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.
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
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.
Phillipines
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.
Iran
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.
Angola
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.
Canada
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
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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