2. Content
1. The Big Picture (statistics)
2. Resources & Potential
3. Authorities & Companies
4. Trends and future prospects
3. Source: BP’s Statistical Review of World Energy data
1. The Big Picture
1. The Big Picture 2. Resources & Potential 3. Authorities & Companies 4. Trends and future prospects
4. • Oil, 2011
INTSOK, CIA Factbook (2009 – 2011)
• Natural Gas, 2011
China no. 11China no. 7China no. 4
China no. 2China no. 5China no. 2
1. The Big Picture 2. Resources & Potential 3. Authorities & Companies 4. Trends and future prospects
5. 1. The Big Picture 2. Resources & Potential 3. Authorities & Companies 4. Trends and future prospects
6. 1. The Big Picture 2. Resources & Potential 3. Authorities & Companies 4. Trends and future prospects
China’s natural gas production vs. consumption, 2000 – 2013
Source: www.worldoil.com, US Energy Information Administration (EIA)
7. 1. The Big Picture 2. Resources & Potential 3. Authorities & Companies 4. Trends and future prospects
8. Source: IEA
1. The Big Picture 2. Resources & Potential 3. Authorities & Companies 4. Trends and future prospects
9. Sources: IEA / PetroChina
LNG Terminal
1. The Big Picture 2. Resources & Potential 3. Authorities & Companies 4. Trends and future prospects
2. Resources & Potential
11. Source: CNOOOC, BBC, RT News
Just one problem…
1. The Big Picture 2. Resources & Potential 3. Authorities & Companies 4. Trends and future prospects
12. Source: www.offshore.technology.com, CNOOOC
… that can be avoided
1. The Big Picture 2. Resources & Potential 3. Authorities & Companies 4. Trends and future prospects
Statoil (75 %) / CNOOC (25
%), 1997-2009
13. Haiyang Shiyou (“Marine Oil”) 981 – with Norwegian technology
1. The Big Picture 2. Resources & Potential 3. Authorities & Companies 4. Trends and future prospects
Source: www.chinesedefence.com / CNOOOC
14. Norwegian companies in China with relevance to oils & gas
1. The Big Picture 2. Resources & Potential 3. Authorities & Companies 4. Trends and future prospects
15. The Party (CPC)
State Council (Government, 35 persons)
1. The Big Picture 2. Resources & Potential 3. Authorities & Companies 4. Trends and future prospects
3. Authorities & Companies
State-owned Assets Supervision and Administration Commission (SASAC)
(administrative ownership of all SOEs)
China National Petroleum
Corporation (CNPC)
China Petroleum and Chemical
Corporation (Sinopec)
China National Offshore
Oil Corporation (CNOOC)
Ministry of Land and Resources
(supervise examination, assign licenses etc.)
National Development and Reform Commission (“The Super Ministry”)
(coordinates implementation of all policies from the State Council)
National Energy Agency (NEA)
PetroChina China National Oil and Gas
Exploration and
Development Corporation
(CNODC)
Sinopec Corp. CNOOC Ltd.
CNOOC Offshore Oil
Engineering Ltd.
China
BlueChemicals
Co., Ltd
China Oilfield
Services Ltd.
