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China buying into Syncrude April 28, 2010

Posted by hslu in China, Economics, Energy, Global Affair, Politics.
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In case that haven’t heard of this, ConocoPhillips has just sold its 9.03% interest in the massive Syncrude oil sands project in Alberta, Canada to China’s Sinopec for $4.65 billion.

China in the past several years has been spending billions of its foreign currency reserves to purchase oil fields in foreign countries because China desperately needs foreign energy sources to fuel its staggering economy growth. Their past attempts to buy American oil and gas properties have met stiff resistance from the Congress. This time they struck gold and Canadian government has been willing to grant its approval to deals with China in the past. Some resistances do exist though. Including this purchase, China’s direct investment in Canadian heavy oil and oil sand projects has reached $10 billion.

Syncrude uses surface mining techniques to dig up the Athabasca oil sands, applies steam and hot water to separates the extremely heavy crude called bitumen from sand, and upgrades the bitumen into synthetic crude so that it can be transported through pipelines and refined to gasoline by conventional refineries in Canada and the United States. It currently produces up to 350,000 bbls/day of synthetic crude oil in northern Alberta.

The growth of China’s domestic oil production is limited and, to increase its production, Sinopec and other Chinese national oil companies have to look overseas for opportunities. China’s search has just begun and Canada will be a battle ground between the United States and China for years to come.

Currently Canada is the largest oil exporter to the United States at roughly 2.6 million barrels every day. Mexico is second with 1.1 million barrels per day.

BTW, at current crude oil price of $83.3/bbl, the United States is spending $260 billion every year to buy crude oil from other countries such as Canada, Mexico, Nigeria, Saudi Arabia, Venezuela and Iraq. Of course, the higher the crude oil price, the more you and I have to spend to keep our cars running, our PCs and iPhones working and our A/Cs operating in the Summer.

$260 billion on oil imports every year.

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Battle Field Venezuela January 20, 2010

Posted by hslu in China, Energy, Politics.
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Battle Field Venezuela

Time                               January 2010 and beyond

Prize                               Orinoco Belt Heavy Oil Field

Location of Orinoco Belt Heavy Oil Fields

Players                           USA                            ExxonMobil, ConocoPhillips

China                           China National Offshore Oil Corp., China Petroleum & Chemical Corp.

China National Oil Company

First Quarter

Time:              1990’s

Scores: USA 1,      China 0

Play by Play:               In the 1990’s, ExxonMobil, ChevronTexaco and ConocoPhillips were invited back to Venezuela to jointly develop Orinoco Belt heavy oil field with Venezuela’s national oil company, PDVSA. American oil companies were kicked out of the country in 1976.

Color:                          American companies wanted to get in because Venezuela holds the largest heavy oil resources in the world estimated at 1.2 trillion barrels (with a T.)

Second Quarter

Time:              May 2007

Scores: USA 0,      China 0

Play by Play:               Venezuela under Chávez nationalized its oil industry again and got ride of American oil companies such as ExxonMobil the second time.

Color:                               Exxon didn’t have operation in Orinoco belt prior to its take over of Mobil Oil Corp. in 2000. American oil companies lost billions of their investment and million barrel of oil production from Venezuela. Litigation is in progress in courts. I had worked on Orinoco Belt as well.

Third Quarter

Time:              December 2009

Scores: USA 0,      China 1

Play by Play:               China National Offshore Oil Corp., China Petroleum & Chemical Corp. and China National Oil company signed joint venture deals with PDVSA to develop Orinoco Belt heavy oil and construct refineries to refine oil from the field.

Color:                          Up to 560,000 b/d of oil could head to China in 2010. Billions of dollars will be invested by Chinese national oil companies to secure long-term oil exports to China.

Fourth Quarter

Time:              2010 and beyond

Scores: USA -1?.    China 2?

Play by Play:               Venezuela is America’s third largest oil importer behind Canada and Mexico at 955,000 b/d. Mexico’s production has been in constant decline along with its oil export to the U. S. Where does America get its oil from?

Color:                          Will Venezuela increase its oil export to China while choking back oil export to the U.S.? Chávez hates the U.S.

