China's dragon woos Abu Dhabi for partnership on oil and future energy

Oil 2014: As well as pursuing the soon-to-expire production rights for the highly-prized Adco concession, the Asian nation is trying to extend their partnership with Abu Dhabi beyond hydrocarbons.

An oil rig platform at dock in Abu Dhabi. China is bidding for a partnership with the emirate on oil. Andre Forget / The National
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China has made a name for itself in getting a good deal for natural resources in some of the world's toughest locations, from pumping oil in Sudan when westerners wouldn't go to signing up to explore in Afghanistan.

But growing energy needs are pushing China out of its traditional resource strongholds and into direct competition with the more established supermajors from around the world.

That drama is also quietly playing out in Abu Dhabi, where lucrative Second World War-era onshore oil rights will expire at the start of next year. The Abu Dhabi Company for Onshore Oil Operations (Adco) concession, as the prized set of oilfields is called, accounts for half the emirate's crude output and since 1939 has lain in the hands of producers we know today as ExxonMobil, Royal Dutch Shell, BP, Total and Portugal's Partex.

The partners have assiduously courted Abu Dhabi and demonstrated their commitment to its future via highly publicised state visits, a million-dollar donation to a local non-profit, and even an advertising campaign reminding residents of their "innovative partner since 1939". The subtext is clear: give us access to your oil, and we'll give back in spades.

China, whose China National Petroleum Corporation (CNPC) is one of the 13 companies in the running for the Adco tender, is playing the game just as well as any of its venerable competitors, sending in some political back-up to support its pursuit of the production rights.

This week, Liu Qi, the vice minister of the National Energy Administration of China, led a large delegation to Abu Dhabi to announce China planned to join the International Renewable Energy Agency, the UN organisation headquartered in the emirate and regarded as a strategically important institution locally.

The Chinese recently made clear their commitment to extending the partnership with Abu Dhabi beyond hydrocarbons.

"What's important is not only the current cooperation on oil," said Wang Zhizhen, the vice chairwoman of the National Committee of the Chinese People's Political Consultative Conference, during a visit to the capital. "We should also work to expand our future cooperation in other resources - especially the renewable energies - other than oil."

The stakes are particularly high for China. The Adco concession will be the biggest contract the emirate awards in its history, and winning a slice of the rights would crystallise its arrival at the top tier of the energy sector.

Abu Dhabi National Oil Company, which announced it would put the concession out to tender last year, is expected to issue soon a shortlist narrowing the field from the current 13, which include the existing majors as well as newcomers such as Korea National Oil Corporation and Norway's Statoil.

Officials from CNPC, which built the strategic pipeline linking Abu Dhabi onshore oil to Fujairah to bypass the Strait of Hormuz, hope not only to participate in Adco but also to negotiate the rights to a set of seven undeveloped blocks in Western Abu Dhabi.

Establishing a presence in Abu Dhabi production is part of China's overall strategy of cementing its relationship with the Arabian Gulf countries that already send the majority of their oil east.

Gulf-Chinese petrochemical joint ventures have sprung up in the world's manufacturing hub, while Sinopec has agreed to help build a refinery in Saudi Arabia. However, GCC officials are keen to ensure that the partnership will move beyond energy requirements into strategically important sectors for development, such as health and education.

"The Chinese thought of confining this to commodities only," said Abdul Aziz Aluwaisheq, the GCC assistant secretary general for negotiations and strategic dialogue. "The GCC wanted this to be more intensive - it should contain other elements of economic partnership and services."

China's stance on Syria in the UN Security Council has also weighed on the pace of cooperation between the two economic regions.

"We were surprised when China vetoed the solution of the Syrian dilemma," said Mr Aluwaisheq.

China's efforts to back its national oil company with government support on a number of fronts, including strategic export credit, have been more than matched by its East Asian rivals for the upcoming concessions - Japan and South Korea.

The Japan Bank for International Cooperation has signed a series of loans backing power plant contracts and offshore concession renewals, with another expected to be signed next month. Seoul made its partnership with Abu Dhabi first in military training, education and nuclear power before winning three undeveloped blocks in the emirate last year.

"We can definitely say the Koreans have been very successful at a government led multisector partnership," said Chris Gunson, an oil and gas lawyer at the American group Pillsbury. "We haven't seen any public signs of the same coordination from China."