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China is dipping into $2.4 trillion of forex reserves against Indias $250 billion to buy stakes in oil, gas fields

India
Mint - The Wall Street Journal
03/07/2010


CLIM calentamiento global

INDCH política exterior India-China

New Delhi/Hong Kong: Union minister for petroleum and natural gas Murli Deora travelled to Nigeria, Angola, Uganda, Sudan, Saudi Arabia and Venezuela this year, leading a record number of delegations to gain oil for the worlds third fastest growing major economy.

Overseas assets: The Kingfisher well (top), block 3A, jointly owned by Tullow Oil and Heritage Oil at the Lake Albert rift basin in Uganda. Chinas Cnooc is in discussions to buy a one-third stake in three blocks in the region. ONGCs joint bid with IOC and OIL for a stake lost out to the higher Chinese bid. A file photo of oil minister Murli Deora (right) with his Saudi counterpart Ali Al-Naimi in Riyadh. Deora in February persuaded Saudi Arabia to almost double crude shipments to India, to around 800,000 barrels a day. PIB

The flurry of visits is part of a new drive to find oil for Indias 1.2 billion people after losing out to China in at least $12.5 billion (Rs58,250 crore today) of contracts in the past year. India proposed a sovereign wealth fund to bid for reserves, told state-controlled Oil and Natural Gas Corp. Ltd (ONGC) and Oil India Ltd (OIL) to make a major acquisition each this year, and raised the amount they can spend without government approval to Rs5,000 crore.

There is a new push, said N.M. Borah, chairman of state-owned exploration company OIL. Going abroad is part of the governments policydiplomatic support is very, very crucial as we search for assets overseas.

Indias energy use may more than double by 2030 to the equivalent of 833 million tonnes of oil from 2007, while Chinas demand may rise 87% to 2.4 billion tonnes, Paris-based International Energy Agency said.

India faces an uneven contest to close the gap with China, which is dipping into $2.4 trillion of foreign currency reserves to buy stakes in oil and natural gas fields from Iraq to Uganda, compared with Indias $250 billion in foreign exchange reserves. State-run Chinese companies spent a record $32 billion last year acquiring energy and resources assets overseas versus Indias single $2.1 billion investment by ONGC. Chinas 19 June decision to allow the yuan to appreciate will further strengthen the hand of Chinese companies buying overseas.

Indias oil import bill climbed sixfold in the past decade to $85.47 billion for the year ended March, equivalent to about 7% of gross domestic product.

Political game

Indias search for energy has to become a more intense political game, rather than one based entirely on economics, said Abheek Barua, an economist at Mumbai-based HDFC Bank Ltd. China has virtually already taken over Africa.

China has promised billions of dollars in aid, investment and loans to Africa, producer of one-eighth of the worlds crude oil, in exchange for energy supplies.

We buy assets based on commercial decisions even though there is a mandate for securing energy for the country, R.S. Sharma, chairman and managing director of ONGC had said in April. The Chinese are different with their big cash. We cant invest just for the sake of it.

China National Petroleum Corp. (CNPC) beat India by agreeing to pay $4.18 billion in August 2005 for PetroKazakhstan Inc., then Chinas biggest overseas oil deal. At that time, then petroleum minister Mani Shankar Aiyar had said Indias bid for PetroKazakhstan was thwarted as the goalposts were changed after the game began. A month later CNPC again outbid ONGC in buying assets of EnCana Corp. in Ecuador for $1.42 billion.

Stronger yuan

A stronger yuan would also make purchases cheaper for the Chinese. The Peoples Bank of China said on 19 June that it may allow the yuan to move higher, abandoning the 6.83 yuan peg to the dollar adopted during the global financial crisis to shield exporters. The yuan had climbed 0.4% to 6.80 per dollar in the first trading day after the announcement.

India has had some success. ONGC agreed in 2005 to spend as much as $6 billion on roads, ports, railway lines and power plants in Nigeria in exchange for 600,000 barrels a day of oil for 25 years.

In April, Reliance Industries Ltd, operator of the countrys largest gas field, agreed to buy a $1.7 billion stake in natural-gas properties from Atlas Energy Inc. On 24 June it announced a $1.3 billion acquisition of shale gas assets in the US from Pioneer Natural Resources Co.

ONGC, Indian Oil Corp. Ltd (IOC) and OIL were part of a group in March that agreed to develop reserves in Venezuelas Carabobo blocks during a visit by Deora. In February, the minister persuaded Saudi Arabia, the worlds biggest oil exporter, to almost double crude shipments to India, to about 800,000 barrels a day, according to the ministry. State-run Saudi Aramco ships about one million barrels a day to China, more than to the US, chief executive officer Khalid Al-Falih had said 28 January.

