strategic advisors in global energy china’s external energy relations: strategic and corporate...
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Strategic Advisors in Global Energy
China’s External Energy Relations: Strategic and Corporate Dynamics
| Country Strategies Group | Page 2
The Age of Energy Insecurity
Growing sense of global energy insecurity
Potential destabilizing force in global economic and political relations: Industrialized countries question the intentions and
capabilities of the major resource holders
The competition for access to energy resources from the newly industrializing countries in Asia
The major resource holders question the sustainability of demand and the new obligations assigned to them
The populations of the major resource holders demand a greater share of the country’s revenues
| Country Strategies Group | Page 3
The International Architecture
Bush Admin’s Sole Superpower Policy constrained
Return to full scale multilateralist policies unlikely
Uneasy relations due to constraints and dependencies
ChinaEU
USChinaEU
US
EU
US
ChinaEU
US
China
US Hegemony Multilateralism
NationalistConfrontation
NationalistCoexistence
| Country Strategies Group | Page 4
Global Tensions (1)Global Reallocation of Production
Treasury Bonds
China World
Merchandise Exports
United States
Investment
Commodities, Other Inputs
Accommodating the rise of China and India
Industrialized world fears Emerging Market’s quest for energy
| Country Strategies Group | Page 5
Global Tensions (2)National Distribution of Income
Governments IOCs/NOCs
Local Disenfranchised
Groups
Lower Returns
Social
Deman
ds
Revenue
Sharing
Disenfranchised groups want their share
They either capture the state or blackmail companies
Can IOCs/NOCs be promoters of economic development?
| Country Strategies Group | Page 6
EntrepreneurialCapitalist
SocialDemocraticCapitalist
AuthoritarianGlobalizer
PopulistDevelopment
RentierState
EntrepreneurialBureaucracy
StatistBureaucracy
PublicEntrepreneurs
Privatized &Competitive
Façade/NoInstitution
Excluded
TraditionalMonopoly
Oligopoly
LimitedOpening
OpenCompetition
Government NOC IOC Role
DrivingForces
State Types and Implications For NOCs/IOCs
Primary Concern: Efficiency
Primary Concern: Revenue
Primary Concern: Inputs
| Country Strategies Group | Page 7
Excluded
PublicEntrepreneurs
EntrepreneurialCapitalist
SocialDemocraticCapitalist
AuthoritarianGlobalizer
PopulistDevelopment
RentierState
StatistBureaucracy
Privatized &Competitive
Façade/NoInstitution
TraditionalMonopoly
Oligopoly
LimitedOpening
OpenCompetition
Government NOC IOC Role
EntrepreneurialBureaucracy
Oil Sector Gas Sector
China
| Country Strategies Group | Page 8
Time
Pro
du
cti
on
Vo
lum
es
NOCs: What Happens When the Oil Runs Out?Il
lust
rati
ve P
rod
uct
ion
Cyc
le
Key Driver: Risk Management / Business
Development Skills
Key Driver: Asset Management Skills
Key Driver: Risk Management / Business
Development Skills
| Country Strategies Group | Page 9
Industrializing States: Choices For Their NOCs
Resource Needs Create New Imperatives Support industrialization Protect home territory Go overseas and seek new assets Move into domestic gas Reconfigure to accept IOC partnership Be privatized Entirely change their function possibly to
regulator Fail
| Country Strategies Group | Page 10
China: Attempting to Rise Quietly
Iran
SudanTaiwan
Japan
Vietnam
Dragon Zone (Local)
Security issues prevail
Making conciliatory overtures, but…
…Retains serious military option
US actions evaluated case by case
Panda Zone (Global)
Commercial issues prevail
Prefers bilateral deals
No credible military option
General acceptance of US leadership
| Country Strategies Group | Page 11
China: Regional Preferences For Sourcing Oil
Dragon Zone (Local)
Panda Zone (Global)
#1
#2
#5
#4
#3
#6
| Country Strategies Group | Page 12
Discussions with Iran and Iraq
WEPEC w Total
Likely candidate
Heritage strength
Storage
Norway Atlantis Assets
Sinopec
Shengli
With Petrobras
Iran and SA gas
Heritage strength
Shandong
JV w CNOOC
Heritage strength
CNOOC
Not yet
Heritage strength
Indonesia, Australia; LNG
Guangdong
6 or 7 projects
JV w Sinopec
Guangdong
Power Gen in Hainan
SinochemCNPC
Heritage strength
Sudan, Venezuela and Kazakhstan
North and west
Dalian & Guanxi
North and west
Matrix of NOC Functional Capabilities
Onshore
Offshore
Foreign
U/S Oil & Gas
Pipelines
Downstream
LNG
Trading
Chemicals
Other
D/S & Chem.
