Chinese companies late last year.

China has outbid the US for 10 cargoes, or approximately 5 million t, of LNG from Qatar this year.

By 2020, analysts expect China could overtake Japan as the world’s biggest LNG buyer as a result of recent massive deals and projects completed or underway.

Nigeria: Chinese firms willing to invest US$ 50 billion in oil reserves
China’s state-owned firms are willing to spend as much as US$ 50 billion to secure 6 billion bbls of crude oil reserves in Nigeria, said Emmanuel Egbogah, the African nation’s Presidential Adviser on energy.

Russia: China natural gas purchases to reach a third of volume to Europe
Russia expects its fast-growing natural gas exports to China to eventually reach about one-third the volume of its sales to Europe. While sales to China only started recently, Russian gas giant Gazprom, which controls gas exports, said it expects the volume to grow rapidly.

Canada: Petrochina approved to acquire 60% stake in Athabasca Oil Sands Corp.
The Canadian government has approved Petrochina International Investment Company Limited’s purchase of a 60% stake in Calgary-based Athabasca Oil Sands Corporation (AOSC) for Cdn$ 1.9 billion. (US$ 1 = Cdn$ 1.05). The deal represents China’s biggest oil deal in North America, and could lead to further Chinese investment in Canada’s oilpatch.

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Author: Ng Weng Hoong

Published on 13/04/2010


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