SHANGHAI (Interfax-China) -- The China National Petroleum Corp., the country's largest oil and gas producer, extended its involvement in oil exploration in Sudan by signing a deal to co-develop an offshore oil block, the Ministry of Commerce said on its website yesterday.
The deal was inked despite increased pressure from the international community to divest from the war-torn eastern African country, as investment there is believed to fund the government-backed militant groups that have killed hundreds of thousands of people over the crisis in the Darfur region.
CNPC signed the production-sharing agreement with the Sudanese government late last month along with other five partners. CNPC, Indonesia state oil and gas company Pertamina and Sudan's state-run Sudapet will be the oil exploration operators.
Under the 20-year contract, CNPC will have exploration rights to Block 13 in shallow water of the Red Sea, with an area of about 38,200 square kilometres. While the exploration phase is to last six years, the company is expected to take a 35% to 40% stake in the project.
As part of China's strategy to lessen its dependency on oil imports from the Middle East, CNPC put its largest overseas oil exploration and production base in Sudan. The Chinese oil giant started operations in the country 10 years ago when it won a bid to develop block 1/2/4. The company holds a 40% stake in the Greater Nile Consortium, producing 15 million tonnes of crude from these three oil blocks.
Last year alone, the company brought on-stream a 10 million-tonne oilfield in block 3/7, the second phase of a 2 million-tonne oil project in block 6 as well as an oilfield capable of producing 1.5 million tonnes of oil per year in block 1/2/4. The company's annual crude oil production capacity in Sudan has now reached 28 million tonnes, up 10 times from 1999.
The mainland last year imported 4.84 million tonnes of crude oil from Sudan, making it the eighth largest crude exporter to the mainland, and accounting for 3.3% of mainland China's total imports. However, in the first five months of this year, China saw crude cargoes totaling 4.7 million tonnes from Sudan, representing a five fold increase year-on-year.
CNPC also recently upgraded the Khartoum Refinery, the largest in Sudan, to an annual capacity of 5 million tonnes while another 1,376-kilometre oil pipeline came online last year. CNPC will further build a 10-million tonne oil refinery in southwestern Guangxi Autonomous Region's city of Qinzhou to refine its oil output from Sudan.
An expert with the Shanghai Institute for International Studies agreed that Africa serves as a good backup for China's dwindling oil reserves. He said that despite pressure from U.S. activist groups to divest from Sudan, Chinese oil companies will be lured by oil prices and are likely to maintain their presence in the region, despite its instability, earning profits in the name of national energy security.
The new deal may revive a campaign to pressure U.S. investors to ditch PetroChina [NYSE:PTR] stock because of its heavy involvement in Sudan.
Fidelity Investment, the world's largest mutual funds firm, as well as California Public Employees' Retirement System and the Harvard Endowment, have already either significantly cut stakes in PetroChina or have completely stopped investing in it.
However, PetroChina's largest independent shareholder, U.S. billionaire Warren Buffett's Berkshire Hathaway, voted down a proposal to sell its $3.31 billion stake in the company.
CNPC planned to donate $1.9 million to Sudan out of the RMB 185.6 billion ($24.5 billion) it earned as gross pre-tax profits last year.
China Development Bank vice governor Gao Jian revealed back in May that the Chinese government had approved the bank's plan to set up a fund with a total investment of $5 billion to help finance the development of African countries and help Chinese companies in Africa.
In other news, PetroChina announced today that it has commenced construction on a commercial crude oil reserve depot in northeastern China's Liaoning Province.
The company has commenced work on eight 100,000-cubic metre oil storage tanks through an investment of RMB 1 billion ($131.4 million) in the city of Tieling in Liaoning Province. Construction is due to be completed by next October, raising the city's crude oil reserve capacity to 1.16 million cubic metres, according to the state-backed Shanghai Securities Journal.
The oil giant also intends to construct an 8.1 million-cubic metre commercial crude oil reserve depot in northwestern China's Xinjiang Autonomous Region. The company will invest a total of RMB 6.5 billion ($854 million) in the Xinjiang project, with RMB 856 million ($112.5 million) allocated for the first phase of construction, which consists of a 1 million-cubic metre depot. First-phase construction is scheduled to commence in August this year and complete by the end of 2008.
Sinopec [NYSE:SHI], the listed arm of the China Petroleum & Chemical Corporation, China's second largest oil company and PetroChina's major domestic market rival, has also stepped up its efforts to construct commercial oil reserve depots. Sinopec intends to establish a wholly-owned oil reserve subsidiary to manage its oil product holdings. The proposed subsidiary company will be the first of its kind in China.
Sinopec also has plans to construct a 10-million tonne commercial oil reserve depot in the Yangpu Economic and Development Zone on the Chinese island province of Hainan. In addition, a new commercial oil product reserve depot will be built by Sinopec in the city of Suzhou, in eastern China's Jiangsu Province, including a 100,000-cubic metre gasoline and diesel depot.
Pei Jianjun, an energy bureau official from the National Development and Reform Commission, the country's top economic planner, revealed during a conference held by the U.S. Energy Agency in February China's plans to draft regulations ensuring oil companies' participation in state oil stockpiles.
"Oil companies are more flexible [than the government] with regard to when and by how much to add to reserves, due to their superior knowledge of international markets, said Yu Xiaofang, an oil expert with Sinosteel Futures Brokerage.
She added that between 40% and 50% of strategic oil reserves in developed countries are filled by oil giants such as BP and Shell. In the future, PetroChina is likely to be the main depot filler in China, due to its domestic lead in oil resources.
Yang Fuqiang, China's chief representative to the U.S.-based Energy Foundation agreed that along with other international practices, a sound oil reserve system should include state strategic reserves, commercial reserves held by oil companies, as well as local government reserves in case of supply disruptions.
(c) Interfax-China 2007. For more intelligence on Chinese metals and mining, click here or contact David Harman in Hong Kong at david.harman@interfax-news.com or (852) 2537-2262.
