ENERGY-CHINA: On Oil Shopping Spree

• by Antoaneta Bezlova (beijing)
• Sunday, March 01, 2009
• Inter Press Service

'The success of this type government-to-government energy deals is setting the scene for more top leadership involvement in future energy diplomacy,' says Wu Jiandong, energy analyst and advisor to the ‘China Reform’ magazine.

'With the crisis predicted to last between three to five years, we expect to see more countries signing such long-term resources deals with China,'' Wu said.

In the past few weeks Chinese leaders have concluded oil supply deals with Russia, Brazil and Venezuela, worth more than 41 billion US dollars. Even more remarkably, all deals were sealed by top Chinese leaders.

During vice-president Xi Jinping’s tour of major oil producers in Latin America last month, Venezuela got a six billion dollar loan from China and agreed to increase its oil exports to the country. In Brazil, Xi signed a 10 billion dollar 'loan-for-oil' deal with Petrobras that guarantees China up to 160,000 barrels a day at market prices.

A separate 'loan-for-oil' deal with Russia was sealed by Premier Wen Jiabao during meetings with his Russian counterpart in Beijing. The deal provides Russia’s oil giant Rosneft and its oil pipeline company, Transneft, with a 25 billion dollar loan in exchange for 15 million tonnes of oil a year for 20 years.

The deal with Russia comes after nearly 15 years of negotiations between Beijing and Moscow to extend a key oil pipeline from Siberia to northeastern China. Playing China against Japan in a game of waiting for the best opportunity to sell its crude, Moscow protracted on giving the nod for the construction of a branch link of the pipeline to the Chinese border.

But Chinese president Hu Jintao’s recent visit to Saudi Arabia - China’s biggest oil provider - has underscored Beijing’s determination to use more high-power energy diplomacy to secure its long-term oil supplies, according to observers here.

'President He’s visit to oil-rich Saudi Arabia and Beijing’s’ decision to divert some of its foreign reserves to procure overseas oil assets must have alerted Russia to the fact that things have changed and China is no longer prepared to wait,' Wang Lijiu with the China Institute for Contemporary International Relations told the China Business Journal.

China’s drive to secure hard energy bargains is enfolding against the backdrop of continuing slide in global growth, which has driven oil prices from a peak of 145 dollars a barrel in mid-2008 to a low of 40 dollars a barrel today. Moreover, falling profits and the credit crunch have made once wary foreign corporations and governments more appreciative of advances by cash-rich Chinese companies.

'This is a window of opportunity for China’s energy diplomacy that we cannot afford to miss,' says Wang Xia, energy expert with China Petroleum University. 'If we wait until economic recovery pushes oil prices up again, it would be much more difficult to secure long-term deals'.

Appreciative of the crisis as an opportunity, the National Energy Administration has agreed to the establishment of a special fund for China’s state-owned oil companies to go on a shopping spree for overseas crude reserves. The recipients of the state largess are China’s three oil giants - China National Offshore Oil Corp.(CNOC), China National Petroleum Corp. and Sinopec.

Allocating a portion of China’s nearly two trillion dollars in foreign-exchange reserves will provide these companies with low-interest loans and direct capital injections to fund their purchases of foreign oil assets.

But that may ring alarm bells overseas, giving rise to charges that Chinese state subsidies are outfitting oil companies with advantages over their western competitors.

In 2005 such worries derailed CNOC’s attempts to buy the US oil firm Unocal even though it outbid its competitor Chevron. Political pressure in Washington eventually forced the Chinese company to withdraw its bid.

But the spread of the financial crisis and its pronounced impact on developed economies has changed perceptions, according to international trade analyst Tong Lixia. 'The possession of huge foreign reserves in the current credit crunch has given China a much better bargaining position,' she says.

With prices of other key industrial commodities reduced by the crisis too, China has been scouring the globe to secure not just oil reserves but other natural resources as well.

In February the state-owned aluminium producer Chinalco announced an additional 19.5 billion dollars as investment into Rio Tinto, an Anglo-Australian miner with large iron-ore, copper and aluminium assets. Days later, the state-owned trading house Minmetals, made a1.7 billion dollars takeover bid for the debt-laden OZ Minerals, an Australian company that is a major producer of zinc.

Some analysts have suggested that apart from snapping up resources, Chinese firms should make use of the crisis to bid for acquiring valuable technologies and overseas brands.

Li Caokui, director of the Centre for China in the World Economy at Tsinghua University, believes struggling U.S. auto makers and some of the cash-strapped European car producers would be on the list of China’s next acquisition targets.

© Inter Press Service (2009) — All Rights ReservedOriginal source: Inter Press Service

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