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China's Race For Energy Resources Only Just Heating Up

Shanghai (AFP) Jan 10, 2006
China's 2.3-billion-dollar Nigerian oil venture is a major step forward for the energy ravenous country as it seeks to power its fast-growing economy but analysts said Tuesday the race was just heating up.

China National Overseas Oil Corp (CNOOC)'s purchase of a 45 percent stake in the Akpo field off the West African nation is the biggest overseas investment by Beijing since China National Petroleum Corp's (CNPC) took over central Asia's PetroKazakhstan for 4.18 billion dollars in October.

That deal was the largest ever by a Chinese corporation and added to a small but growing list of successes around the globe as China desperately seeks fuel for its economy.

India and China, often fierce rivals in the race for global energy resources, last month won a joint bid to buy Petro-Canada's 37-percent stake in Syria's Al Furat oil fields for 573 million dollars.

The acquisition by CNPC and India's Oil and Natural Gas Corp marked the first time the two Asian giants had bid together for overseas reserves to feed their oil-hungry economies and opened the way for further collaboration.

Meanwhile, China remains expectant as Russia builds a trans-Siberian pipeline capable of delivering 80 millions tons of oil a year, even though Japan looks to be the front-runner for getting first access to it.

CNOOC's announcement on Monday that it had secured the stake in Nigeria's Akpo field came after the company's spectacular failure last year to buy US company Unocal Corp for 18.5 billion dollars.

"Last time, the failure on the purchase of Unocal had a big impact on the companys expansion strategy," said He Jun, an analyst at Beijing-based energy consultancy group Anbound.

While the Nigeria deal pales next to the Unocal bid, CNOOC chief Fu Chengyu said the transaction was important in the company's global expansion plans.

"(The deal is) perfectly aligned with CNOOCs long term strategy of achieving growth through the exploration and development of offshore fields and achieving geographic diversification of the companys portfolio," Fu said.

Analysts too praised the deal and CNOOC's acquisitive bravado, but warned -- as occurred in Washington with Unocal -- that politics in Nigeria could trump money.

"The transaction is a big positive for CNOOC because it will mean a more-than 15 percent increase in its daily oil production and ensure its growth in the future," said Stephen Yuan, an analyst at Sun Hung Kai Financial Group in Hong Kong.

"In spite of the positives, I'm concerned about the political and cultural risks that CNOOC is taking. It doesn't have any experience operating in Africa and it's unclear what preparations it has taken for managing and overcoming these risks."

Yet murky political environments have rarely bothered China which has repeatedly shown its willingness to do business first and not ask questions later.

Just as with Western energy companies, the realpolitik approach has often served China well and Anbound's He said the free-wheeling atmosphere in Africa was a benefit to China.

"This kind of (political) instability and lack of transparency, on the contrary, provides greater space for cooperation between governments," He said.

Regardless of ethical considerations, China has no choice but to secure more energy as the world's most populous nation continues its near double-digit economic growth.

China, already the world's biggest consumer of oil after the United States, became a net importer in 1993.

"I think that is one of the main concerns, how do we (China) expand our assets," said Scott Weaver, an analysts at Macquarie.

In another example of the geopolitical concerns for China as it seeks more energy resources, the nation remains locked in a bitter argument with Japan over disputed claims to gas reserves in the East China Sea.

Source: Agence France-Presse

related report

After Oil Deal, China Vows To Improve Ties With Nigeria
Beijing (AFP) Jan 10 - China's foreign minister will upgrade economic and political ties with Nigeria during his upcoming African visit, an official said Tuesday, a day after the nations signed a 2.3-billion-dollar oil deal.

Foreign Minister Li Zhaoxing will visit Nigeria on January 16-17 as part of a six-nation Africa tour, ministry spokesman Kong Quan told journalists.

Li is expected to meet President Olusegun Obasanjo and sign a memorandum of understanding on a "China-Nigeria strategic partnership" as well as an economic and technical agreement, Kong told a regular briefing.

"These agreements are very important because China-Nigeria relations are steadily developing and the economic cooperation between the two countries is expanding steadily," Kong said.

"The signing of these two agreements will further promote and accelerate the development of relations."

China's largest gas and oil producer, China National Overseas Oil Corp. (CNOOC), said Monday it would buy a 45 percent stake in an oil block off the coast of Nigeria for almost 2.3 billion dollars.

