Is China slowly trying to capture the offshore oil market?

Oil-Platform-ConocoPhillips.jpg

Photo courtesy: ConocoPhillips

China is expanding its offshore oil and gas scene, undeterred by compliance, transparency, corruption or environmental issues that plague so many oil-rich countries. 

Chinese development banks are willing to lend billions to oil-producing countries in Latin America and Africa, and its state-run oil companies are willing to invest in projects others fear to touch. This has led to a massive Chinese footprint offshore, which will eventually translate into formidable geopolitical power, while the West is left behind.  

A quarter of a century ago, China could meet its domestic demand for crude oil through its own production of 4 million barrels per day. Now, its demand is so much more, but China’s domestic production is still just 4 million barrels per day. It is now left to import the remaining 10 million barrels per day. 

In the mid-1990s, the Chinese oil industry underwent a major reform, and the top three state-run oil outfits—The China National Petroleum Corporation (CNPC), The China National Offshore Oil Corporation (CNOOC), and The China National Petrochemical Corporation (Sinopec)—were given ministerial-level status and empowered to head overseas. 

The big three oil producers in China were expected to spend $77 billion on oil developments this year, according to Bloomberg. China’s capex plans, however, suggest that this price tag is mighty fine with them—a justifiable price to pay for oil security.

China’s three main oil giants have been snapping up offshore oil projects for years, even in the years post-$100 oil when everyone else’s belts began to tighten.

In November 2017 three of China’s oil giants, CNPC, CPCC, and CNOOC won three major blocks offshore Brazil. The blocks include Peroba, Alto de Cabo Frio West, and Saphinhoa.  

CNOOC also has 100 per cent working interest in two deepwater projects in Mexico, in the Gulf of Mexico’s oil bl;ocks in particular.

In the United States, CNOOC has assets in Stampede and Appomattox fields in the Gulf of Mexico, the latter of which just recently went into production.  

CNOOC is exploring other offshore areas as well, in both oil and gas, including in the Republic of Congo, in Senegal and Nigeria.

China has also made an offshore foray into Canada, purchasing a few years back Alberta-based Nexen for more than $15 billion.

What’s similar about many of these deals is that China’s deepwater projects are often as part of a consortium. This allows China’s state-run oil giants to glean experience and technical know-how for deepwater drilling, which they can also use back home, where drilling is particularly difficult.

The other similarity is that China seems to have an abundance of cash and is willing to overlook host countries’ lack of transparency and security and corruption issues–finding that oil seems to be worth the risk–at any price.

It is unlikely that China is finished with its offshore oil plans. There is nowhere China won’t go on its oil quest, and there aren’t many competitors big enough — or brave enough — to compete for these risky, high-cost offshore projects unpopular host countries.  Will China find enough oil offshore to feed its 10 million bpd import habit?  

Shekhar Ghosh is consulting editor, Indoasiancommodities.com. He has edited and written for publications like Business India, Business Standard, Business Today, Outlook and many other international publications. He can be reached at shekhar.ghosh@indoasiancommodities.in.

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