Please tune in later for the final scores.

Status of Oil Industry in China and Taiwan – Part III September 8, 2009

Posted by hslu in China, Energy, Taiwan.
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Status of Oil Industry in China and Taiwan

Part III

China‘s Oil Companies

China’s petroleum industry was significantly realigned in March 1998. Three national oil companies were created:

  • China National Petroleum Corporation (CNPC) 中国石油天然气集团公司
  • China National Offshore Oil Corporation (CNOOC) 中国海洋石油总公司
  • China Petrochemical Corporation (Sinopec) 中国石油化工股份有限公司

Chinese Oil Industry Status - Sept 2009

Although 51% of these companies are still owned by the Chinese government, the management of these companies has been given the right to make investment decisions and operate as an international oil company under the guidance of Chinese central government.

The ownership of oil and gas reserves was:

Oil Reserve                                          19 billion barrels

CNPC                          70.1%,

Sinopec                    24.2%

CNOOC                       5.3%

Natural Gas Reserves                        60 billion MM cu ft

CNPC                          73.4%

Sinopec                    4.9%

CNOOC                     16.4%

Crude Oil Production                        2.91 MM b/d

CNPC                       66.8%

Sinopec                  22.5%

CNOOC                   10.2%

Natural Gas Production                    212.7 MM cu ft/day

CNPC                      66.4%

Sinopec                  10.6%

CNOOC                    18.2%

Oil Processing Capacity                   226.65 million tons

CNPC                        45.7%

Sinopec                   52%

Ethylene Production Capacity     3.98 million tons

CNPC                        33.5%.

Sinopec                   59%

The primary objectives of the national oil companies are:

  • Maintain production levels from oil fields in Eastern China
  • Achieve steady growth of domestic oil and gas productions
  • Develop oil fields in the western regions
  • Continue the development of offshore fields
  • Develop offshore operation technology and seek foreign partners
  • Seek JV opportunities in Canada, Africa and Central Asian countries
  • Accelerate domestic natural gas utilization

There are serious problems facing China’s oil industry:

  • The exploration and development of oil and gas become more difficult
  • Over-capacity for primary processing of crude oil
  • Development and utilization of natural gas remain at a relatively low level

The following headlines represent the aggressiveness of Chinese national oil companies’ efforts in searching of new oil properties in the world and JV opportunities with other oil companies.

  • China and Qatar sign an 25-year oil/gas agreement; September 2, 2009
  • Sinopec completes China’s biggest foreign takeover of Addax Petroleum; August 18, 2009
  • China Eyes Repsol YPF’s Argentine Unit; August 13, 2009
  • China approves Sinopec takeover of Addax Petroleum; August 12, 2009
  • China’s CNOOC and Sinopec Pay $1.3 Billion for Angola Oil; July 20, 2009
  • BP (BP) and CNPC struck a deal with Iraq’s Oil-Field Auction; June 30, 2009
  • Closer Ties for China and Russia; December 15, 2008
  • China’s Sinopec in Bid for Canadian Oil Company; September 26, 2008
  • Sinopec Acquires Australian Oilfields; March 10, 2008
  • Chavez’s Billion-Dollar Snub of the U.S.; October 02, 2007
  • Third-ranked CNOOC has become China’s boldest energy player; June 20, 2005
  • Primeline and CNOOC Complete ODP for the Lishui Gas Discovery‎
  • Sinopec Actively Seeking Overseas Investments
  • Chevron said to be in talks with China on Aussie LNG

·        CNOOC to Drill 3 Oil Wells in Qatar

These headlines illustrated one central point: China’s quest for oil is unstoppable. China’s national oil companies, backed by massive earnings, are aggressively secure reliable supplies of oil and natural gas around the world reflect just how strong China’s thirst for crude oil has become.

China’s geopolitical strategies are increasingly influenced by the country’s inability to meet its energy needs solely through domestic production. Recently Russian President Vladimir Putin paid a visit to China, during which Chinese President Hu Jintao was expected to press for the swift approval of several proposed billion-dollar, oil-and-gas joint ventures between the two countries, including a pipeline to connect Russia’s oil fields with China’s main domestic distribution network.

