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

 

 

New Realities: Energy Security in the 2010s and Implications for the U.S. Military

Revolutionary changes among energy producers and dramatically altered patterns of energy consumption across the planet are having profound implications for American national security in general and the U.S. Army specifically.

Panel Discussion on the Military Implications of Energy Security

For example, the reduced saliency of Africa and the Middle East as energy sources for the United States and many of its key allies will alter Washington’s calculations of its vital interests, which will subsequently affect where and how the U.S. Army is wielded as a tool of national policy in the defense of those interests. Meanwhile, burgeoning fossil fuel demand in China, India, and elsewhere may both increase regional and global security competition over energy resources while simultaneously worsening human-induced global climate change and bringing increased risk of humanitarian crises, all of which may compel the United States to utilize military force in defense of vital as well as important interests overseas. For the U.S. Army during a period of contraction and reduced budgetary authority, these strategic factors will force it to give Soldiers and leaders the capability to manage energy status, resources, and performance; to significantly reduce its energy footprint; and to provide flexibility and resiliency by developing alternatives and adaptable capabilities. At the same time, whether in garrison or deployed, the “new realities” of the global energy market will compel the Army to strengthen the capacity to insulate itself from disruption of its energy supply chains, whether in electricity or fuels.

These were just some of the key conclusions reached during a conference on “New Realities: Energy Security in the 2010s and Implications for the U.S. Military,” organized by the Strategic Studies Institute, U.S. Army War College, and hosted by the Defense Education Forum, Reserve Officers Association (ROA). The conference was held on November 19-20, 2013, in Washington, DC, at the ROA’s Minuteman Memorial Building on Capitol Hill. Funding for this conference was provided by generous support from the U.S. Army War College Foundation. Participants included representatives from the U.S. military, government, private industry, Congress, and academia principally from the United States, with a number from European nations. A virtual audience component to the conference accompanied it via a live web feed, and during the event itself, live Tweets were broadcasted via @SSInow.

The academic engagement component of the event included presentations by professors and researchers from the Atlantic Council, Rice University’s Baker Institute, the Carnegie Endowment for International Peace, Case Western Reserve University, the Center for Naval Analyses (CNA), the Center for Strategic and International Studies (CSIS), Jacobs University (Bremen), the Eurasia Group, Hampshire College, Idaho National Laboratory, the Middle East Institute, the National Defense University, the National Science Foundation, the University of California at San Diego, the University of Florida, and the University of St. Andrews, as well as audience participation by a number of U.S. Army War College Senior Fellows.

The New Realities conference was divided into three themes focusing on changes among global energy market suppliers, evolving forms of consumption, and what the implications of these trends represent for the U.S. military. The event was comprised of a total of seven panels with 22 presenters and two keynote lunch speakers—the Honorable Sharon Burke, Assistant Secretary of Defense (Operational Energy Plans and Programs); and the Honorable Katherine Hammack, Assistant Secretary of the Army (Installations, Energy & Environment).

The first four panels focused on current trends in production and consumption and the impact of these trends on the strategic environment. The last three panels addressed the implications of the broad, strategic trends for the U.S. military generally and the Army specifically. Key takeaways included the following:

• The unconventional fossil fuels revolution sweeping across North America and spreading to other continents is the most fundamentally transformative event – in terms of society, economics, and ultimately politics – of the last several decades.
• Europe has two opposite fears about Russian energy behavior primarily focused on natural gas; the first is Russia will continue and intensify the pattern of energy supply manipulation for political purposes as seen in the previous decade; the second fear is that Russia will pursue incompetent policies at home that reduce its ability to supply gas to Europe.
• Criminal organizations and guerillas in Latin America are not viewed as the major challenge to the oil industry. Rather, the inability of governments to equitably distribute rents from the energy industry while simultaneously protecting the environment and public health will undermine confidence in those governments.
• Energy production is shifting from the Middle East to the Western Hemisphere which will have geopolitical implications and will further strengthen U.S. energy security independence and national power. This is an outcome of advances in fracking, deep sea drilling, and other technologies.
• Renewable energies (RE) offer many potential advantages including reducing exposure to price vulnerability, creating greater interdependence for regions, prolonging the stability of hydrocarbon exporters, and reducing nations’ vulnerability to energy being used as a ‘weapon’ against them in international relations. However, for the immediate future Middle East oil will continue to control oil pricing as long as the world’s industrial infrastructure remains oil-based.
• The ubiquity of computer and information technology systems throughout the energy industry is growing, as computerization increasingly dominates energy industry processes from exploration through production and distribution. This increases the vulnerability of cyber technologies supporting U.S. Army missions.
• Increasing American energy independence and a projected decline in African energy production are likely to fundamentally alter U.S. interests in Africa. On the one hand, the United States is likely to have less at stake in Africa if it imports less in terms of energy resources from Africa. On the other hand though, reduced energy production may mean increased economic, social, and political instability across the continent, potentially resulting in humanitarian and other crises that may compel U.S. involvement.
• As a key strategic partner of India and as an emerging energy supplier with a number of proven bilateral mechanisms for energy cooperation already in place, the United States is well positioned to forge even closer civil and military ties to enhance mutual energy security.
• Much more energy is wasted due to inefficiencies in energy generation, transmission, and distribution than is normally imagined. Some Russian natural gas facilities can flare (burn off) up to a third of their gas during the generation process. A number of industrial processes and efficiency technologies offer great potential for energy resource conservation and storage, but this will require less developed energy producers to become more comfortable inviting in Western industry, capital, and technology.
• The U.S. Army, Navy, Air Force, and Marines seek to conduct energy-informed operations, which balance energy capabilities and employment to achieve the greatest net operational benefit. At the same time, the military must maintain balance in terms of the protection, resilience, and sustainability of its forces in the field.
• Ultimately an enterprise approach to energy security will be required for U.S. national and coalition defense needs. This will further the development of both strategic and operational energy concepts, plans and programs, and doctrines, which is vital given the increasing energy requirements of the technologically advanced forces being fielded over the coming decades.

