x Abu Dhabi, UAEFriday 19 January 2018

Chinese oil firms make friends abroad

State companies join western counterparts to gain access to new deposits and markets

The China National Petroleum Corporation (CNPC) has acquired 35 per cent of the Syrian oil and gas unit of Royal Dutch Shell, which could help boost Chinese access to some of the world's biggest oil reserves. The Syrian accord, which is worth an estimated US$1.5 billion (Dh5.51bn), in itself is unlikely to boost crude reserves significantly for either company. Instead, it may be aimed at strengthening ties between China's biggest producer and international oil companies including Shell, as Beijing seeks to expand its presence throughout the Middle East.

Yesterday's deal would increase CNPC's existing holdings in three oil and gas production licences covering 40 small fields. Last year, Syria Shell Petroleum Development pumped 23,000 barrels of oil equivalent per day from those fields. "This is not a lot of oil and gas for a company like CNPC, which is producing about 2.5 million barrels a day," Gordon Kwan, the head of energy research at Mirae Asset Securities in Hong Kong, told Bloomberg yesterday.

"The agreement strengthens the partnership between Shell and CNPC," the Chinese company said. Until recently, China's state-controlled oil companies have had limited success in gaining access to the region's biggest oil and gas deposits, and to the rapidly expanding local markets for oil and gas. That is mainly because the national oil companies of major Gulf oil exporters were seeking access to technology only available from the West. The Chinese oil producers, however, were able to establish a beachhead in Iran, as the US-led sanctions against the country discouraged western investment.

Now companies such as CNPC, China National Offshore Oil Corporation and Sinopec may have devised a new strategy for gaining access to oil and gas projects in the Gulf region. They are forming partnerships with the western energy groups that are also seeking access to Gulf oil and gas reserves and markets. On Sunday, PetroChina, a subsidiary of CNPC, signed an agreement with Shell and Qatar Petroleum to explore for gas in Qatar, the Gulf state with the world's third-largest proved gas reserves.

Last year, CNPC teamed up with BP to win a $3bn, 20-year contract to boost output from Iraq's biggest oilfield, Rumaila, which holds 17 billion barrels of reserves. Iraq's neighbour Syria has only 2.5 billion barrels of proved oil reserves, but is interested in becoming a transit state for Iraqi oil exports. It might also refine Iraqi crude, as Baghdad moves to implement plans to boost output capacity to as much as 12 million barrels per day (bpd) from 2.4 million bpd by 2017.

Damascus is seeking to increase Syria's refining capacity to 620,000 bpd from 240,000 bpd, which would be significantly more than the country's current crude output of 380,000 bpd. In 2008, CNPC signed an agreement with Damascus to build a petroleum refinery in Syria's eastern oil hub oil of Deir Ezzor. The project is slated for completion next year. In a separate development yesterday, the Russian state oil producer Rosneft and Sharjah's Crescent Petroleum announced an alliance to develop energy projects in the MENA region, suggesting Moscow is also seeking to expand its presence in the region's oil sector. Russia is already well represented in its gas industry through the interests in Libyan and Algerian gas production and export projects held by the state-controlled gas giant Gazprom.

"We have made the first step toward entering one of the world's most significant regions in terms of hydrocarbon production," Sergei Bogdanchikov, the chief executive of Rosneft, said following a signing ceremony with Crescent in Moscow. Rosneft accounts for more than a fifth of crude output from Russia, the world's biggest oil producer and exporter. "We have already identified a number of robust opportunities, and we expect to be able to announce our first joint project in the Gulf Co-operation Council region within the coming weeks," said Badr Jafar, the executive director of Crescent.

Russian oil and gas producers, like their Chinese counterparts, have shown increasing interest in recent years in extending their activities outside their home country. Last year, Gazprom's oil unit and Russia's Lukoil were among the partners in international consortia that won contracts to develop some of Iraq's biggest oilfields. Meanwhile, Crescent, which is privately owned, has been seeking to establish itself as a regional energy company. It is pursuing projects in Iraqi Kurdistan and Yemen, as well as in the UAE.

Last year, Crescent and its Sharjah affiliate Dana Gas formed a consortium with Austria's OMV and Hungary's MOL that is seeking to export gas and condensates, a type of light crude oil, from Kurdistan. That project received a boost yesterday when Baghdad approved a deal with the semiautonomous region on the resumption of stalled Kurdish oil exports. :tcarlisle@thenational.ae