Sinochem
Zhenhua Oil
Yanchang
CITIC resources
The 3 major NOCs
The 4 minor NOCs
Source: INTSOK, Wikipedia, The Party
16. Sources: CERA / INTSOK /
EEE Reporter/Wikipedia
CNOOC
Sinopec
CNPC/PetroChina
1. The Big Picture 2. Resources & Potential 3. Authorities & Companies 4. Trends and future prospects
17. 1. The Big Picture 2. Resources & Potential 3. Authorities & Companies 4. Trends and future prospects
Source: www.eeo.com
Chinese NOCs abroad (2009)
18. 1. The Big Picture 2. Resources & Potential 3. Authorities & Companies 4. Trends and future prospects
Source: Firmex, mining.com
Chinese Outbound Direct Investments (ODI) 2005 – 2012
19. 1. The Big Picture 2. Resources & Potential 3. Authorities & Companies 4. Trends and future prospects
Source: Firmex, mining.com
Chinese Outbound Direct Investments (ODI) 2005 – 2012
20. 1. The Big Picture 2. Resources & Potential 3. Authorities & Companies 4. Trends and future prospects
Source: Firmex, mining.com
Chinese Outbound Direct Investments (ODI) 2005 – 2012
21. 1. The Big Picture 2. Resources & Potential 3. Authorities & Companies 4. Trends and future prospects
1. China’s petroleum appetite continues to grow
2. China wants to narrow the demand/production gap
3. Acquires technology from foreign companies
a. NOCs invites foreign companies on shale gas and –oil and deep water offshore
4. … and protect its own industry from competition domestically
a. Chinese NOCs run shallow water offshore and traditional onshore alone
5. Shale gas, CCS / CCUS revolution
Source: Worldoil.com
Source: www.cnpc.com.cn / World Energy Outlook 2012
4. Trends and future prospects
CBM = Coalbed Methane Basin
22. 1. The Big Picture 2. Resources & Potential 3. Authorities & Companies 4. Trends and future prospects
4. Trends and future prospects
1. China’s petroleum appetite continues to grow
2. China wants to narrow the demand/production gap
3. Acquires technology from foreign companies
a. NOCs invites foreign companies on shale gas and –oil and deep water offshore
4. … and protect its own industry from competition domestically
a. Chinese NOCs run shallow water offshore and traditional onshore alone
5. Shale gas, CCS / CCUS revolution
6. New shipping routes (LNG)?
Source: www.theregister.co.uk
23. 1. The Big Picture 2. Resources & Potential 3. Authorities & Companies 4. Trends and future prospects
4. Trends and future prospects
1. China’s petroleum appetite continues to grow
2. China wants to narrow the demand/production gap
3. Acquires technology from foreign companies
a. NOCs invites foreign companies on shale gas and –oil and deep water offshore
4. … and protect its own industry from competition domestically
a. Chinese NOCs run shallow water offshore and traditional onshore alone
5. Shale gas, CCS / CCUS revolution
6. New shipping routes (LNG)?
7. China’s NOCs continue to “go abroad”
a. Acquire technology from the West
b. … and utilize it domestically and in Africa
Source: Worldoil.com
Source: www.freeworldmaps.net
Technology
24. 1. The Big Picture 2. Resources & Potential 3. Authorities & Companies 4. Trends and future prospects
Thank you for your attention
China – contacts – oil& gas
Knut.roald.sorlie@innovationnorway.no
Ivar.haugen.moesman@innovationnorway.no
Jian.guo@intsok.com
Hinweis der Redaktion
First of all, to put things in perspective: Coal has long been, is, and will remain China’s most important source of energy in the foreseeable future – primarily for power production and heating. China has the world’s largest coal reserves, and intends to use them for China’s continued economic growth. Because of growing concerns with local pollution and obvious limitations with regards to utilization of coal for transport, the petroleum sector is however growing rapidly.
OilAs the figure shows, and as I’m sure you already know; China is the world’s second largest oil consumer after the US.Many don’t think of China as a big oil producer, when in fact it is as big as Iran. The difference is of course that China consumes most of its own oil, and imports even more.… that you can see here. The numbers here are from 2011. Numbers from December 2012 show that China’s oil import may already have surpassed the US’ (because of increase in China’s demand and increase in US production). China’s oil export in 2011 was less than 10 % of the production, which is around the same volume as the very moderate oil export from countries like Italy, Germany and France.Natural gasAlthough natural gas consumption in China is not as significant as the oil consumption, it is increasing. -Especially in the big cities, where there is a growing concern about air pollution caused by (a.o.) coal combustion, more and more is converted to natural gas.China’s own natural gas production is in fact lower than Norway’s(!), and it almost matches the domestic consumption.Thus, the relative net gas deficit (import) is much lower than for oil, making China a relatively small natural gas importer (no. 11 in the world). The key question however, is whether China’s own production will keep up with the increase in domestic demand? We don’t think so, and China will most likely become the second largest importer of gas/LNG.
