Transcript Document 7145800

Chinese Oil Investments in Africa:
Why, Where, How and to What Effect?
Erica Downs
World Bank China Panel
12 March 2008
The Brookings Institution, Washington, D.C.
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Why?
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Drivers of Foreign Oil Investments (1):
Reserve replacement
Attractive opportunities abroad
thousand million
barrels
Proved Oil Reserves at end 2006
742.7
800
600
400
200
16.2
59.9
103.5
117.2
144.4
24.3
China
Other
Asia
Pacific
North
America
S. & C.
America
Africa
Europe &
Eurasia
0
Middle
East
Source: BP Statistical Review of World Energy
The Brookings Institution, Washington, D.C.
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Drivers of Foreign Oil Investments (2):
Profits
• Historically,
upstream most
profitable segment
of oil industry
• Especially true for
China’s national oil
companies (NOCs)
• Rising crude costs
• Domestic price
controls
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Drivers of Foreign Oil Investments (3):
Oil demand exceeds domestic supply
8
7
Demand
6
5
Net Imports
4
3
2
Domestic
Supply
1
0
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
million barrels per day
China's Oil Demand and Domestic Supply,
1990-2006
Source: BP Statistical Review of World Energy
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Drivers of Foreign Oil Investments (4):
Oil imports expected to grow
million barrels per day
Projections of China's Net Oil Imports
20
15
10
5
0
2006
2015
2030
Actual
Reference Scenario
Alternative Policy Scenario
High Growth Scenario
Source: IEA, World Energy Outlook 2007
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Drivers of African Oil Investments (1):
Growth in African oil reserves
Growth in Proved Oil Reserves, 1996-2006
100
80
percent
60
40
20
0
-20
-40
North
America
Asia
Pacific
Middle
East
S. & C.
America
Africa
Europe &
Eurasia
Source: BP Statistical Review of World Energy
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Drivers of African Oil Investments (2):
Access to reserves
Africa is open for business
Full IOC access 6%
6%
Reserves held by Russian cos.
NOC oil reserves 11%
(equity access)
African
countries
77%
NOC oil reserves
(no equity access)
Source: PFC Energy, 2005
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Drivers of African Oil Investments (3):
Warm welcome from hosts
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Where?
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China’s NOCs are invested throughout
Africa…
African countries where China’s NOCs
have contracts for equity participation
Algeria
Gabon
Nigeria
Angola
Kenya
N/ST&P JDZ
Chad
Libya
Sudan
Cote D’Ivoire Mauritania Tunisia
Eq. Guinea
Niger
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…but the value of Chinese oil assets
in Africa lags behind that of other firms
Figure 2: Commercial Value of Oil Investments in Africa
300000
278913.9
US$ Million
250000
200000
168252.1
150000
100000
48534.6
50000
13488.1
0
African NOCs
IOCs
Other
Chinese NOCs
Source: Wood Mackenzie, March 2007
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China’s NOCs: small producers in Africa
Si
no
ch
em
Si
no
pe
c
C
N
PC
on
he
vr
C
Sh
el
l
xo
n
To
ta
l
N
Ex
PC
1,600
1,400
1,200
1,000
800
600
400
200
0
N
thousand barrels per day
Net Liquids Production in Africa of Selected Companies,
2006
Sources: Company reports, Wood Mackenzie
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Most of the African oil production of
China’s NOCs is currently in Sudan…
Figure 4: Chinese NOCs' Production in Africa, 2006
Tunisia
1%
Algeria
15%
Angola
3%
Sudan
81%
Total = 267,000 barrels per day
Source: Wood Mackenzie and industry press
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Why are China’s NOCs small players
in Africa? (view from China)
• Stiff competition for assets
• Latecomers to the region
• IOCs have a historical advantage
• Technology hurdles
• No deepwater capacity
• Insufficient use of diplomatic
tools to help secure assets
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How?
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China’s NOCs are able to finance
most investments on balance sheet
Pre-tax Profits of Chinese Oil Companies
US$ billion
25
20
15
10
5
0
2002
2003
CNPC
2004
CNOOC LTD.
2005
2006
SINOPEC CORP.
Source: Company annual reports and Form 20-Fs
• High profits from high oil prices
• Most deals not big enough to need big loans
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Direct state financial support:
less than meets the eye
• Minimal reliance by China’s NOCs
on Chinese bank loans
• One example:
• 2006: CNOOC Ltd. received a US$1.6
billion low-interest loan from China
Eximbank for OML 130 (Nigeria)
• Expensive project (US$ 2.3 billion)
• Attractive interest rate
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Indirect state support:
a mixed bag
• “Oil-for-infrastructure” deals have
yielded mixed results for China
• Chinese loans to Luanda helped
Sinopec gain some upstream assets in
Angola…but not everything it wants
• Efforts to link Chinese oil and non-oil
investments have not won China’s
NOCs attractive blocks in Nigeria
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To What Effect?
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Impact on Development (1)
• Follow the oil: China Eximbank loans for
large infrastructure projects in oil-rich states
• China Eximbank’s lending priorities shaped
by Chinese foreign policy priorities
• Energy a top priority in China’s African diplomacy
• But there are other motivations
• Gaining support of recipients in multilateral orgs.
• Creating opportunities for other Chinese firms
• Preventing diplomatic recognition of Taiwan
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Impact on Development (2)
• China’s NOCs helping to develop host
countries
• CNPC/Sudan: US$ hundreds of millions spent on
roads, bridges, schools, hospitals, training and
education
• Sonangol-Sinopec/Angola: US$ tens of millions
pledged for social welfare projects
• China’s NOCs likely to continue good deeds
to:
• Remain welcome guests
• Reduce investment risk
• Improve global images
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Impact on Governance:
The Case of Angola
• Chinese loans probably have reduced IMF
influence on oil revenue transparency
• But rising oil revenues more important factor
Value of Angola's Oil Production
US$ billion
40
35
30
25
20
15
10
5
0
2001
2002
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2003
2004
2005
2006
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Impact on Industry Competition
• State support for China’s NOCs has
had minimal impact on IOCs because
competing for different projects
• China’s NOCs have no deepwater capacity
• Many blocks offered in “package deals” of
little interest to IOCs
• Larger impact on Asian NOCs
• Seoul and New Delhi competing to offer
better “package deals”
• Competition encouraged by some host
countries (Nigeria, Angola)
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Extra Slides
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Africa provides one-third of China’s
crude oil imports
China's Crude Oil Imports by Region, 2007
Americas
7%
FSU & Europe
13%
Asia Pacific
4%
Persian Gulf
44%
Africa
32%
Total
b/d
Total==3.3
3.3million
million
b/d
Source: General Administration of Customs of China
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Angola supplied almost half of China’s
crude oil imports from Africa in 2007
Other
11%
Libya
5%
Eq. Guinea
6%
Angola
46%
Congo (B)
13%
Sudan
19%
Total = 1,065,209 b/d
Source: General Administration of Customs of China
The Brookings Institution, Washington, D.C.
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