W to E Gas
| Country Strategies Group | Page 13
Dev
Prod
Expl
Talks
CNPC: Overseas Leader
Sudan—40% working interest in blocks totaling 440,000
b/d
Algeria—75.1% of exploration license agreement of Block 112/102a and
Block 350
Indonesia—Took over Hess’
holdings; seismic and drilling (21 wells) going
on in other blocks
Canada—Oil Sands development
interest; partnership with Enbridge; 200,000
b/d interest
Russia—
In talks over Sakhalin
Kazakhstan—Acquired
PetroKazakhstan; 25% acquisition of Aktobe
fields
Ecuador—Exploration activity
in Block 11
Niger—Exploration
agreement for Block Bilma
Chad—Acquisition of
Block H (Encana assets)
Libya—Block 4 through
EPSA IV
| Country Strategies Group | Page 14
Dev
Prod
Expl
Talks
Sinopec: Early stages of International growth
Algeria—Service contract to
increase oil recovery rate at Zarzataine, near
Hassi Messaoud oil field
Nigeria—Service contract to
develop shallow water OML 64 and 66 in
cooperation with NNPC
Oman—Blocks 36 and 38
Canada—40% Interest Northern
Lights Oil Sands
Russia—25.1% interest in
JV with Rosneft to explore
Veninskoye block, Sakhalin-3
Cote d’Ivoire—27% interest in Block CI-112
Myanmar—Onshore Block D
Saudi Arabia—40k sq kms
exploration contract in Rub Alkhali basin
Iran—
Yadavaran field and LNG imports
| Country Strategies Group | Page 15
Dev
Prod
Expl
Talks
Indonesia— 39.51% interest in 5
blocks42 mboe/d production
US GOM—Planning to bid on
Pioneer’s GOM assets, potential production
40mbbls/d
Offshore China—Bohai Bay
Eastern S. China Sea Western S China Sea
East China Sea
CNOOC: The LNG Leader
Oil Sands—16.69% interest in MEG, which holds oil sands leases
covering 13k hectares
Kenya—Negotiations underway for a PSC for 6 Blocks
Morocco—15% interest in Ras Tefelney deepwater
permit
Algeria—Various blocks
| Country Strategies Group | Page 16
Chinese Energy E & P Interests in Africa
Legend
Holds assets
In negotiations/ energy diplomacy
Nigeria
Algeria Libya
Sudan
Sao Tome Congo Brazzaville
Angola
Gabon
CAR
Morocco
MauritaniaMali Niger
Chad
Kenya
Namibia
Country Note
Algeria
CNPC: Blocks 102a, 112 in Cheliff Basin; Blocks 350, 438b in Oued Mya Basin; various blocks in Adra/Sbaa Basin
CNOOC: various blocks
Sinopec: Zarzaitine license in Illizi Basin; Blocks 416a, 417 in Oued Mya Basin; Blocks 418, 419, 438a Amguid Massaoud Basin
AngolaSinopec: 50% equity in Block 18
Unnamed: JV with Sonangol for Blocks 3/05 and 3/05a
CAR Sinopec: Negotiating for Grynberg Petroleum concession in Doseo and Salamat Basins
Chad CNPC: Equity in H Concession
Congo Brazzaville Sinopec: Awarded Marine XII, Haute Mer B acreage
Equatorial Guinea CNOOC: Block S
Gabon Sinopec: Holds options on 3 offshore blocks; signed TSA on 3 onshore blocks near Port-Gentil
Kenya CNOOC: E&P agreement for 6 blocks in Lamu basin
Libya CNPC: ESPA IV for Block 17-4; 65% stake in Block 20
Mali Sinopec: Exploration agreement on four to five blocks in the Timbuktu and Gao areas of northern desert
