November 25, 2019 [Offshore Technology] – Willing to take risks in places others often won’t, China is a keen financer of global offshore oil and gas projects. Most recently, the one-party state’s national oil companies have signed mega deals with Nigeria and the Philippines. Where else can China’s money be found and what are the benefits and drawbacks of its foreign investment? We investigate.
China is the world’s biggest foreign buyer of oil, importing two-thirds of what it consumes. Between the early 1990s and 2010, China’s oil consumption increased five-fold.
To secure supply, the country’s three major Chinese national oil company’s (NOCs)– China National Petroleum Corporation (CNPC), China Petroleum & Chemical Corporation (Sinopec) and China National Offshore Oil Corporation (CNOOC) – are known for making rapid investments in offshore oil and gas projects across the globe.
With the backing of the Chinese one-party state, unlike their Western counterparts, China’s NOCs are unhampered by risk adverse investors and often willing to go where others won’t. This has seen the country invest in geopolitically sensitive regions with the seemingly dual purpose of securing oil supply and cementing China’s global influence.
Nigeria is Africa’s biggest oil producer. One of China’s first investments in the country was in the Egina field, which commenced production in 2018 and is expected to reach peak production of approximately 200,000 barrels of crude oil per day in 2019. The project gave CNOOC, China’s third largest NOC, vital experience in the region.
In 2016, the Nigerian government signed $80bn worth of oil and gas infrastructure agreements with Chinese companies to be spent on pipelines, refineries, power, facility refurbishments and upstream, according to the Nigerian National Petroleum Corporation (NNPC).
By August 2019, NNPC is reported to have said that Chinese investment in Nigerian oil and gas had reached $16bn. The state owned company view the investment as a validation of the sectors continued potential, as well as a way to reach its target to grow production to three million barrels per day by 2023.
However, while the Nigerian government has generally welcomed Chinese financers, others have raised concerns over the country’s over-reliance on Chinese money – a common theme for the poorer countries it invests in.
In recent years, the Philippines and China’s relationship has been marred over territorial disputes in the South China Sea. Despite this, in 2018, Beijing and Manila agreed to a joint oil and gas exploration deal after a two-day visit by Chinese President Xi Jinping to the Philippines.
Philippines opposition Senator Antonio Trillanes is reported as saying that co-operation with China for oil and gas exploration would not affect the two nations’ positions on sovereignty and maritime rights. Nevertheless, the deal angered some who thought it would compromise the country’s territorial claims in the South China Sea.
In August 2019, Jinping doubled down. He said China and the Philippines could take a “bigger step” in the joint development of oil and gas resources in the South China Sea if they properly handle their dispute over sovereignty.
However, the secretive passage of China’s warships within Manila’s 12-mile territorial sea has put President Duerte under pressure to assert its dominance over China in the region, and it remains to be seen if the two countries can continue to work together.
As tensions continue to rise between the US and Iran, and indeed China and the US, Beijing has strengthened its strategic partnership with Tehran.
Recently, China promised to invest $280bn in the country’s beset oil and gas industry. This forms part of an update to a $400bn, 25-year investment program in the Iranian economy signed in 2016. The investments will focus on Iran’s oil and gas sector, but also touching other industries such as manufacturing.
In exchange for the money, Chinese firms will maintain the right of the first refusal to participate in any and all petrochemical projects in Iran, including the provision of technology, systems, process ingredients and personnel required to complete such projects.
China joins Russia as a major lender- and economic lifeline – to the country which is currently stymied by new US sanctions.
But China will have to work hard to get around the sanctions or see its oil and gas companies that have interests in both the US and Iran suffer for falling foul of them.
The sanctions are thought to be responsible for news in October that CNPC has withdrawn from Iran’s phase 11 of South Pars gas field.
In exchange for oil, China has provided loans – reportedly around $60bn worth since the 80s – that have helped rebuild Angola after its brutal civil war. Angola is one of the major petroleum exporters to China, with more than half of the petroleum exported by Angola in 2016 being bought by China.
Chinese companies also hold interests in licences offshore Angola. China’s Sinopec developed a 50/50 partnership with Angolan state-owned Sonangol, called Sonangol Sinopec International. The group holds 50% participating interest in offshore Block 18 in Angola, which is operated by BP and covers an area of more than 5000km2 and lies in water depths of 500 – 1600m. The joint venture has interests in eight other oil blocks in Angola and one onshore oil block in Indonesia.
The Angolan government is said to be keen for China to provide further investment to revive the country’s ailing oil industry, which has seen falling production.
However, like in other nations, some believe the high-level of Chinese investment has left Angola too reliant on the state and unable to take advantage of other deals. For example, The Financial Times reports that, as of February 2019, Angola’s foreign-exchange reserves are just over a third of what they were in 2013.
Growing environmental concerns over the development of Canada’s oil sands have put US and European companies off entering the market. But not resource hungry China.
The country’s big three national oil companies — CNOOC, PetroChina and Sinopec – have invested big in Canada’s expensive to extract oil sands. This is unlike the Western majors who have reduced their interests in the region.
In 2012, PetroChina became the first Chinese national company to wholly own a Canadian oil sands development after it bought out its partner Athabasca Oil Sands Corp’s stake in the MacKay River project in northern Alberta.
Similarly, CNOOC has an interest in more than 300,000 acres in the Athabasca region. This includes the Long Lake facility, located in northern Alberta, which began producing in 2008, with production capacity at around 72,000 boe/d. In 2018, an expansion project started which will add 26,000 boe/d from three well pads that will be tied-in to the existing Long Lake facility.
Reaffirming its commitment to the area, Sinopec has joined a group planning to build an $8.5bn oil refinery in Alberta that will process 167,000 barrels per day of crude into gasoline and other products.
Libya’s proven oil reserves are around 50 billion barrels, according to OPEC. Before the Libyan war, around 75 Chinese companies operated in the country, involving around 50 projects. At one point, China was
reportedly shipping roughly 150,000 barrels per day of crude oil from Libya.
Investment from China, which makes a point of always remaining politically neutral in other countries’ affairs, is said to be favourable to the Libyan government in order to help bail out the country’s oil industry which has been degraded through years of civil unrest. In fact, the chairman of the country’s National Oil Corporation has emphasized the importance of energy sector cooperation with Beijing.
China, on the other hand, likely views a presence in Libya conducive to its two aims of securing oil supply and cementing its global influence.
The partnership has already produced results and Libya’s oil exports to China are already growing. In 2017, they reported a total of $1.7bn, double the year previously.
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