Energy Diplomacy By China


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diplomatic approach of china to grab world energy resources.

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  • CNOOC: China National Offshore Oil Corporation (CNOOC), founded in 1982.Sinopec: China National Petrochemical Corporation (Sinopec), established in 1983.CNPC: The China National Petroleum Corporation (CNPC), created from the Ministry of Petroleum Industry in 1988.
  • However, Angola has now overtaken Saudi Arabia as the largest oil exporter to China. China has cut imports from Saudi & Iran, and raised imports from African states like Libya & Angola, and smaller middle east producers like Kuwait & Iraq.
  •  Until 2003, India’s international spending on oil rights was mere $3.5 billion against over $40.0 billion by CNPC of China.
  • Supported iran in IAEA against other nations
  • The world is in the middle of a boom in demand for natural gas, and Iran happens to be sitting on one of the largest undeveloped reserves in the world - the offshore South Pars field. Tehran has carved the reserve into more than two dozen blocks or "phases", which it offers to foreign partners for development. On February 11, Reuters reported that China National Petroleum Corporation (CNPC) had "clinched" its deal for Phase 11 and would begin exploratory drilling in March. The $4.7 billion investment, combined with on-shore crude and refining projects, would give CNPC a total exposure of $10 billion inside Iran. Meanwhile, India is moving more cautiously to finalize a deal with Iran to participate in a 40% share in Phase 12 production and 20% in the related onshore liquefied natural gas (LNG) facility.
  • India has the option to raise its investment in South Pars. For every extra dollar investment, India will get a right in the downstream LNG projectIran may also help Indian companies raise funds for the projects, with NaftiranIntertrade [an arm of the National Iron Oil Co] depositing its foreign exchangewith Indian banks. These deals have a definite diplomatic value to Tehran, as they increase the stake of key Asian players in the continued viability of the current Iranian regime. As an alternative to the IPI line, Indian promoters proposed a consortium called "SAGE" or South Asia Gas Enterprise, a deep-sea pipeline envisioned as India's geopolitical game-changer. It would draw on supplies from all the major players - Qatar, Iraq and Iran -and carry natural gas from Oman to western India at depths of as much as 3,500 meters. The cost of this unprecedented effort was budgeted at a suspiciously inexpensive $3 billion (almost as cheap as the downsized, overland IP pipeline, which came in at $2.538 billion in its final form)
  • An Iran-Pakistan-China pipeline would not come without its drawbacks, however — the greatest ofwhich stems from Pakistan's internal instability. A pipeline route from Iran to China most likely wouldenter Pakistan in the southwestern region of Balochistan and pass northward across Punjab into t henon-Pashtun (eastern) areas of the North-West Frontier Province through the Federally AdministeredNorthern Areas, and then into Chinese-held areas of Kashmi r. This route would avoid the Pashtunareas, where there is a jihadist insurgency under way, but it still would be vulnerable to attacks bytribal ethno-nationalist Baloch insurgents. It should be kept in mind, however, that the Pakistani statehas cracked down harder on the Balochis than on the jihadists, which has limited the former to a lowintensityinsurgency.
  • CNPC will offer US$55.00 per share in cash for all outstanding common shares of PetroKazakhstan.CNPC and Kazmunai signed an agreement to buy a stake together in Kazakhstan-based MangistauMunaiGas from Indonesia's Central Asia Petroleum Ltd.
  • In Apr 2002, there was a failed Venezuelan coup attempt that lasted 47 hours;President Hugo Chávez was illegally detained by the military, the National Assembly and the Supreme Court dissolved, and the country's 1999 Constitution declared void;Pedro Carmona was installed as interim president and US gave recognition to the government;Pro-Chávez Presidential Guard retook the Miraflores presidential palace leading to the collapse of the Carmona government and the re-installation of Chávez as president;After returning to power, Chávez claimed that a plane with U.S. registration numbers had visited and been berthed at Venezuela's Orchila Island airbase, where Chávez had been held captive.
