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China’s External Energy Relations: Strategic and Corporate Dynamics. Presentation at 2005 China Symposium WEAI, Columbia University, New York City by FAREED MOHAMEDI Head, Country Strategies April 21, 2006. The Age of Energy Insecurity. Growing sense of global energy insecurity

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China s external energy relations strategic and corporate dynamics l.jpg

China’s External Energy Relations: Strategic and Corporate Dynamics

Presentation at 2005 China Symposium

WEAI, Columbia University, New York City

by

FAREED MOHAMEDI

Head, Country Strategies

April 21, 2006


The age of energy insecurity l.jpg
The Age of Energy Insecurity Dynamics

  • 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


The international architecture l.jpg
The International Architecture Dynamics

US Hegemony

Multilateralism

  • Bush Admin’s Sole Superpower Policy constrained

  • Return to full scale multilateralist policies unlikely

  • Uneasy relations due to constraints and dependencies

US

US

EU

China

EU

China

Nationalist

Confrontation

Nationalist

Coexistence

US

US

EU

China

EU

China


Global tensions 1 global reallocation of production l.jpg
Global Tensions (1) DynamicsGlobal Reallocation of Production

Treasury Bonds

Investment

United States

World

China

Commodities, Other Inputs

Merchandise Exports

  • Accommodating the rise of China and India

  • Industrialized world fears Emerging Market’s quest for energy


Global tensions 2 national distribution of income l.jpg
Global Tensions (2) DynamicsNational Distribution of Income

Governments

IOCs/NOCs

  • Disenfranchised groups want their share

  • They either capture the state or blackmail companies

  • Can IOCs/NOCs be promoters of economic development?

Lower Returns

Social

Demands

Revenue

Sharing

Local

Disenfranchised

Groups


Slide6 l.jpg

Primary Concern: DynamicsEfficiency

Primary Concern: Inputs

Primary Concern: Revenue

State Types and Implications For NOCs/IOCs

Government

NOC

IOC Role

Entrepreneurial

Capitalist

Privatized &

Competitive

Open

Competition

Social

Democratic

Capitalist

Public

Entrepreneurs

Limited

Opening

Driving

Forces

Authoritarian

Globalizer

Entrepreneurial

Bureaucracy

Oligopoly

Populist

Development

Statist

Bureaucracy

Traditional

Monopoly

Rentier

State

Façade/No

Institution

Excluded


Slide7 l.jpg

China Dynamics

Government

NOC

IOC Role

Entrepreneurial

Capitalist

Privatized &

Competitive

Open

Competition

Social

Democratic

Capitalist

Public

Entrepreneurs

Limited

Opening

Authoritarian

Globalizer

Entrepreneurial

Bureaucracy

Oligopoly

Populist

Development

Statist

Bureaucracy

Traditional

Monopoly

Rentier

State

Façade/No

Institution

Excluded

Oil Sector

Gas Sector


Nocs what happens when the oil runs out l.jpg
NOCs: What Happens When the Oil Runs Out? Dynamics

Key Driver: Risk Management / Business Development Skills

Key Driver: Risk Management / Business Development Skills

Key Driver: Asset Management Skills

Illustrative Production Cycle


Industrializing states choices for their nocs l.jpg
Industrializing States: Choices For Their NOCs Dynamics

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


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China: Attempting to Rise Quietly Dynamics

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

Japan

Iran

Taiwan

Sudan

Vietnam


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China: Regional Preferences For Sourcing Oil Dynamics

#5

#1

Dragon Zone(Local)

Panda Zone(Global)

#4

#6

#3

#2


Slide12 l.jpg

CNPC Dynamics

Sinopec

CNOOC

Heritage strength

Shengli

Not yet

With Petrobras

Heritage strength

Norway Atlantis

Assets

Sudan, Venezuela and Kazakhstan

Discussions with Iran and Iraq

Indonesia, Australia; LNG

Iran and SA gas

North and west

Heritage strength

Guangdong

WEPEC w Total

North and west

Heritage strength

Guangdong

Dalian & Guanxi

Shandong

6 or 7 projects

Likely candidate

JV w CNOOC

JV w Sinopec

Heritage strength

Power Gen in Hainan

Storage

Matrix of NOC Functional Capabilities

Sinochem

U/S Oil & Gas

Onshore

Offshore

Foreign

Pipelines

W to E Gas

D/S & Chem.

