The Effects Of China-India Actions.

Competition and co-operation between China and India in 2005 has caused both world crude oil prices and petroleum E&P assets to rise to unprecedented levels. While the Western majors have gained considerably from the former effect, the latter effect has made them worry as their petroleum reserves have kept falling and their access to the oil and gas resources of developing countries has become more difficult as well as more expensive.

India and China are to sign a bilateral energy co-operation deal in January 2006, when India's Petroleum Minister Mani Shankar Ayar is scheduled to visit China. This will work as an umbrella agreement enabling joint ventures between companies in different fields of energy, including alternative fuels. This co-operation could be bad news for IOCs.

The two huge countries' pursuit of what India's Ayar calls "coopetition instead of competition" in securing their energy needs began last April this year, when during a visit to India Chinese Premier Wen Jiabao said energy co-operation should be an integral part of the bilateral dialogue between the two states. A delegation from Indian oil companies visited China subsequently to discuss energy ventures. The two countries set the world's petroleum industry abuzz when Indian and Chinese oil firms met on the sidelines of the World Petroleum Congress (WPC) in Johannesburg in South Africa in October. In November, ministerial petroleum sector representatives from the two countries met in New Delhi for further roundtable talks.

China National Petroleum Corp (CNPC) and India's Oil and Natural Gas Corp (ONGC), their two largest oil firms, on Dec. 20 announced they had won a joint bid to acquire 37% of Petro-Canada's stake in the al-Furat Petroleum Co. in Syria for US$573m. ONGC and CNPC, both state-owned, will have equal stakes in al-Furat oil and gas fields. "We are very excited about this breakthrough of joint acquisitions with CNPC", said Subir Raha, the chairman of ONGC, who maintains a high profile in the country's oil and gas industry as well as globally.

Raha noted: "CNPC and ONGC have been working together as joint operators in Sudan for the last three years. While we have worked together as joint operators and have gained confidence in each other's technical capabilities, we had never joined hands to own a foreign property jointly. This [acquisition in Syria will] be the first time, then, that an Indian company [will] acquire an oil property along with a Chinese company". (Sudan now is producing 500,000 b/d and its output in 2006 will be 600,000 b/d. It will hit 1m b/d in 2010 or before).

The US$573m price is high considering that al-Furat's oil output has been falling, from a peak of more than 400,000 b/d in the second half of the 1990s to 213,000 b/d in 2004 and to 180,000 b/d now. Shell, the leading partner of the state-owned Syrian Petroleum Corp. (SPC), is hoping the decline in 2006 will not be to less than 150,000 b/d.

Yet CNPC and ONGC are happy that the stake gave them "instant access to 60,000 b/d" of high-quality crude without having to invest in exploration immediately. Indian Petroleum Secretary S. C. Tripathi was on Dec. 22 quoted as saying the acquisition was an important milestone "because we have been working on this for quite some time, and instead of competing wherever possible, this win opens up the possibility of the two countries working together whenever feasible".

True, the fact that Indian and Chinese firms are working together is in itself a milestone. But the price they paid was high; CNPC and ONGC will have to invest in slowing the pace of al-Furat's oil output, and this could be quite expensive.

ONGC's overseas arm ONGC Videsh (OVL) had competed with Chinese firms for oil properties in Central Asia, West Africa and Latin America in the recent past. In addition, in the past 12 months, Chinese oil companies have been consistently outmaneuvering India in just about every oil property the two countries chased.

In August, CNPC and an ONGC-led consortium competed directly in a buyout of the Canadian firm PetroKazakhstan, which had most of its operations in Kazakhstan. But CNPC grabbed the deal at the last moment by topping the Indian group's bid.

Despite an agreement between Shell and OVL to offload Shell's 50% stake in Angola Block 18 to OVL, in October India was stymied because the state's Sonangol, the sole concessionaire for E&P in Angola, wanted the property for Chinese oil firms. Now also the two are pitched against each other for Encana's Ecuador assets, which in mid-September almost went to Andes Petroleum, a JV of Chinese oil firms, because India withdrew from the bid. However, later it was said ONGC may be considering bidding for it again.

Nevertheless, the stage is set for China and India to make more joint oil bids. According to a report in the Economic Times, Indian oil companies, including Indian Oil Corp. (IOC), BPCL, OVL and Prize Petroleum, are set to sign agreements with China's Sinopec, CNOOC and CNPC, for collaboration in oil and gas E&P.

Kazakhstan recently opened a new $806m crude pipeline to China which symbolises Beijing's growing influence in Central Asia. Beijing has been pressing Russia, its largest non-OPEC supplier, to work towards an early agreement on a crude pipeline from Siberian oilfields to China. Russia delivered 5.8m tons of crude by rail to China in 2004; the volume is set to reach 8m tons in 2005.

