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View from the Bridge - China May 2012

Major overseas investments and acquisitions have characterised the Chinese oil industry over the last Quarter. The nation's three majors - CNOOC, PetroChina and Sinopec - are lining up large international energy deals as they try to keep in line with the government's last five-year-plan issued in August 2011.

This year will also be a politically historic one, with elections across the US, Mexico, Egypt, Kenya, France, Taiwan, Ukraine and Russia and a change of Chinese leadership scheduled for early 2013. The year ahead still has a lot of potential for surprises as the world's economic axis moves further towards the East.

As the West looks East, China is spreading its influence in the opposite direction, with a continuous stream of energy investments. Sinopec chairman Fu Chengyu's new “go-out” policy means Asia's largest refiner is continuing its overseas investment programme, currently standing at more than $74bn since 2005. The company is now aiming to double overseas output to one million bpd by 2015 and is at the forefront of China oil's global deals.

Among the billions of dollars' worth of Sinopec investments are shipping fuel in the Middle East and Greece, a $9bn refinery with Kuwait Petroleum Corp, a 400,000 bpd joint venture with Saudi Aramco and a new facility in Tuas, Singapore, set to come online sometime in 2013.  The latter will be the company's first blending plant outside of China.

Sinopec's financial clout may be impressive, but apparently not enough so to stop Cristina Fernandez from nationalising YPF, Repsol's Argentine unit. The company had spent around 5 years negotiating the deal and were rumoured to have a non-binding agreement for a $15 billion stake in the Spanish-owned firm. However, Sinopec has yet to give a formal statement on the scuppered deal.

Amongst China's other oil majors, CNOOC is looking to diversify overseas by acquiring unconventional assets, like deepwater, as it struggles to balance production growth with escalating costs, while China National Petroleum Corp (CNPC), parent of PetroChina and the sixth largest company in the world by revenue, has said it will also begin investing more heavily overseas, especially in clean energy.

The government continues to support its oil industry's overseas ventures as it, too, exerts its influence in developing countries. Recently, China Development Bank Corp signed off on a $1 billion dollar loan to West-African nation Ghana to develop a large gas project, which will eventually supply China with around 13,000 barrels-per-day. Sinopec will manage the initial $850 million (CNY 5.4 billion) investment.

Innovation is another key part of the Five Year Plan and continues to open doors for foreign companies entering the Chinese market. Saudi Basic Industries Corp (SABIC) has just invested $100 million in a new Shanghai technology centre, which will focus on developing new energy technology for electronic vehicles – another project more or less guaranteed to gain government approval.

Nonetheless, government incentives have done little to remedy the waning popularity of EVs in China, as urban car owners (who are typically limited to just one vehicle per household) prefer foreign gas guzzlers. Western car giants Ford and VW have caught on and will feed the demand with two new factories producing 350,000 and 50,000 extra units per year, respectively.

There is a potential conflict here between the booming automarket and the government's attempts to control emissions.  However, a collaborative approach of legislation alongside a drive for high lubes and engine performance standards could help to ease the tension.

Emissions legislation was a focal point of this year's Diesel Emissions Conference and Adblu Forum in Beijing, at which OATS was one of the many delegates. There were a range of key issues covered at the conference, including emissions, diesel fuel quality progress and greener heavy-duty vehicles and we are delighted to be able to provide a downloadable summary of the conference.

As always, if you have any feedback, ideas or possible content for the OATS China Bulletin or website, we would be pleased to hear from you. Simply contact Diana Shen at DShen@oats.co.uk.

Sebastian Crawshaw
Chairman, OATS

Tags: China, CNOOC, PetroChina, Sinopec, View from the Bridge

Published 23rd April, 2012

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