  • Whole Foods, the high-end organic grocery chain, and retailer Bed Bath & Beyond last week both signed up to a campaign by ForestEthics to stop US firms using oil from Canadian tar sands. The Pentagon is also scaling down its use of tar sands oil to meet a 2007 law requiring the US government to source fuels with lower greenhouse gas emissions.Major oil companies such as Shell are also coming under shareholder pressure to pull out of the Canadian projects. Earlier this year, Shell announced it was scaling back its expansion plans for the tar sands after a revolt by shareholders. Producing oil from the Alberta tar sands causes up to five times more greenhouse gas emissions than conventional crude oil, according to the campaign group Greenpeace.China's growing investment in the tar sands is seen in Canada as a useful counter to waning demand for tar sands oil from the US, its biggest customer. The moves, which have largely gone unnoticed outside north America, could add further tension to efforts to try to reach a global action plan on climate change.An agreement has been signed between PetroChina and Enbridge to build a 400,000 barrels per day (64,000 m3/d) pipeline from Edmonton, Alberta, to the west coast port of Kitimat, British Columbia, to export synthetic crude oil from the oil sands to China and elsewhere in the Pacific , plus a 150-million-barrel-per-day (24,000,000 m3/d) pipeline running the other way to import condensate to dilute the bitumen so it will flow. Sinopec, China's largest refining and chemical company, and China National Petroleum Corporation have bought or are planning to buy shares in major oil sands development.
  • The future of northern Alberta's aspen and pine woods, its rivers and animals are in doubt as the world's greatest modern oil rush accelerates. Shell, Chevron, Exxon, Total, Occidental, Imperial and most other oil majors have so far invested nearly $100bn Canadian dollars (£50bn) in the 1,160 square mile (3,000 square kilometre) "bitumen belt", which is being called the "new Kuwait".The companies are now mining 1.3m barrels a day of heavy crude oil from the sands, which are saturated with bitumen. But they expect to spend another £50bn to more than double production to 3.5m barrels by 2011. The surge is expected to attract 100,000 more workers to the northern wilderness where the wolf and bear are still common.And that would just be the start. By 2030 they plan to produce at least 5m barrels a day, and export more than Nigeria, Venezuela or Norway, which would make Canada one of the world's largest oil producers.If the oil price stays high and new technology permits, oil companies will move, with the Canadian government's blessing, to extract the estimated 180bn barrels of crude to be found far deeper under 140,000 sq km of Alberta in what are the world's largest proven oil deposits after Saudi Arabia.
  • Energy Diplomacy By China

    1. 1. China’s Energy Diplomacy<br />
    2. 2. China’s Rise<br />Third largest economy after US, Japan<br />Grew 8.7% in 2009<br />Consumes 17% of world’s energy but owns not enough energy assets & resources<br />
    3. 3.
    4. 4. Decade Wise Transition<br />1950-mid 60’s:<br />Refined oil imports from Soviet Union;<br />Soviet advisors in China oil industry;<br />Mid 60’s-1980:<br />Daqing reserves found;<br />Oil exporters;<br />Policy of petroleum-led export growth;<br />1980-1990:<br />Energy security, a rising concern;<br />CNOOC, Sinopec and CNPC established for investment in overseas oil project;<br />
    5. 5. 1990-2000:<br />Local requirements began to outstrip production;<br />Efforts to diversify its energy resources;<br />CNPC, CNOOC began investing abroad;<br />China on exploration and reserve buying spree, undergone major deals with Iraq, Angola, Kazakhstan, Sudan, Venezuela and many other countries;<br />2000-till date:<br />Started providing military and economic support;<br />Effort to secure Energy assets & transit routes<br />Planned diplomatic strategies to gain access to world oil reserves;<br />Using its financial muscle, underwent major loan-for-oil deals with Russia, Kazakh, Venezuela and Brazil.<br />Decade Wise Transition<br />
    6. 6. Current Status<br />Proven Crude Oil reserves (2009) – 16 billion barrels , Saudi Arabia has 266.71<br />Proven Natural Gas reserves (2009) – 80 trillion cubic feet, Russia has 1680<br />Consumption was 7.8 million barrels a day, out of which 4.1 were imported<br />
    7. 7. China’s increasing demands<br />
    8. 8. Chinese oil reserves<br />
    9. 9. China’s Crude Imports:<br />
    10. 10. Energy Diplomacy<br />In order to pursue Energy Diplomacy, China uses tools that are <br />Diplomatic<br />Diplomatic support (like using the Veto) to a stranded state, examples are Iran, Myanmar & Sudan;<br />Military<br />Export or exchange of military hardware & training in exchange of rights over energy assets , examples are Myanmar, Africa;<br />Economic<br />Giving massive economic aid & dangling the carrot of investments.<br />
    11. 11. China’s presence:<br />Middle East<br />Africa<br />America<br />Rest of Asia<br />Australia<br />
