China invests heavily in energy-rich states

[Neo]

China invests heavily in energy-rich states

By Syed Rashid Husain
Sunday, 14 Feb, 2010

Employees of China National Petroleum Corporation carry out routine checks at a gas refinery in Suining, Sichuan province. China is the world’s fourth largest crude oil producer but it is buying up energy assets across the globe and offering loans to several producing countries because of its rising demand. - Reuters/File photo

RIYADH: The quest for energy is making it more difficult for Beijing to go hand in hand with Washington on Tehran. Despite the crude demand in the developing world stagnating, energy supply security has assumed to be a major strategic concern for Beijing.

Last year, China imported 204 million tons of crude oil, up 13.9 per cent from a year earlier. Its January crude imports of 17.11 million tons, was 33 per cent higher than a year earlier. And in December 2009 its imports hit a record 21.26 million tons, up 47.9 per cent year-on-year.

The imports are likely to go up by 9.1 per cent this year, a China National Petroleum Corporation (CNPC) report projected.

And this is despite the fact that China has significant indigenous production, too. It’s the world fourth largest producer, after Russia, Saudi Arabia and the US. The Chinese oil output in 2009 accounted for 5.4 per cent of the world’s total, reaching 189 million tons in 2009. However, this accounted for just 48 per cent of its demand.

Analysis of Chinese crude imports makes interesting reading. Last year, Saudi Arabia, Angola and Iran were the three largest source of crude to China, with its imports from the three standing at 41.86 million tons, 32.17 million tons and 23.15 million tons, respectively.

However, Iran also has a significant share of the cake. And this becomes all the more interesting, when seen in the wake of the growing US impatience with Iran. Can indeed, Beijing shun Tehran?

Before acceding to the request for a tougher line with Tehran, Beijing needed to consider many aspects.

Approving crippling sanctions against Iran means in all probability loss of 10 to 12 per cent of its oil imports, the aborting of some $80 billion in development projects by Beijing in Iran, and the sacrifice of hundreds of billions of dollars worth of oil, which the Chinese have locked in futures contracts.

And, above all, a farewell to the best chance of getting a secure overland gas pipeline far away from the US-UK fleets — the pipeline from Iran via Pakistan into China. Repercussions could be huge, indeed.

Only mid January, CNPC signed a 25-year buyback binding contract with National Iranian Oil Company (NIOC) to develop onshore North Azadegan oil field. CNPC also has a MoU with NIOC to develop South Azadegan oil field, giving former a 70 per cent interest in South Azadegan.

The project reportedly will need up to $2.5 billion worth of investments, of which CNPC is expected to pay $2.25 billion. The emergence of Angola as top supplier to Beijing is indicative of Chinese long-term interests in acquiring energy assets all over the world – and especially in the oil rich Africa.

In addition to buying assets, China has offered $57 billion in loans to several producing countries. China introduced this concept of loans for oil in 2004 by providing Angola with a $4 billion oil-backed loan. Subsequently, it is currently exporting about 40 per cent of its production to China.

China has boosted its investments abroad since 2008 despite the global economic downturn, having committed billions of dollars into the sector. Singapore based FACTS Global Energy in a recent report said that China’s equity (net) oil production from its overseas operations in 2008 was 900,000 b/d and it is expected to reach 1.2 million b/d this year. The FACTS analysts forecast China’s net overseas oil production at 1.7 million b/d by 2015 and 2 million b/d by 2020.

An all out efforts indeed – and definitely it may not be easy for Beijing to comply with Washington’s request and bullies. Tehran could take a sigh of relief.