Wednesday, January 1, 2014

Beijing in $130bn global assets spree as it builds energy security

CHINESE state-owned oil and gas companies such as China National Petroleum Corporation (CNPC) have outlaid more than $130 billion since 2007 to snap up assets across the globe in their ongoing quest for energy security.

Some of their biggest buys include shale assets in western Canada and the US, oilfields in Egypt, Iraq and Africa, stakes in Australian liquefied natural gas joint ventures, and a share in some of the most challenging energy projects in the world: the Kashagan field in the Caspian Sea, the Yamal LNG project in northwest Siberia, and the "presalt" deepwater fields off the coast of Brazil.

Chinese companies accounted for 21 per cent of all oil and gas mergers and acquisitions in the first nine months of 2013, spending $US18.6bn ($20.8bn) out of a total $US90.8bn market, according to data released recently by US oil industry information and advisory firms PLS and Derrick Petroleum Services.

Cumulative figures by PLS/Derrick show that since 2007, CNPC and other state-owned entities such as China Petrochemical (Sinopec), China National Offshore Oil Corporation (CNOOC) and Sinochem Group invested $US129bn in oil industry mergers and acquisitions.

Since those figures were released, CNPC has made further investments in Latin America and the Middle East. In November, it agreed to pay $US2.6bn for the Peruvian oil assets of Brazil's state-owned Petrobras, while in the same month its listed arm PetroChina said it would buy 25 per cent of Iraq's West Quran 1 gasfield from ExxonMobil. The deal price was not announced, but analysts estimate the stake could be worth more than $US1bn.

The previous month, PetroChina agreed to join CNOOC in a consortium led by Royal Dutch Shell and Total that won the right to join Petrobras in developing the Libra field, located in deep water off the Brazilian coast. The field, part of what is known as Brazil's "presalt" oil and gas reserves, potentially can produce up to one million barrels a day.

CNPC made the single biggest international buy of 2013, agreeing in September to spend $US5bn for ConocoPhillips' 8.4 per cent stake in the massive Kashagan project in Kazakhstan's part of the Caspian Sea.

Kashagan, regarded as one of the biggest oil and gas finds of the past 40 years, has so far proved an expensive undertaking for its international investors. After a five-year delay, it finally began producing in September, but a series of leaks from its main gas pipeline forced its shutdown. A decision on resuming production is expected this month.

Earlier last year, CNPC also committed to pay about $US4.2bn for a 20 per cent stake in Italian oil producer Eni's Mozambique offshore gas project known as Area 4, part of the wider Rovuma gasfield.

Last year, CNOOC made what remains the single biggest acquisition by a Chinese company, paying $US15.1bn for 100 per cent of Canadian company Nexen, which has extensive shale and oil sands assets in western Canada and interests in the Gulf of Mexico. The Nexen deal closed in February last year, after approvals by Canadian and US regulators.

Also in February, Sinopec agreed to pay $US1.02bn for half of Chesapeake Energy's Oklahoma shale field known as the Mississippi Lime, while a month earlier Sinochem said it would buy a 40 per cent stake in Pioneer Natural Resources' Wolfcamp shale field in Texas for $US1.7bn.

In August, Sinopec agreed to buy 33 per cent of US producer Apache's oil and gas assets in Egypt for $US3.1bn.

The $US130bn cumulative figure since 2007 does not include the value of oil purchase agreements and investments that CNPC struck during 2013 with Russian state-owned companies Gazprom and Rosneft, and with the privately owned Russian gas producer Novatek.

In June, Rosneft agreed to supply CNPC with oil worth up to $US270bn over a 25-year term from 2018. The deal includes a $US70bn prepayment to Rosneft. In October, the two companies agreed to work on a joint venture that would develop oil and gas reserves in eastern Siberia.

CNPC and Gazprom struck a deal in September covering gas supplies to China. The final terms have yet to be decided.

In June, CNPC agreed to join Novatek and France's Total in the Yamal LNG development in Siberia, committing to a 20 per cent stake. The value was not disclosed but is estimated to be $US800 million-plus. In October, CNPC followed up by signing a 15-year deal with Novatek to take 3 million tonnes a year of LNG. Yamal is expected to begin production at the end of 2016.

Novatek plans to ship the gas to China via the Northern Sea Route, which runs along the top of Russia in Arctic waters. The route, which is shorter than the conventional journey from Europe, is open for about six months a year, and requires special ice-proof tankers and icebreaker support.

China, the world's biggest energy consumer, imports about 10.5 million barrels of oil a day, or about 60 per cent of its crude oil requirement. While much of that comes from the Middle East, part of China's quest for a diversified energy supply involves bringing in more oil and gas via pipelines from Central Asia, Russia and Myanmar, and more LNG from Australia, Russia, Canada and the US. More



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