    12. 12. GCC<br />GCC has 6 countries: Saudi Arabia, United Arab Emirate, Kuwait, Oman, Qatar and Bahrain<br />China is trying to sign FTA with GCC since 2004<br />FTA is based on synergizing Chinese expertise and technology and Gulf capital to establish major companies in China<br />The companies will then help Gulf projects involving infrastructure, power generation, transport, railways and electricity generation<br />In return GCC nations will freely flow their oil reserves in China<br />
    13. 13. Kuwait<br />Post 1991 war Kuwait bought $186 million of 155mm howitzers from China rather than Britain or the United States.<br />China forced Kuwait to engage in the $300 million purchase, in return to its support at the UN for extending trade sanctions against Iraq.<br />It was just a pass to enter another energy rich nation.<br />
    14. 14. Iraq<br />Politically Unstable nation<br />Second largest oil-reserves in world<br />Anti American View<br />Military Support:<br />Supplied arms during the first gulf war.<br />PRC helped develop Iraq's fibre optic cables beneficial for modernizing Iraq's air defence system<br />
    15. 15. Political Support:<br />UN post sanctioned on Iraq after the war, which were relaxed in late 1990’s, on China’s pursuance<br />Beijing reopened its embassy in Baghdad on July 9, 2004, that had been closed after the U.S.led attack on Saddam's regime in March 2003<br />Economic Support:<br />China was first one to enter Iraq via signing a contract with Iraq to develop the Al-Ahdab oil field and began negotiating for the Halfayah field in 1998<br />China pledged US$25 million of humanitarian assistance to Iraq in 2003<br />Chinese Zhongxing Telecom Company signed a contract with Iraq’s Interim Ministry of Communication to supply telecommunications equipment with total value over US$5 million in 2004<br />
    16. 16. Iran<br />Has 136 bb of proven Oil reserves & 991 tcf of Natural Gas reserves<br />Geographically closer to China<br />Currently, third largest supplier of Oil to China & supplies 12% of China’s annual consumption<br />In 2004, China’s CNPC signed a 25 year contract to supply 110 million metric tons of Gas<br />
    17. 17. Sinopec signed another deal worth $100 billion to supply an extra 250 million tons of LNG to China<br />Several deals have been signed since then which include the rights to develop the South Pars oil field & projects to develop oil refineries in Iran<br />Already China is in talks for inclusion in the IPI pipeline<br />
    18. 18. Energy Diplomacy - Iran<br />Diplomatic <br />China has vetoed successive attempts at UNSC to slap sanctions<br />Been among the few diplomatic backers of Iran at a time when its stranded in no man’s land.<br />Military<br />China has provided Iran with an array of military hardware ranging from small arms, assault rifles to main battle tanks, frontline fighter aircraft and sophisticated missile technology<br />Provided blueprints of Uranium enrichment plant & exported Uranium to Iran<br />
    19. 19. Economic<br />China has become Iran’s top trading partner after an earlier round of sanctions<br />China has invested hugely in Iran, building refineries & other infrastructure<br />
    20. 20. IPI- Gas Pipeline<br />China, like India, relies on ocean shipments of Qatar LNG for the bulk of its natural gas needs for sound economic reasons. <br />China is particularly keen on securing energy supplies which can be shipped over land routes, since supplies shipped over water are much easier for the US to interrupt<br />While Western attention was focused on Saudi Arabia's possible provision of energy guarantees to China in return for a "yes" vote on Iran sanctions, Iran was working to leverage its natural gas reserves into economic alliances with China, India and Pakistan. <br />
    21. 21. The IPI project was conceived in 1995 and after almost 13 years India finally decided to quit the project in 2008.<br />India had not proceeded with the 2,775 km trilateral pipeline on issues pertaining to security and hefty transit fee asked by Pakistan. <br />Pressure from Washington to suspend ties with Iran is also cited as a reason<br />With the departure of India from the IPI consortium and the imposition of relentless US pressure, both Iran and Pakistan are feeling the lack of a partner with international financial and diplomatic muscle. Unsurprisingly, there is interest in China replacing India in the project<br />
    22. 22. China has reportedly said that it will join Pakistan and Iran in a proposed natural gas pipeline project if India bows out<br />China has the wherewithal as well as the political will to “replace” India in the IPI pipeline. <br />Pakistan has presented a proposal to China asking it to join the $7.5-billion Iran-Pakistan- India (IPI) gas pipeline project if New Delhi pulls out of the venture, to which Iran has no objection<br />
    23. 23. Myanmar<br />Myanmar is rich in oil & has SE Asia’s largest gas reserves (estimated at around 90 tcf) that are world’s tenth largest<br />Myanmar gives China access to the Indian Ocean, for imports of oil and gas and exports from landlocked South-western Chinese provinces<br />Strategically important since it can allow China to bypass the vulnerable Malacca Straits<br />
    24. 24.