Deliverables from the conference will consist of a compendium of the papers presented, a YouTube archive of the presentations, and a series of executive summaries for use by policymakers and other decisionmakers. More

 

 

Rooftop Solar Owners vs Utilities – The Battle Begins

You don’t have to go too far into a document prepared by the US-based Edison Electric Institute (EEI) to realise what is at stake for centralised utilities from the threat of rooftop solar.

The EEI, a trade group that represents most investor owned utilities in the US, said solar PV and battery storage were two technologies (along with fuel cells and storage from electric vehicles) that could “directly threaten the centralised utility model” that has prevailed for a century or more.

How worried should they be? A lot, said the EEI. The ability of rooftop solar, battery storage and energy efficiency programs to reduce demand from the grid would likely translate into lower prices for wholesale power and reduced profits. Worse still, customers were just as likely to “leave the system entirely” if a more cost-competitive alternative is available.

“While tariff restructuring can be used to mitigate lost revenues, the longer-term threat of fully exiting from the grid (or customers solely using the electric grid for backup purposes) raises the potential for irreparable damages to revenues and growth prospects.”

In the US, utilities are now seeking to protect their business models by pushing hard against net metering and seeking to influence the pace and manner of deployment of other technologies and new energy market concept that don’t fit the decades old model.

In Australia, much the same has been happening. RenewEconomy reported on the concerns of utilities in this article last month. Feed-in-tariffs have been wound back, as they were supposed to have been as technology costs fell, but now the pendulum is swinging the other way, and utilities – with the apparent complicity of state-based pricing regulators – are now trying to extract as much revenue from solar customers as they can.

It is a dangerous game. Leading electricity executives and market analysts suggest the rollout of rooftop solar is inevitable and “unstoppable” – unless, of course, by regulation and changing tariffs.

Little wonder then, that solar consumers and rooftop solar providers are starting to organise themselves to protect the interests of individual consumers, and the industry as a whole.

In Australia, a new solar campaign initative known as “Solar Citizens” is being launched this week to ensure the interests of solar owners are protected from changes to laws and policies by power companies and governments.

Solar Citizens sees its mandate as helping existing and would-be solar owners to advocate for their rights as energy investors and aims to push for panels on every Australian rooftop.

Solar Citizens Manager Dr Geoff Evans says 2.5 million Australians now live under a solar roof (one million homes have rooftop solar PV systems), and have invested about $8 billion. Some forecasts expect those numbers to triple by 2020.

“That’s an amazing show of support for solar,” Evans said. “But to date, when the interests of solar owners have come under threat, there has been no way for them to come together and protect their interests. With Solar Citizens that will change.”

One of Solar Citizens initial targets will be Queensland, there the local competition authority has canvassed a range of controversial tariff structures that appear to favour government owned utilities over consumers, as RenewEconomy highlighted in March in this article, and again two days later. In other states such as NSW, individual homeowners have to negotiate with retailers to get a price for the power that retailer then sells to their neighbours.

“There’s a real power imbalance in those negotiations” said Evans. “The situations in NSW and Queensland highlights the trend we have seen across the country,” said Dr Evans. “We will soon be working on campaigns with solar owners in every state to make sure all Australian solar owners are ensured a fair go.”

“Network operators and energy retailers don’t want to see Australian’s take back control of the grid. They are making it harder for Aussies to go solar in order to protect their profits.

The Solar Citizens campaign is emerging in Australia just as solar companies in the US are organising themselves to counter the same potential threats to their business.

Last week, Bloomberg reported, SolarCity, Sungevity, Sunrun and Verengo, which accounted for the majority of US rooftop solar installations (most of which are financed by leasing arrangements)) formed a lobbying group called the Alliance for Solar Choice to combat efforts by “monopoly utilities” to quash programs that support renewable energy in 43 states.

The alliance is seeking initially to preserve net metering policies that require utilities to purchase surplus electricity at retail rates from customers with rooftop solar systems, and says it is responding to “the coordinated utility attack on net metering throughout the country.” More