Although China’s oil production increases, the consumption increases much more. From being a net exporter in the early 1990s, China currently imports more than half its consumption, which of course is a problem, economically and with regards to national security. The Chinese government is very aware of this, and is working to deal with it.
The trend for natural gas is the same as for oil – only 10 years delayed.
Around half of China’s oil import is from the Middle East, while Africa – especially Angola – is a fast growing source. This is of course linked to China’s strategic relationship with many African countries (leaders), where China is allowed to invest in their own production facilities in exchange for local infrastructure. The strategic partnerships in Africa also represent ways for Chinese NOCs to expand their international presence and experience.As mentioned before; LNG and natural gas is becoming relatively more important in China, as in the rest of the world. From 2010 – 2011, the annual LNG import grew more than 30 %(!), while the oil import grew «only» 6 %. Even so, the energy equivalent of China’s LNG import 2011 was a relatively small proportion of the oil import (ca. 9 %).
Roughly 92 % of Chinese crude import is by Ocean shipping, of which 75 % is shipped by foreign vessels to China. The remaining 8 % is by pipelines and railways from Russia and Kazakhstan.A staggering 83 % is currently transported through the Malacca strait! The planned oil & gas pipeline from harbor in Myanmar to China is a step toward reduced dependency on the Malacca strait.Needless to say, China is trying to reduce its dependency on both its neighbors and “rouge countries” in the Middle-East, by diversifying its trading partners and developing its own production.
Let’s move on to talk more about China’s own resources and the potential for future development. The infrastructure is of course an important factor.As mentioned on the previous slide, part of China’s crude import (ca. 8 %) is through pipes from Russia and Kazakhstan. By now, China has an extensive infrastructure for oil and gas: Around 40 000 km onshore pipelines, more than 3 000 km subsea pipelines, several LNG terminals – and increasing.Although more and more is imported via pipelines from neighboring countries, such as Myanmar, shipping will remain the most important way of transportation.
After 50 years of production, China has enough experience with conventional on-shore oil & gas. Thus, this market is virtually closed to foreign companies. The situation is different when it comes to LNG, deepwater off-shore and unconventional on-shore (shale gas/oil, oil sands), where Chinese companies don’t have the needed technology. Thus, there is a big and growing market for international companies to explore and develop production. A relevant question to ask, though, before entering projects in China is; “how long does it take before your technology has been fully acquired by Chinese companies?”.As you saw in a previous slide, there is no Chinese petroleum import from North America. Instead, Chinese NOCs are acquiring unconventional oil & gas expertise and technology in Canada and the US, in order to apply them in China: In 2012/2013, CNOOC bought Canada’s Nexen Energy for a staggering US$15.1 billion(!), 130 % more than the company’s value according to other potential buyers. By critics, the purchase was seen as a strategic and politically motivated act from the Chinese government as the puppet master, rather a reasonable acquisition from a commercial company. According to the US Energy Information Administration EIA, China has the world’s largest reserves of technically recoverable shale gas, almost 50 % more than the US(!). PetroChina and Shell is currently exploring China’s first shale gas project in the Sichuan basin.The offshore oil/gas industry in China is also developing fast. The Yellow sea, the East China Sea, but especially the South China Sea, are believed to contain big oil & gas reserves. With depths from 300 – 4,000 meters, Chinese companies cannot develop the petroleum sector in South China Sea alone, which opens up for foreign operators and service companies.
However, because of China’s territorial disputes with neighboring countries (in particular Vietnam, Philippines & Japan), there is little accessible and reliable info about the offshore reserves.Just an example: In June 2012, Chinese National Oil Company (NOC) CNOOC published this notification about development of blocks in the South China Sea (SCS). Unsurprisingly, it sparked protests from Vietnamese people and government. Interestingly, China’s claim was that this is an undisputable territory, to which Vietnam’s answer was “Yes indeed, it’s ours!”. It is flawed to see Chinese territorial claims in the SCS as just expressions of economic interests. Regardless of resources, China always prioritizes protection of what it regards as its own territories, and to have buffer zones against what it sees as possible threats from the outside world. So, it also goes the other way: Petroleum resources in SCS represent an opportunity to build up its own presence and infrastructure, and thus safeguard China’s territorial interests. -If only companies will take the bate… Of course; a good advice to any company is to avoid disputed territories.