    25. 25.
    26. 26. Efforts are underway to build a 480 mile oil pipeline & later a gas pipeline through Myanmar<br />There are also plans for a 1,400-mile oil and gas pipeline that connects China's landlocked Yunnan Province to Myanmar's Indian Ocean coast<br />China has also taken a keen interest in the recent Gas discoveries in the Bay of Bengal<br />
    27. 27. Energy Diplomacy - Myanmar<br />Follows the Iran Model<br />Diplomatic<br />One of Myanmar’s few diplomatic backers since West imposed sanctions against the military regime in 1988 following a crackdown on pro-democracy demonstrators.<br />Provided protection at the UN, vetoed resolutions backed by the US <br />
    28. 28. Military<br />China is the most important supplier of military aid and maintains extensive strategic and military cooperation including training<br />Has delivered billions of dollars worth of military equipment to Myanmar which has facilitated the growth in the strength of the military regime<br />Energy Diplomacy - Myanmar<br />
    29. 29. Economic<br />Beijing has invested heavily in Myanmar, financing roads, railways, airports and ports<br />China is officially Myanmar’s third-largest trading partner <br />Largest foreign investor<br />Gives huge economic aid & soft loans to Myanmar - $180 million in 1998 when Myanmar faced a debt crisis, $200 million in 2003 & another $200 million in 2006<br />Energy Diplomacy - Myanmar<br />
    30. 30. String of Pearls<br />Attempt to have a presence along the SLOCs that connect it to the Middle East<br />80% of China’s oil passes through the Malacca Straits<br />Aggressively moving to secure its energy routes<br />Building blue water navy<br />Financing & building ports in Pakistan, Myanmar, Bangladesh & Sri Lanka<br />Involves deep water ports capable of hosting nuclear submarines<br />
    31. 31.
    32. 32. Shanghai Cooperation Organization<br />Founded in 2001 when Uzbekistan joined the erstwhile ‘Shanghai Five’ consisting of China, Kazakhstan, Kyrgyzstan, Russia and Tajikistan<br />Cooperation over security, economic & energy matters <br />Provides a framework for China to engage these Central Asian states<br />In its 2007 summit, member states agreed to establish a "unified energy market" for oil and gas exports, while also promoting regional development through preferential energy agreements.<br />Although, it has been said that if Iran joins the SCO, it will essentially be “an OPEC with bombs”, SCO has failed to live up to such expectations & China energy diplomacy has largely followed a bilateral course.<br />
    33. 33. Russia<br />Used to import refined oil from Soviet since 1950’s, but later started exporting in mid 60’s till 1993;<br />In 1994, <br />Russian oil firms YUKOS, lead by Mikhail Khodorovskyproposed an oil pipeline from Siberia to China's northeastern regions;<br />At the same time YUKOS also planning a merger with Sibneft;<br />Putin viewed such a big independent company as a political threat;<br />2003, <br />Before Khodorkovsky could get his project under way Putin struck and he was under arrest. YUKOS was forced to bankruptcy;<br />China and Japan took advantage of uncertainty and started lobbying around for most favored market status for Siberian oil.<br />
    34. 34.