China is receiving roughly 50% of its daily crude oil import from Middle East countries. The region’s volatility caused China to establish a strategic oil reserve similar to ones in the United States and Japan. China is aiming to maintain a 30 day’s supply of foreign oil import.

China’s aggressive oil diplomacy and its burgeoning foreign reserve balance are in clear display in Sudan where China has invested $15 billion dollar in the past decade. The country in return is supplying 7% of China’s daily import. Sudan also found itself a friend with a powerful voice in UN.

However, China has a long way to go to achieve its goal of oil independence. In countries like Russia and Kazakhstan, China has to deal with stiff resistance and competition from Japan to persuade these countries to participate in joint ventures. Domestically, Shell, Chevron and Unocal have separately pulled out of JVs with Chinese national companies in pipeline constructions in Western Deserts and drilling in East China Sea. China also couldn’t find any western oil companies to participate in the development of the Tarim Basin, considered the last frontier of great potential in China. The problems include:

  1. The oil is of lower quality
  2. The remote desert region lacks water
  3. There is no infrastructure to move oil to the population centers in the east
  4. It is uneconomical to produce Tarim oil even at $50/bbl.

The bottom line is that China’s thirst for oil imports will keep oil price elevated. Consider this:

China’s oil demand has increased at 7% per year since 1990. At this rate, China will consume 21 million barrels of oil a day by 2024 matching oil consumption by the US today. As it stands now, the oil production is enough to satisfy the increasing demand from China and India for that matter. Because of the global recession, there is even a spare capacity in oil production facilities around the world. What if oil exporting countries can not keep up with the demand due to peak oil or other reasons? What will the price of oil be then?

Oil Industry in Taiwan

Now a few words about Taiwan’s oil industry.

Taiwan imports nearly100% of its oil consumption under the auspices of its national oil company, the Chinese Petroleum Corporation. The company was established in 1946 in Shanghai and moved its headquarter to Taiwan in 1949. It changed its name to CPC Corporation Taiwan 台灣中油 “tai2 wan1 zhong1 you1” on February 9, 2007. The company engages in all aspects of Taiwan’s oil and gas business: exploration, production, refining, transportation, and marketing. For year ended 12-31-2007, the company made $354 million on revenue of $26.62 billion. For 2008, the revenue increased 8.4% yoy but the company suffered a $3.7 billion loss.

CPC Corporation Taiwan has no oil reserves to speak of and is a light weight in the upstream business of exploration and production. It produces 1,300 bbls a day and has drilled only 4 to 5 wells a year since 2006.  Taiwan has to purchase its entire daily oil requirement through long term contracts with oil producing countries, refine it into gasoline and sell the gasoline through 600 gasoline stations in Taiwan. CPC Taiwan also imports significant amount of LNG through a LNG Terminal near Kaohsiung in southern Taiwan.

In Taiwan, CPC continues to conduct seismic testing and geological surveys onshore. There are 44 natural gas wells producing a total of 41 MM cubic feet of gas and about 280 b/d of condensate. Exploration and production efforts offshore Taiwan have largely been unsuccessful.

As of the end of 2008, CPC engaged in JV exploration activities in 13 fields in eight countries such as, Ecuador, Indonesia, Venezuela, Australia, US, Kenya, Libya and Chad.

In light of the improving relationship between China and Taiwan, China’s Sinopec and CPC have agreed to jointly explore gas in a block off northern Australia. Sinopec will sell CPC a 40% stake in a block about 205 miles offshore.

Also in 2008, CPC signed an agreement with CNOOC to jointly explore Tainan Basin in the Taiwan Straits and an offshore basin in Taiwan’s north coast. CPC also received a 30% interest of one of CNOOC’s onshore blocks in Kenya.

In summary, corporation with foreign oil companies will continue but CPC is facing fierce competitions from major oil companies such as ExxonMobil, BP, Shell, CNOOC, etc. Taiwan have to import nearly 100% of its oil and is at the mercy of price fluctuations of the world crude oil market. It is unlikely that the condition will change anytime soon.

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