There are of course already several fields being developed in undisputed Chinese offshore territories in SCS, many of them in cooperation with foreign companies. In fact, Statoil’s (StatoilHydro) first foreign operatorship (75%) (Lufeng 22-1) was conducted together with CNOOC (25 %) in SCS, from 1997 until shut-down in 2009.But of course, now we have other problems (bilateral relationship)…
Another example of success is this one – HaiyangShiyou 981; China’s first deep-water semi-submersible rig for deep-water drilling in the South China Sea. The installation was put into operation summer 2012 and can reach water depth of 3,000 meters. Although it was built in Chinese docks, ca. 70 % of the technology is Norwegian and well known from the North Sea.
Here are the Norwegian companies currently present in the Chinese petroleum market – in one way or another.Kongsberg Oil & Gas Technologies: Specialized in subsea engineering, technology development, data management, simulation etc.Jotun Coatings: Self-explanatory. Have 18 offices and factories all over China.DNV : Specialized in certification and risk management. Offices in Beijing and ShanghaiAker Soutions: Specialized in drilling technologies, subsea operations, loading systems, maintenance etc. and a variety of engineering services. Offices in Beijing, Shanghai, Shenzhen and YichangKværner: Specialized in floating platforms, concrete substructures and LNG-facilities etc. Office in Beijing.Imenco: Specialized in subsea cameras, electronics, tooling & equipment and helicopter refueling systems etc. No offices in China.Clampon: Specialized on sub-sea corrosion-erosion monitoring. No offices in China.Statoil: Have office in BeijingAgility Group: Former Grenland Group. Specialized on semi-submersible rigs. Have offices in Beijing and Shanghai.Nexans: Although this is a French company, cables from Halden, Norway, are used in Chinese sub-sea installations.
There are three major state owned enterprises (SOE) one should notice in China’s petroleum sector, often referred to as the National Oil Companies (NOC). All three are 100 % state-owned and are big conglomerates, with a wide range of activities and subsidiary companies that cover the whole value chain upstream and downstream. Including subsidiaries, the biggest, CNPC, has more than 1½ million employees. The smallest of the three, CNOOC, that has also been mentioned on previous slides, has around 100,000 employees, while Sinopec has 350-400,000 employees.All state owned companies report to SASAC, which is a ministry under the State Council (government). Of other ministries involved in petroleum, especially Ministry of Land and Resources (MLR) and the “Super Ministry” NDRC are worth taking notice of. NDRC is called the “Super Ministry” because virtually all decisions made in State Council goes through NDRC for clarification and to oversee correct implementation in the other ministries. As the authority on licenses for search and drilling, MLR is also very important. Of course, there are also others that play important parts that are not shown here, such as Ministry of Environmental Protection (MEP) and Ministry of Commerce (MOFCOM).All ministries are represented in what is called State Council, which is the closest thing to what we would call the government in Europe. Since this is not a seminar on political science, I’ll skip the details about The Central Committee, The Politbureau, its standing committee and other interesting features of the Chinese government.Important to note, though, is of course that The Communist Party of China is the undisputable authority above all and that all CEOs and deputies in state owned enterprises are appointed directly by The Party’s Central Organization Department(!).The big NOCs have majority ownership in several subsidiaries that are listed on stock markets in Shanghai, Hong Kong, London, New York etc. China’s commercial presence in the outside world is through these companies. According to Wikipedia, CNPC’s subsidiaryPetroChina is the world’s third largest company (2012) in terms of market capitalization (after Exxon Mobil and Apple). As a general rule, CNPC’s business in mainland China is run through PetroChina, while the overseas market is handled by CNODC.