    35. 35. 2004, <br />then-prime minister Mikhail Fradkov came down on the side of Japan and Transneft was given the go-ahead for construction of the Taishet-Nakhodka pipeline;<br />Beijing did not give up. It invested heavily in improving relations with Moscow.<br />2008<br />Oil prices tumbling towards $50 a barrel posed problem for the massive Siberian infrastructure project;<br />Financial meltdown squeezed Russia's state-owned energy sector which was facing under-investment;<br />Chinese Economic support: <br />Feb 2009, China signed loan-for-oil deal in which China would offer Russian firms 25 billion U.S. dollars of long-term loans while Russia would supply 300 million tonnes of crude to China from 2011 to 2030.<br />
    36. 36. Kazakhstan<br />Seventh best explored hydrocarbon reserves;<br />Estimated proven and probable oil reserves stood at approx 29 billion barrels and about 70 trillion cubic feet of proven gas reserves. <br />In June 2005 PetroKazakhstanannounced its a possible takeover or merger;<br />PetroKazakhstanaccounted for about 12 percent of the Kazakhstan's oil production and owned the best (Shymkent refinery) of only three oil refineries in Kazakhstan;<br />India’s ONGC offered around $3.9 billion against China National Petroleum Corporation's (CNPC) $3.6 billion;<br />Diplomacy<br />Economic: CNPC revised the bid to US $4.18 billion;<br />Offered 5 billion-dollar loan to Kazmunai which would help pay for the MangistauMunaiGas deal and construction of Kazakh-China gas pipeline;<br />$5 billion to the state-owned Development Bank of Kazakhstan.<br />
    37. 37. Venezuela<br />Bought 2 marginal fields in 1997;<br /> Venezuela depends too heavily on its oil industryand most of its oil exports are to U.S. by late 90’s;<br />Apr 2002 failed Venezuelan coup attempt on president Chavez acidified Venezuelan esp. Chavez’s relationship with U.S.;<br />Chavez wanted to reduce dependence on U.S. and China wanted oil security;<br />Energy Diplomacy tools:<br />Diplomatic support: China against US in 2006, supported Venezuela’s bid for U.N. security council;<br />Economic:<br />Offered investments in Venezuelan agriculture, infrastructure, mining, and energy production;<br />China also offered support in drilling oil from reserves;<br />Increased oil imports from Venezuela from 68,800 bpd in 2005 to over 300,000 bpd.<br />In 2009, China offered 16-billion-dollar loan to drill oil in the resource-rich Orinoco basin.<br />
    38. 38. Canadian Oil Sands<br /><ul><li>Oil sands are gritty deposits of tar-like bitumen, and Canada's deposits are now recognized as the biggest source of crude oil outside Saudi Arabia.
    39. 39. Oil sands may represent as much as two-thirds of the world's total petroleum resource, with at least 1.7 trillion barrels in the Canadian Athabasca oil Sands
    40. 40. Alberta's huge oil sands deposits make up the vast bulk of Canada's total proven crude reserves. It has established oil sands reserves of 178 billion barrels. However, oil sands production techniques are expensive for now, and need a high market price environment to make any investment worthwhile
    41. 41. Extracting and processing sticky bitumen is much more expensive than producing and refining conventional crude, but global supply concerns have pushed western crude benchmarks to about $70 a barrel and made bitumen projects more economically viable </li></li></ul><li>World's largest deposits occur in two countries: Canada and Venezuela each of which has oil sand reserves approximately equal to the world's total reserves of conventional crude oil<br />Production methods include sophisticated mining and extraction approaches <br />Canada has become the largest supplier of oil and refined products to the United States, ahead of Saudi Arabia and Mexico.<br />Canada, faced with growing political pressure over the extraction of oil from its highly polluting tar sands, has begun courting China and other Asian countries to exploit the resource.<br />With oil prices setting new highs in 2007, tax incentives were no longer necessary to encourage oil sands projects in Canada. In July of that year Royal Dutch Shell released its 2006 annual report and announced that its Canadian oil sands unit made an after tax profit of $21.75 per barrel, nearly double its worldwide profit of $12.41 per barrel on conventional crude oil.<br />
    42. 42. <ul><li>The move comes as American firms are turning away from tar sands because of its heavy carbon footprint and damage to the landscape. With their expansionist plans continuing to be met with determined political opposition in the US, Chinese oil companies have turned their attention towards access to the lucrative Canadian energy market.