Mauritania CNPC: PSA for Block 12, 13 (two areas)
Morocco CNOOC: Exploration agreement for blocks: Missour basin in Boulmane province, Haha basin, two offshore concessions off Agadar
Namibia China Shine: 72% stake in Circle Energy onshore acreage
Niger Sinopec: Exploration agreement on Tenere and Bilma permits
Nigeria
Sinopec: SC for OML 64, 66; interested in JV with NPDC for OML 110 and JV with Amni Co. for OML 112
CNOOC: 45% equity stake in OML 130 (Akpo field)
Sao Tome Chinese government engaged in energy diplomacy
Sudan
CNPC: 40% share of GNPOC (Blocks 1,2, 4); 41% share of Petrodar (Blocks 3, 7); 100% of Block 6; 35% share of Block 15
Sinopec: 6% share of Petrodar (Blocks 3, 7)
Most Extensive Portfolio
Equatorial Guinea
Rogue States
Stranded Basin
Asset Stakes Through Energy Diplomacy
Aggressive Overbidding
| Country Strategies Group | Page 17
Chinese Oil Services/Downstream Interests in Africa
Activity is integrated into the overall Chinese goal of energy security
The companies are able to compete on labor, cost, manufacturing, and increasingly, know-how
This may have implications on host government local content policies (ex. Nigeria)
Nigeria
Algeria Libya
Sudan
Niger
Legend
Holds assets
In negotiations/ energy diplomacy
Country Note
AlgeriaCNPC: 100 kbd refinery project in Sbaa Basin
BGD: CNPC’s seismic affiliate, Algerian seismic work
LibyaUnnamed: Pipeline construction project
BGD: CNPC’s seismic affiliate, Libyan seismic work
Niger BGD: CNPC’s seismic affiliate, Nigerien seismic work
NigeriaCNPC: downstream agreement to refurbish Kaduna refinery
BGD: CNPC’s seismic affiliate, Nigerian seismic work
Sudan
China Petroleum Engineering & Construction: construction branch of CNPC; oil pipeline construction to Port Sudan and oil terminal on the coast; deals worth $405 million
CNPC: pipeline from Al-Fulah field in Block 6 to main pipeline
CNPC/Sinopec: equity in refineries
BGD: CNPC’s seismic affiliate, several projects in Sudan
Where Chinese Oil Companies Go, Their Service Companies Follow
| Country Strategies Group | Page 18
Saudi Arabia:- 13 Agreements
- 2 Projects
- $9.5 billion trade
- Sale of 56 CSS-2 missiles
Iran:
- 7 Agreements
- 4 Projects
- $6.6 billion trade
- Sale of 300 cruise missiles, plus other military hardware
- Transfer of nuclear technology
China’s Energy Diplomacy in the Middle EastCovering All the Bases
Egypt:- 4 Agreements
- 2 Projects
- $1.5 billion trade
- Sale of 50 Silkworms
Iraq:- 0 Agreements (post-
2003)
- 2 Projects (pre-2003); 662 service projects (pre-2003)
- Sale of 150 missiles
UAE:- 10 Agreements- 1 Project- $7.7 billion trade
Oman:- 7 Agreements
- 2 Projects
- $7.7 billion trade
Yemen:- 7 Agreements
- 2 Projects- $2.0 billion trade
Kuwait:- 8 Agreements
- 7 Projects
- $1.2 billion trade
Qatar:- 8 Agreements- 0 Projects- $490 million
trade
| Country Strategies Group | Page 19
S. Aramco
Gazprom/Rosneft
National Asset Holders
Pertamina
NNPC Finance and SecuritySeekers
PEMEX
Who are NOCs?