More freedom

India increased the amount ONGC and some other state-run firms can spend to acquire assets and set up joint ventures, allowing them greater freedom to expand and become globally competitive, the government had said in December.

One of the advantages the big Chinese oil companies have is government supportits an open secret, said Gideon Lo, an energy analyst at DBS Vickers (Hong Kong) Ltd. The government establishes high-level contacts with oil producing countries. Once this is done, the oil companies can come in and negotiate.

PetroChina Co. Ltd, which vies with Exxon Mobil Corp. as the worlds biggest company by market value, wants half its oil to come from overseas by 2020, chairman Jiang Jiemin had said in March. Less than one-tenth comes from abroad now.

We will take advantage of opportunities in developing oil, gas and energy sources in all areas of the world, Jiang had said in an interview.

Lost out

Cnooc Ltd, the listed arm of Chinas biggest offshore oil producer, is in discussions to buy a one-third stake in three blocks in Ugandas Lake Albert region from Tullow Oil Plc. ONGC had jointly bid with IOC and OIL for the stake and lost out to the higher Chinese bid, a person familiar with the negotiations said, declining to be identified because the talks were private.

China has spent at least $21 billion on overseas resources in the past year, including state-controlled CPCs $4.65 billion purchase in April of a stake in an oil-sands project in Canada. ONGC was interested in the asset, but didnt bid, a person familiar with ONGCs plans said, declining to be identified since the plans were not public.

Financial firepower

ONGC plans to borrow $10 billion over the next decade for purchasing assets overseas. In September, CNPC, PetroChinas state-owned parent, received a $30 billion loan from China Development Bank at a discounted interest rate to buy energy resources, according to a 9 September statement from parent CNPC.

The financial firepower that the Chinese companies have is a factor, Tom Deegan, Hong Kong-based head of energy and infrastructure at lawyers Simmons and Simmons, said. They have access to capital and finance through Chinese banks which have the liquidity, which perhaps Indian companies dont. Deegan has been advising on merger and acquisition deals in Asia for 13 years.

Adding India to the competition may push prices higher for hydrocarbon assets, boosting drilling costs that are already facing an increase in the US after an explosion in April at a BP Plc-leased drilling rig in the Gulf of Mexico released oil that polluted around 225km of coastline.

Chinese premium

Chinese companies always have to pay a slight premium to win oil and gas deals overseas to fend off the competition, said Gordon Kwan, analyst at Mirae Asset Securities in Hong Kong. This is just the tip of the iceberg. With talk of the yuan appreciating, this will increase Chinas purchasing power.

China Petroleum and Chemical Corp., also known as Sinopec Group, agreed to buy a 9% stake in Syncrude Canada Ltd for $4.65 billion, or $650 million more than the high end of an estimate by Macquarie Securities.

Theres a market consensus that perhaps Sinopec overpaid for its stake in oil-sands project in Canada, but this is made on the assumption that oil prices were around $80 a barrel at the time, DBS Vickerss Lo said. The company may be assuming that oil prices will rise to over $100 a barrel and this purchase may turn out to be a bargain.

Oil in New York has risen 0.3% in the past year to $75.62 a barrel. Prices may average $84.50 a barrel in the fourth quarter of this year, according to the median estimate of 30 analysts surveyed by Bloomberg.

Oil prices have tripled in the past 10 years.

Sinopec bought Addax Petroleum Corp. last year for Canadian $8.3 billion (around Rs36,770 crore today), gaining licences in Nigeria, Gabon and Cameroon.

Chinese oil companies also have African assets in Kenya, Niger, Algeria, Equatorial Guinea, Mauritania, Libya, Tunisia, Sudan and Chad.

Replace reserves

Oil companies aim to at least replace used reserves each year by finding new fields. Royal Dutch Shell Plcs shares fell 1.3% after the company announced last year that its reserve replacement ration dropped to 95% from 124% a year earlier.

Chinese and Indian companies are getting into a competitive field and that is driving up asset prices, Neil Beveridge, an analyst at Sanford C. Bernstein Ltd in Hong Kong, who rates PetroChina and Cnooc outperform and ONGC and Reliance market perform. That is why a lot of the companies try and do government-to-government deals. We saw that in the Indian companies getting a deal in Venezuela this year. THE WALL STREET JOURNAL (

El contenido de las noticias que se presentan en esta sección es responsabilidad directa de las agencias emisoras de noticias y no necesariamente reflejan la posición del Gobierno de México en este u otros temas relacionados.

    

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