OPEC Chief In China, Russia To Assess Oil Market: OPEC President and Kuwait's Energy Minister Shaikh Ahmad on Dec. 22 began a tour of China and Russia. He later said: "Talks [in China on Dec. 23] focused on international energy affairs... It is part of OPEC's strategy to open dialogue between producers and consumers. We wanted to know...China's future requirements for energy and its investments in refineries and refining capacity". In Moscow, Shaikh Ahmad said "we want to know [Russia's] future plans for the world oil markets in order to co-ordinate...on securing supplies". He said in Moscow he was to discuss the latest developments on a $1 bn loan which Russia owed to Kuwait.

In China, Shaikh Ahmad's team continued talks on construction of a $5 bn refining and petrochemicals JV in Guangdong province. On Dec. 5, the PetroChina, KPI and PIC signed an MoU for the project which includes 300,000-350,000 b/d refinery. The second project, for which Kuwait had received "many offers", would also be a refinery and petrochemical plant, he said, but gave no details. Shaikh Ahmad said Kuwait hoped to reach agreement with China to discuss a strategic investment in Industrial and Commercial Bank of China, the country's largest lender, which is eyeing a $10 bn-plus overseas listing.

Kuwait To Invite IOCs For Northern Fields: Kuwait's crude oil production capacity is to be expanded from 2.7m b/d to more than 4m b/d by 2020. A key to this is expansion of northern and western sets of oilfields, as well as its main central fields. And ending nearly a decade of debate and delays, Kuwait is close to opening up its lucrative upstream oil business to international oil companies (IOCs), 30 years after they were first expelled from the country.

The move, expected to be approved by the National Assembly next month, would mean that for the first time in decades, one of the top GCC producers would lift some of the limits on sensitive petroleum resources imposed on foreign firms. GCC and other oil producers have come under growing pressure over the past year to raise their investments and get more oil to the market.

The issue is so politically charged in Kuwait that the $8.5 bn plan, Project Kuwait, has been mired in squabbles since it was first introduced in the 1990s. The opposition, which brought together a band of Islamist and liberal parties in parliament, meant that production growth stalled while demand soared. Most of the country's production has come from the Greater Burgan set of oilfields, which has accounted for 80% of Kuwait's total crude oil output. That set of fields, the world's second-largest after Saudi Arabia's Ghawar axis of oilfields, is showing signs of fatigue. Officials would like to reduce the pressure on it by pumping out more oil from other fields, including four in the north of the country which Project Kuwait would open to IOCs.

The New York Times on Dec. 22 quoted Nader Sultan, former CEO of Kuwait Petroleum Corp. (KPC) and a strong backer of the opening to IOCs, as saying: "Our part of the world needs to increase its capacity to meet the projected growth in demand over the coming years. There is pressure on us to increase our capacity. The question then becomes: Can we do it alone?" He said Kuwait needed IOCs' help.

If parliament approves Project Kuwait when it meets on Jan. 23, the government will award the bid on the basis of a single criterion: the minimum fee that each of three ICO groups is willing to take for each crude oil barrel it produces. The groups are each led by BP, Chevron and ExxonMobil, which have long been interested in the project. Years of under-investment mean that output has dropped since the 1970s. Officials say they need the help of the global oil giants to deal with difficult oil reservoirs.

By 2020, Project Kuwait is expected to account for a third of the country's production. But at more than 4m b/d of crude oil output, Kuwait will also be pumping out 10m b/d of associated water, something which the country's state-owned Kuwait Oil Co. (KOC) cannot do without foreign expertise. There also are non-technical reasons for the invitation. With WTI near $60/b, delaying any increase in production means Kuwait is missing out on the greatest oil boom in three decades and millions of dollars of lost profits every week. Official who welcome IOCs, including US majors, would provide an additional security buffer for Kuwait, which was invaded by Iraq in 1990, and served as a major staging ground for the American invasion of Iraq in 2003.

Abdullah al-Nibari, a former MP who helped nationalise the oil industry in 1975, opposes Project Kuwait. He says KOC can keep using foreign service companies to provide technical assistance without bringing back the global giants which dominated the country's energy for decades. The NYT quoted Nibari as saying: "I don't buy the argument that the market needs more. We produce oil to get money to cover our expense...That's our responsibility".

Whereas the GCC side of the Gulf has an unprecedented boom, the atmosphere in Iran generally is depressing, with a new government having to deal with a budget deficit inherited from the previous one. President Mahmoud Ahmadi-Nejad, elected on June 24 and in office since early August, is a man with $200m/day plan and a 20-year programme to re-engineer Iranian society: If he has his way he would send 30m people from urban centres back to the rural world. He wants to tell the Iranians what to read and write and what "cultural products" to consume so as not to be contaminated by Western ideas.

Iran's petroleum and petrochemicals sectors are gradually being taken over by the Revolutionary Guards (see news25cIranIRGCDec19-05 - see also news26cArabsDec26-31-05).