Initially, the 3 big NOCs were set up to divide the Chinese market in three as seen on this picture.However, after China turned away from the Soviet style planned economy in the 1980s, this has changed. Now, the Chinese government wants to see competition between the three, and as a consequence there are many overlapping interests. But of course; the past naturally forms the present, and CNOOC is still virtually the only Chinese NOC in the offshore petroleum industry. Sinopec and CNPC are more in direct competition on land. On upstream activities (drilling) CNPC seems to be the winner of this competition, which has forced Sinopec to focus more on downstream activities (refineries, gas stations etc.). For the typical car driver, Sinopec may seem to be the biggest oil company in China, followed by CNPC, while it is in fact quite the opposite. These companies of course also have interests outside China (next slide…)
I would have liked to show you an updated version of this figure. But as you see, this is from 2009 and no longer valid. For instance; CNOOC’s controversial acquisition of Nexen Energy ($15.1 Bn) in Canada that I mentioned earlier, is not included. Also; Especially in Africa, there a many acquisitions that are not visible in this map.Interestingly though, CNOOC’s purchase of Norwegian Awilco Offshore ($2.5 Bn in 2007) is included. As you probably know, Awilco later changed name to COSL Drilling Europe and is part of China Oilfield Services Ltd (COSL) that is a subsidiary or CNOOC. They currently have several contracts with Statoil in the North Sea.
Since Jiang Zemin’s lateleadership in 1999, China has had a public strategy of “going out” or “going global” that has ever since been supported by the government. But it is really only the last 10 years that Chinese companies have made a big global impact. The increasing Chinese ODIs are targeted more and more on natural resources – to support its own industry. And as this figure shows, energy is the biggest of all. It is of course the 3 big NOCs that drive this development.
Through its flagships, CNPC, CNOOC and Sinopec, China is targeting the world as major commercial player – with political support from its government. This gives Chinese NOCs an advantage over their foreign rivals: It is easier to negotiate with authorities and acquire drilling licenses etc., when Chinese politicians on board can instruct other Chinese state owned companies (SOE) to contribute with building of infrastructure (roads, stadiums and housing) – with Chinese labor.
And as you can see here, Chinese NOCs production in foreign countries is increasing rapidly. This production volume is not available on the international market…
This is partly a summary of what has already been said, that I will try to use to describe the future:This is not a very bold statement, one that everybody agrees on.Another rather obvious result of the first statement. China will try to increase its own production, to reduces its dependency on others.China seems less concerned with its dependency on foreign technology to develop its own production – for one obvious reason; it can be copied. This is however the framework for all foreign business in China: It is an enormous and growing market if you have state of the art technology. And if you are able to protect it and/or are able to stay constantly 5-10 years ahead of those who try to copy, you can make a huge success in China.… but don’t expect to be able to compete on price with Chinese companies that can supply the same technology for traditional recovery. You have to offer something extraordinary.Unconventional oil and gas will become a huge market in China: One in which Chinese companies simply cannot compete with American/European companies for oil and gas recovery technology, and thus has great opportunities for foreign companies. The same is true for deep-water offshore, although not in the same scale when it comes to volumes. CCS in China is referred to as CCUS, where U is for utilization. It is thus regarded as a possible way of enabling more utilization of oil and gas, rather than a way of reducing CO2-emmissions.
In November 2012, the first LNG tanker ("Ob River“) through the Northeast Passage went from Melkøya in Norway to Japan. With continuing melting of Arctic ice, this passage is likely to become increasingly more important. Which of course is good for Norwegian business.
As Chinese companies continues to invest abroad, this “technology leakage” is likely to continue. Although it is tempting to try to stop it, the only alternative then is to not enter the Chinese market – which to many western companies may be an even greater loss.As a result of Chinese NOC’s strategies (and approval from State Council) to go abroad, the competition over African natural resources, such as oil, is notably fiercer and increasing. This in itself is of course a good thing for African countries, if it could only benefit the people and not just the political elite… After suffering great losses in Libya, after the fall of Muammar Gaddafi in 2011, Chinese NOCs and the Chinese government may already be preparing to deal differently with rioting and open discontent in African countries, to protect their own investments. Only time will show how this plays out.