    43. 43. The combination of the current administration's professed commitment to open trade and the slump in Canada's inward foreign direct investment caused by the financial crisis have broken down Canada's resistance to direct Chinese investment.
    44. 44. PetroChina officially acquired 60% stake in Canada based Oil Sands company Athabasca Oil Sands Corp.'s (AOSC) MacKay River and Dover oil sands projects for $1.8bn , with plans to produce up to 35,000 barrels a day by 2014, and eventually up to 500,000 a day.
    45. 45. China's other two state-owned oil giants, Sinopec and China National Petroleum Corp, have also taken interests in oil sands projects in Canada.</li></li></ul><li>Chinese Approach for African Oil<br />Two-pronged strategy <br />First, it has pursued exploration and production deals in smaller, low-visibility countries such as Gabon, Equatorial Guinea, and the Republic of Congo. Chinese oil companies supported by government citing reason of being late comer in Oil field.<br />Second, it has gone after the largest oil producers by offering integrated packages of aid.<br />
    46. 46. Strategy of committing large amounts of funding and labor for exploration and development rights in resource-rich countries.<br />In 2000, Beijing established the China-Africa Cooperation Forum (CACF) to promote trade and investment with 44 African countries.<br />Strategy of joint-ventures with national governments, state-controlled energy companies or individual enterprises in order to establish a long-term local presence.<br />They always outbid or try different means to win contracts awarded by African governments because their concerns are not in short-term returns but rather in strategic positioning for the future.<br />
    47. 47. In Sudan it had an investment of $4 billion.<br />The China National Petroleum Corp. (CNPC) has a 40 percent controlling stake in Greater Nile Petroleum that dominates Sudan's oilfields.<br />(CNOOC) bought a 45 percent stake in a Nigerian oil-and-gas field for $2.27 billion and also purchased 35 percent of an exploration license in the Niger Delta for $60 million <br />Chinese Loans to Angola ( $2 billion with low interest rates, long maturities and no questions on how the money is used). no-strings-attached investment and infrastructure <br />
    48. 48. Energy Diplomacy - Sudan<br />Economic support:<br />Chinese oil investments in Sudan by turning a blind-eye to the Darfur crisis. <br />China is the biggest investor in Sudan<br />Military Support:<br />Sold T-59 Main Battle tanks & F-7 fighter aircraft<br />China has assisted Sudan in developing factories producing small arms<br />China oil company entered in 1995 exploiting Sudan’s north south civil war and U.S sanctions<br />Political Support:<br />Beijing repeatedly vetoed the efforts of UNSC for slapping economic sanctions over Darfur crisis & prevented the arrest of President Omar Al-Bashir as proposed in the ICC (Intl. Criminal Court)<br />
    49. 49. Sino-Australian relations<br />China is Australia’s largest trading partner<br />Australia supported US on carbon credits.<br />Ensures China for steady supply of ‘clean fuel’ for 20 years<br />
    50. 50. On August 19,2009 PetroChina signed a AU$50 bn deal with ExxonMobil to purchase LNG from the Gorgon field in Western Australia<br />Biggest single construction project creating 6000 jobs;<br />The deal represents a bigger investment in Australia than the government’s last economic stimulus package;<br />20 year agreement to supply CPI(China Power International) with 30mn tonnes of coal a year;<br />Australia’s biggest ever export contract<br />70% stake in Australia's Uranium Metals Ltd by  A$83.6 million cash offer from China Guangdong Nuclear Power Holding Co.<br />
    51. 51. Conclusion<br />China wants to ensure energy security through:<br />Financial muscle;<br />Veto power.<br />Reducing dependence on Middle-east;<br />Want to spread the dependency for energy;<br />May be China wants to break the US supremacy as far as energy resources are concerned.<br />
    52. 52. Thank You…<br />