Sudan & Somalia Are Potential Oil Export Majors; China Sets Scene For Geo-Politics.

*** China's Motor Vehicle Population Is Growing 9M/Y & Is Second Only To US's; Beijing On July 1 Missed A Deadline For New National Standards On Sulphur Limits For Gasoline & Diesel; This Would Have Put The Country's Fuel Specs In Line With EU's Euro-3 Standards

*** China's State- Owned Oil Firms, Having The Lion's Share Of Oil E&P JVs In Southern Sudan And Awaiting Huge Resources In War-Torn Darfur Province, Now Face Renewed Tension Between Khartoum & The Southern Govt. Where SPLA Says Northern Forces In Its Areas Are 'Occupiers' Who Must Leave

*** CNOOC & Fellow Chinese Firms Went To Somalia Before Western IOCs Were Invited Back

CAIRO - International oil companies (IOCs) from the West are reluctant to invest in oil exploration and production (E&P) ventures in Sudan and Somalia, which are likely to become major crude oil exporters in the next decade. With China leading non-Western IOCs into these two countries, the stage is being set for a major geo-political competition for gain from the future energy rewards in this part of Africa by the Western powers.

The Western IOCs have concentrated on West Africa and its deep waters, a major petroleum province overtaking most other non-OPEC sources of light/sweet crude oil. Although this region's main oil producers, Nigeria and Angola, are members of OPEC, the others there have grown as exporters of high-quality crude oils. But their exports will decline rapidly from 2011. Nigeria remains the most popular source of such light/sweet crudes, despite chronic unrest in this country (see omt7NigrExp&GlobalPerspvAug13-07).

East Africa, however, is emerging as a rival to the west and the north of this continent. This poses a major challenge to Western IOCs which are barred from Sudan and Somalia by issues ranging from human rights to a US-led war on Islamic terror groups. But the US is starting an exit strategy in Iraq - with regional implications for the oil-rich Persian Gulf (sbme2-IraqUSexitOptionsAug13-07) - and is beginning a push into East Africa. This should encourage Western IOCs to prepare for a move into East Africa, where they will be competing with Chinese and other Asian IOCs.

China is the biggest investor in Sudan and is moving into Somalia's petroleum resources. And, as Petroleum Argus put it on July 30, "The centre of gravity of the [global] oil market and the global economy is moving eastwards. It may no longer be the case that when the US sneezes, the rest of the world catches a cold. A US slowdown to economic growth of about 2%/y has not held back global expansion because of surging emerging market economies".

In a recently issued update to its World Economic Outlook, the IMF says these are "led by rapid growth in China, India (both competing for oil E&P ventures in Sudan) and Russia". The IMF has revised its growth projections for the US down, but up for these three countries. Emerging economies now account for half of global growth. China alone makes up a quarter of the world's economic expansion. The new dynamic is reflected in the weakness of the US dollar, which raises special problems for oil exporters as crude oil is always priced in dollars.

China is the world's second largest oil market, having grown from 5m b/d in 2002 to over 7m b/d. Though still far smaller than the US market (21m b/d), China's has grown by more than 400,000 b/d a year since 2002; US oil demand growth is limited to 250,000-300,000 b/d per annum. China drives the oil market, while the US is becoming less relevant each year. China in 2007 is expected to overtake the US as the world's biggest green-house gas (GHG) emitter.

Sudan now is producing over 540,000 b/d of crude oil and exporting 425,000 b/d of crude and 30m tons/month of refined petroleum products. Its exports should exceed 1m b/d by 2011/12, 1.5m b/d by 2016 and 2m b/d by 2020. Together with Somalia, Ethiopia and other East African countries, this region may by 2020 export 3m b/d - still below West African or North African exports - but in the subsequent years it might get closer to these rivals.

Deepened US sanctions on Khartoum have not hurt Sudanese exports, except in administrative banking procedures. Sudan is producing over 300,000 b/d of the light/sweet Nile Blend and local refining uses about 75,000 b/d of that for internal consumption. Of the acidic Dar Blend, it produces 200,000 b/d, all of it for export. China's CNPC, heavily involved in Sudan, also produces 40,000 b/d of al-Fula crude from Block 6 where it holds 95%. Rights activists are pressuring Chinese, Indian and Malaysian companies, the main investors in Sudanese oil.

The rights activists say income from southern Sudan's oil is funding military operations in the country's western province of Darfur, where 200,000 people were killed and 2.5m driven from their homes in four years of revolt by a fractious rebel movement and a Sudanese Army aggression, plus rape and looting by Janjaweed militias backed by Khartoum. This conflict is internationalised, with the US leading a peace-keeping drive through UN and African Union (AU) forces.

The state-owned China National Petroleum Corp (CNPC), the biggest oil firm in China, has major interests in eight of Sudan's oil E&P blocks in the south, as well as owning 50% of Sudan's largest refinery and partnering crude oil pipeline construction. Two marine export terminals on Sudan's Red Sea coast can store up to 4m barrels of the Nile Blend and 3m barrels of the Dar Blend. Sudan has four oil refineries, with a total capacity of 142,000 b/d. Other Chinese oil firms are involved in Sudan's petroleum sector, with China being the country's biggest foreign investor. So far Beijing has invested more than $6.2 bn in Sudan and will be spending more.

Malaysia's state-owned Petronas and India's state-owned Oil and Natural Gas Corp (ONGC) are the partners of the Chinese in Sudan's oil production system. They, too, have invested heavily in Sudan in recent years as Western IOCs left the country following US sanctions against Khartoum.

There is huge potential in Sudan's petroleum industry, opaque for years because of Khartoum's role in the north-south war and associated rights abuses. The peace deal with the south has opened up new areas for E&P, but renewed tension between Khartoum and the Sudan People's Liberation Army (SPLA) in the south has raised the risks there sharply in recent weeks.

Sudan's oil E&P blocks in the south total around 1m sq km, with only a small part drilled. The full extent of this area's oil reserves is not known. BP's Statistical Review of World Energy in 2007 put Sudan's proven oil reserves at 6.4 bn barrels, the fifth largest in Africa. As the country gets to be more explored, its possibilities will become more apparent. E&P costs in Sudan are low; so even as current oilfields slow down, the country could make new finds to sustain production.

Reuters on Aug. 3 quoted a "source close to oil production" as saying the Khartoum government was over-producing the Nile and Dar streams to get as much revenue as possible ahead of a southern Sudanese vote on independence in 2011. The source adds: "They want to get [oil] out as much as possible before the south goes its own way". Sudanese oil has become more important in global markets, as there is a supply crunch with production problems in Nigeria and the Middle East.