Downstream

Chemicals

LNG

Trading

Other


Slide13 l.jpg

CNPC: Overseas Leader Dynamics

Algeria—

75.1% of exploration license agreement of Block 112/102a and Block 350

Canada—

Oil Sands development interest; partnership with Enbridge; 200,000 b/d interest

Russia—

In talks over Sakhalin

Libya—

Block 4 through EPSA IV

Kazakhstan—

Acquired PetroKazakhstan; 25% acquisition of Aktobe fields

Prod

Niger—

Exploration agreement for Block Bilma

Dev

Expl

Talks

Chad—

Acquisition of Block H (Encana assets)

Ecuador—

Exploration activity in Block 11

Sudan—

40% working interest in blocks totaling 440,000 b/d

Indonesia—

Took over Hess’ holdings; seismic and drilling (21 wells) going on in other blocks


Slide14 l.jpg

Sinopec: Early stages of International growth Dynamics

Algeria—

Service contract to increase oil recovery rate at Zarzataine, near Hassi Messaoud oil field

Canada—

40% Interest Northern Lights Oil Sands

Russia—

25.1% interest in JV with Rosneft to explore Veninskoye block, Sakhalin-3

Prod

Dev

Oman—

Blocks 36 and 38

Myanmar—

Onshore Block D

Expl

Talks

Iran—

Yadavaran field and LNG imports

Saudi Arabia—

40k sq kms exploration contract in Rub Alkhali basin

Cote d’Ivoire—

27% interest in Block CI-112

Nigeria—

Service contract to develop shallow water OML 64 and 66 in cooperation with NNPC


Slide15 l.jpg

CNOOC: The LNG Leader Dynamics

Algeria—

Various blocks

Morocco—

15% interest in Ras Tefelney deepwater permit

Offshore China—

Bohai Bay

Eastern S. China Sea

Western S China Sea

East China Sea

Oil Sands—

16.69% interest in MEG, which holds oil sands leases covering 13k hectares

Prod

Dev

Expl

US GOM—

Planning to bid on Pioneer’s GOM assets, potential production 40mbbls/d

Talks

Kenya—

Negotiations underway for a PSC for 6 Blocks

Indonesia—

39.51% interest in 5 blocks

42 mboe/d production


Chinese energy e p interests in africa l.jpg
Chinese Energy E & P Interests in Africa Dynamics

Morocco

Rogue States

Algeria

Libya

Mauritania

Mali

Niger

Stranded Basin

Chad

Sudan

Nigeria

CAR

Equatorial Guinea

Asset Stakes Through Energy Diplomacy

Sao Tome

Congo Brazzaville

Kenya

Gabon

Angola

Aggressive Overbidding

Namibia

Legend

Holds assets

In negotiations/ energy diplomacy

Most Extensive Portfolio


Chinese oil services downstream interests in africa l.jpg
Chinese Oil Services/Downstream Interests in Africa Dynamics

  • 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)

Algeria

Libya

Niger

Sudan

Nigeria

Where Chinese Oil Companies Go, Their Service Companies Follow

Legend

Holds assets

In negotiations/ energy diplomacy


Slide18 l.jpg

China’s Energy Diplomacy in the Middle East DynamicsCovering All the Bases

  • Kuwait:

  • 8 Agreements

  • 7 Projects

  • $1.2 billion trade

  • Iran:

  • - 7 Agreements

  • - 4 Projects

  • $6.6 billion trade

  • Sale of 300 cruise missiles, plus other military hardware

  • Transfer of nuclear technology

  • Iraq:

  • - 0 Agreements (post-2003)

  • - 2 Projects (pre-2003); 662 service projects (pre-2003)

  • Sale of 150 missiles

  • Egypt:

  • - 4 Agreements

  • - 2 Projects

  • $1.5 billion trade

  • Sale of 50 Silkworms

  • Qatar:

  • - 8 Agreements

  • - 0 Projects

  • $490 million trade

  • UAE:

  • - 10 Agreements

  • 1 Project

  • $7.7 billion trade

  • Saudi Arabia:

  • - 13 Agreements

  • - 2 Projects

  • $9.5 billion trade

  • Sale of 56 CSS-2 missiles

  • Oman:

  • - 7 Agreements

  • - 2 Projects

  • $7.7 billion trade

  • Yemen:

  • - 7 Agreements

  • - 2 Projects

  • $2.0 billion trade


Who are nocs l.jpg
Who are NOCs? Dynamics

National Asset Holders

S. Aramco

More adept

Entrepreneurial NOCs

Gazprom/Rosneft

Petronas

KPC

Pertamina

PDVSA

EGPC

NNPC

LNOC

Statoil

PTT

Sonangol

Sonatrach

Petrobras

CNOOC

PEMEX

CNPC

QP

Market Seekers

ONGC

Sinopec

NIOC

Strategic Resource Seekers

Technology Seekers

Ecopetrol

Less adept

Finance and Security

Seekers

Declining NOCs

Diminishing Production

Expanding Production

Technology

Resources


Noc noc relations l.jpg
NOC-NOC Relations Dynamics

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


Resource holder needs and asian noc advantage l.jpg
Resource Holder Needs and Asian NOC Advantage Dynamics

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

Asian NOCs now can provide Markets, Money and Political Cover for resource holders…however, Money is the primary advantage

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


Noc noc relations broader initiatives l.jpg
NOC-NOC Relations: Broader Initiatives Dynamics

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


Resource holder needs and ioc opportunities l.jpg
Resource Holder Needs and IOC Opportunities Dynamics

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 tolerance

African 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


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