The Hong Kong-listed unit of CNOOC said it had signed a firm agreement with Nigeria's South Atlantic Petroleum to acquire the stake.

The move is the latest effort by China to seek overseas oil to fuel its booming economy and energy issues will undoubtedly be on the agenda during Li's African tour.

Li will also visit Cape Verde, Senegal, Mali, Liberia and Libya during the 10-day trip that begins on Wednesday, Kong said. Apart from Libya, all are in west Africa where 70 percent of the continent's oil is produced.

However Li's visit is being seen as more than just an energy-seeking mission. It is part of a Chinese push for broader strategic influence and cooperation in Africa.

"The agenda of this trip is as much political as economic," Barry Sautman, an associate professor at the University of Science and Technology of Hong Kong, told AFP.

"(It's) to make some progress on economic connections but more importantly it is to shore up political and cultural connections."

Kong said Li's trip was a traditional way for the foreign minister to start the year. "At the beginning of every year the foreign minister of China will visit Africa and this tradition has been carried on for more than a dozen years."

Source: Agence France-Presse

related report

Indian Minister Sees New Energy Cooperation Era As Heads To China
New Delhi (AFP) Jan 10 - India's petroleum minister called Tuesday for a new era of energy cooperation with China to avoid costly competition for fuel assets as he prepared to visit Beijing.

India has dubbed 2006 the "Year of Friendship with China" with which it has often been a bitter rival in the race for global fuel supplies and fought a brief border war over four decades ago.

"A cooperative relationship is not only desirable but eminently feasible," Petroleum Minister Mani Shankar Aiyar told reporters in the Indian capital before his departure late Tuesday for Beijing for the two-day visit.

Aiyar said "opportunities for cooperation will exist everywhere" and that his visit would herald a new chapter in India-China relations.

The countries, which rely heavily on energy imports to sustain their fuel-guzzling economies, have become the world's most aggressive seekers of foreign oil and gas properties.

Aiyar called on China to cooperate in bidding for overseas energy reserves to prevent rivalry in which the two sides bid up prices, making energy acquisitions unnecessarily expensive.

His planned visit was the second by a high-level Indian government figure this week. On Tuesday, Indian Foreign Secretary Shyam Saran held "friendly and pragmatic" talks in Beijing, Chinese officials said.

"China-India relations are on the track of fast development," said Chinese foreign ministry spokesman Kong Quan in Beijing.

The countries whose economies are the world's two fastest growing declared last April they would team up to bid for some energy assets.

"Instead of playing the 'Great Game' of bitter rivalry, we wish to prepare a mode of cooperation which is adapted to 21st century imperative of countries of Asia living in peace and cooperation," Aiyar said.

"The Great Game" was a term coined to describe the 19th-century rivalry between Britain and Russia for dominance in Central Asia where the spoils sought now are the Caspian energy reserves.

"Markets will dictate competition among the companies from the two countries sometimes but there will be opportunities where it might be in the interest of both parties to cooperate and submit joint bids," Aiyar said.

Aiyar's trip comes after India and China won a joint bid last month to buy Petro-Canada's 37 percent stake in Syrian oil fields for 573 million dollars.

The acquisition by India's Oil and Natural Gas Corp and China National Petroleum Corp, both state-owned, was the first time the nations bid together.

But some analysts described it as a consolation prize for New Delhi after China's regular outbidding of India, most recently last August when it won Kazakhstan's third-largest oil producer.

Analysts have been dubious about the potential for cooperation between the neighbours who have a history of suspicion and whose strategic interests are often at odds.

"These countries are mainly in competition," said Rahul Bedi, correspondent for Jane's Defence Weekly. "All this is more rhetoric than reality."

Aiyar said, however, "the Chinese do see advantage in working with India".

The Indian Express newspaper quoted Xia Yishen, head of a Chinese government energy think-tank, as saying "the necessity of cooperating to share risks and reduce costs in a multilateral way is gaining currency here".

Aiyar was to leave New Delhi late Tuesday and arrive the following day in Beijing. He heads back to New Delhi late Friday.

Aiyar will hold talks in Beijing with Ma Kai, Minister of the National Development and Reform Commission and other leaders in China's energy sector.

The two sides are expected to sign a slew of memorandums of understanding on energy cooperation, including between ONGC Videsh Ltd, India's flagship firm for overseas oil and gas field acquisitions, and its Chinese counterpart, China National Petroleum Corp.

Source: Agence France-Presse

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