Resources
Tec
hn
olo
gy
Petronas
StatoilPetrobras
Entrepreneurial NOCs
Expanding ProductionDiminishing Production
Mo
re a
dep
tL
ess
adep
t
Sinopec
CNPC CNOOC
Strategic Resource SeekersONGC LNOC KPC
Technology Seekers
PDVSA
EcopetrolEGPC
Declining NOCs
PTT
Sonangol
NIOC
Sonatrach
QPMarket Seekers
| Country Strategies Group | Page 20
NOC-NOC Relations
Will they succeed? Why should the National Resource Holders share
their rents?
Strategic Resource Seeking NOCs are in best
position to gain access in some areas especially
if they improve their technical skills Unlikely to cooperate on particular deals
unless host governments want that Key Question: Is it going to be material?
Entrepreneurial NOC have the challenge of
distinguishing themselves from the IOCs
| Country Strategies Group | Page 21
Resource Holder Needs and Asian NOC Advantage
Technology Market Money Political CoverSocial
InfrastructureMilitary Sales
Iran LSPM, EOR,LNG Asia Yes China China
Iraq LSPM, IOR, EOR Yes Competing Yes
Canada No
Nigeria LSPM, DW, LNG Yes Yes Anyone
Angola LSPM, DW, LNG, Ref. Yes Yes
Other W. Af. DW Yes Yes
RussiaUS,
ChinaYes
Restore super power status
Kazakhstan China Yes China, US Yes
IndiaLSPM, DW, IOR, gas,
pipelinesYes
Venezuela LSPM, Heavy, LNG Divers. Yes Diversifying Yes Russia, et al
Bolivia LSPM, LNG, pipelines US Yes Yes
Mexico DW, EOR, gas US Yes
Kuwait LSPM, IOR No US, UK
UAE LNG Asia Yes US US
Qatar LSPM, GTL, LNG Divers. Yes US US
Legend:
LSPM = large scale project management
EOR = enhanced oil recovery
IOR = increased iol recovery
DW = deepwater
Heavy = heavy oil
LNG = liquefied natural gas
GTL = gas to liquids
Western IOCs used to ensure Technology, Political Cover and Social Infrastructure spending
for resource holders…
…however, new geopolitical developments weakens the appeal
of the US flag, and resource holders are unsatisfied with
Western IOC approaches to social infrastructure development
Asian NOCs now can provide Markets,
Money and Political Cover for resource holders…however,
Money is the primary advantage
| Country Strategies Group | Page 22
NOC-NOC Relations: Broader Initiatives
Without IOCs and cooperatively
The NOC Forum 4th NOC Forum in November 2006:
23 NOC CEOs will attend Two central themes to be discussed:
How can NOCs meet the HR challenge? Sharing the best practices of the industry
Considerable progress made by 3 task forces
formed at 3rd NOC Forum (July 2005 in Rio) Environmental challenges Monetizing natural gas Technology most needed by NOCs
| Country Strategies Group | Page 23
Resource Holder Needs and IOC Opportunities
Technology Market Money Political CoverSocial
InfrastructureMilitary Sales
Iran LSPM, EOR,LNG Asia Yes China China
Iraq LSPM, IOR, EOR Yes Competing Yes
Canada No
Nigeria LSPM, DW, LNG Yes Yes Anyone
Angola LSPM, DW, LNG, Ref. Yes Yes
Other W. Af. DW Yes Yes
RussiaUS,
ChinaYes
Restore super power status
Kazakhstan China Yes China, US Yes
IndiaLSPM, DW, IOR, gas,
pipelinesYes
Venezuela LSPM, Heavy, LNG Divers. Yes Diversifying Yes Russia, et al
Bolivia LSPM, LNG, pipelines US Yes Yes
Mexico DW, EOR, gas US Yes
Kuwait LSPM, IOR No US, UK US
UAE LNG Asia Yes US US
Qatar LSPM, GTL, LNG Divers. Yes US US
Legend:
LSPM = large scale project management
EOR = enhanced oil recovery
IOR = increased iol recovery
DW = deepwater
Heavy = heavy oil
LNG = liquefied natural gas
GTL = gas to liquids
Entry opportunities will require substantial above-
ground risk toleranceAfrican opportunity set still large, due to relinquished acreage in deepwater;
all need technology, money and social development – commitment to
social development can be an IOC differentiator