China in Contest with the Great Nations over Global Oil Resources
Dr Walid Khadduri Al-Hayat - 11/07/05//
At a time when oil prices fluctuate between 55 and 60 dollars, as happened last week, and the American light oil price closed, on Friday when Nymex closed on 59.10 dollars per barrel, the focus of the international oil production is on China’s future needs for raw material, particularly the role of its major companies in satisfying the country’s needs.
The attention is now directed towards the attempt made by China National Offshore Oil Corporation (CNOOC) to buy the American company Unocal for 19.6 billion dollars. It is being questioned if China will be able to conclude the deal in light of the competition it is facing with the giant American company Chevron, and the opposition of Congressmen to sell an American company to China, and especially to governmental companies.
The deal is the first attempt made by China to buy a giant American company.
The main reason behind the attempt is China’s resolution to penetrate the international oil scene in order to secure its raw material needs through its local company and not the foreign one. In fact, we notice that while China had assets in oil and gas fields in 23 countries in 2003, it has expanded its reach to 36 nations in 2005.
The deal also carries geopolitical dimensions, since China’s oil power has expanded in the Asian continent, specifically in the natural gas sectors. Unocal owns large gas reserves in Indonesia, which will allow CNOOC to import liquefied gas to China and export it to Japan and South Korea. In addition, Unocal is the biggest oil and gas producing company in Thailand, where demand has increased by around 10% last year. The American company also owns gas assets in Bangladesh and partnerships in oil fields in Azerbaijan.
The deal, in case it is concluded, will double CNOOC’s asets, providing 4 billion barrels of oil equivalent (boe) and a production power of 795,000 boe/day. In order to reach this great power, CNOOC submitted a proposal that outweighs Chevron’s offer by 1.50 billion dollars. This huge oil deal of political dimensions is being led by Chairman and Executive Manager of the company Fo Jing Yu who holds a Masters Degree in Petroleum Engineering from the University of South California and who worked for a while for the American company Phillips. Mr. Fo promised to keep all 6600 Unocal employees, and to sell all the oil and gas assets of Unocal in the United States in order to avoid any protest from Congressmen, who claimed that the Chinese are threatening the American oil production on its own territory.
The role of Chinese oil companies has significantly increased in the Middle East in the last few years. Sudan plays an important role in this respect, since these companies, in collaboration with the Malaysian company Petronas and the Indian Oil and Gas Association, are producing around 300,000 barrels a days. This number is expected to rise, with respect to this group of companies, specifically the Chinese ones, before the end of the decade.
The Chinese companies have also signed an agreement with the Kingdom of Saudi Arabia to explore natural gas in Rob’ El Khali, as they signed a production partnership contract with the former Iraqi regime to develop Al Ahdab field (80,000 barrels per day). They also have a 40% share in Isis field in Tunisia and a 70% share in Adrar gas field in Algeria.
China imports roughly 2.50 million barrels of crude oil per day. The Middle East tops the list of exporters (45%), followed by Africa (29%), Europe (14%), and Asia (12%). Saudi Arabia ranks first among exporters to China (346,000 barrels per day in 2004), followed by the Sultanate of Oman (328,000 barrels per day), and then Angola (325,000 barrels per day).
The success of the Unocal transaction, in case it overcomes all the political barriers (legal), will mark the beginning of a new era in Chinese foreign investments, especially in the United States, where Chinese assets were mainly focused on US Treasury bonds.
The transaction will also mark the beginning of a new era, strategically and economically, for the penetration of Chinese companies into the heart of one of the most important American industries. It will also signify the onset of a long-awaited important presence of Chinese oil in the international scene, especially since China is the second largest crude oil consuming country following the United States. Finally, the deal will open new horizons for a future cooperation between China and oil producing countries, especially Middle Eastern ones, in view of the potential of these countries to provide China with raw material and the promising large markets that China could secure for Middle Eastern oil products.
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