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China fuels up for future with record oil and gas spend

by: Juliet Samuel
From: The Times
December 31, 201211:07AM


China is buying up oil and gas assets at a record pace after ten years of meteoric economic growth. Source: Supplied


CHINA is buying up oil and gas reserves across the world at an unprecedented pace.

Figures for 2012 show the world's second-biggest economy unleashed its spending power on energy assets this year, spending a record $US35.7billion. The figure includes oil and gas prospects and assets further down the supply chain, such as refineries.

But it excludes the investment China will have to make to increase production, estimated to be billions more.

Among the assets China has bought are two companies with large blocks of the British North Sea, Nexen and Talisman. The purchase of Nexen alone, which also owns tar sands in Canada, accounted for $US18bn of China's spending.

China's three state-controlled oil giants -- PetroChina, Sinopec and CNOOC -- have also bought fields in Nigeria, Australia, Gabon and Saudi Arabia. Divestments by some of the large Western oil companies is making their task easier, as it cuts competition for assets.

The total China spent this year compares with only $US19.1bn last year, according to data from Dealogic. The previous record was in 2010, when China's oil companies bought assets worth $US25.7bn.

Much of the buying can be explained by China's growing appetite for oil after ten years of meteoric economic growth. But some of the assets it has bought are too far from mainland China to feed the country's economy directly.

Instead, observers believe Beijing is buying oil assets partly to diversify its investments and to acquire valuable new technology, particularly in so-called "unconventional" oil and gas extraction, such as very deep water drilling, tar sands and shale.

"The Chinese have substantial domestic production, most of which comes from conventional developments, but those opportunities are diminishing in the wider world and new resources are much more technically challenging," Simon Flowers, head of corporate analysis at Wood Mackenzie, said.

"Acquiring technical skills internationally will be a key part of unlocking their shale resources domestically."

Buying oil and gas assets also provides a buffer for China's economy. If energy prices rise, the oil-hungry Chinese Government will pay more but will at least benefit from greater revenues from its oil companies.

For Britain, China's interest in the North Sea is providing a new source of investment at a time when traditional European financing sources are drying up.

Tony Craven Walker, an oil entrepreneur who is chairman of Serica Energy, said: "There are fields being developed at the moment that it's very hard to find the financing for -- there's a shortage of funds here. The state-backed organisations have an advantage because their capital is cheaper and there's more of it."

Britain has taken a relaxed approach to Beijing's acquisitions so far, but China's buying spree has sparked some worries in other countries. Canada has warned Beijing's oil giants against attempting any more outright takeovers and Stephen Harper, the Prime Minister in Ottawa, has said Nexen will be the last one waved through.

Other Asian state-owned oil groups have spent $US9bn on oil and gasfields and exploration projects this year. That was triple the total for 2011, according to Wood MacKenzie, but excludes facilities such as refineries and liquid natural gas plants.

With the International Energy Agency estimating the world will need $US15 trillion of new investment in oil and gas by 2035 to keep up supply, Asia's billions are likely to be welcomed by many investment-hungry governments.