THE BUSINESS (GLOBAL BUSINESS PUBLICATION): WORLD BUSINESS SECTION: Chinese and Indian giants go head to head in search for oil: “What is worrying for the likes of ExxonMobil and Royal Dutch/Shell is that Asian firms are willing to develop oil and gas for lower returns. They may face the choice of lowering the profits or losing out. (ShellNews.net) 28/29 Nov 04
By Richard Orange
JUST as the western ' oil giants are finding the yearly struggle to replace the oil they produce harder to achieve, along comes more competition.
Acting on the orders of their political masters in Beijing, Kuala Lumpur and Delhi, Asia's oil companies are scouring the globe for oil and gas reserves to safeguard national supplies.
The International Energy Agency expects 40% of global growth in oil demand to come from Asia between now and 2030. By then China will need an extra 8m barrels per day (bpd) of imports, requiring a supplier the size of Saudi Arabia to meet demand. This imperative is bringing the Chinese duo of Chinese National Petroleum Corporation and Sinopec, India's ONGC Videsh and Malaysia's Petronas, head-to-head with established western companies in bidding for oil projects.
"The days when we had a European and American monopoly of the major oil companies is over," said David Hobbs, an oil and gas strategy expert at Cambridge Energy Research Associates. "The Asian companies aim in 20 years to be among the top five oil companies in the world."
Last week, CNPC was the first oil company to confirm it will bid for Yukos subsidiary Yugan-skneftegas, which the Russian government is auctioning for $8.65bn (£4.6bn, €6.6bn) next month. Russia's suspicion of China means few expect it to win the stake, but the move shows how quick the Asians are to fill the gap whenever western firms shy away from opportunities.
CNPC is similarly ready to mop up if tax disputes between Ecuador's government and western companies sees the firms selling out or having their fields confiscated.
The Asians have tended to specialise in "pariah states" such as Sudan, Myanmar, and Turkmenistan. In Sudan, for example, where CNPC, ONGC and Petronas produce 320,000 bpd, Sweden's Lundin Petroleum is the only western company, after pressure from human rights groups led the others to pull out.
But in the past couple of years, the Asians have started competing directly against western firms. While BP works on its controversial pipeline to channel Caspian crude to Turkey bypassing Russia, CNPC in September began a rival pipeline east from Kazakhstan to China.
And as western majors await the release of more exploration blocks offshore Nigeria, CNPC this month slipped in the backdoor with a deal to explore the country's neglected eastern interior, as well as help build pipeline and perhaps buy a stake in a refinery.
A look at the latest bidding rounds of the major oil producers shows the Asians are as much a fixture as any western firm. In Algeria's latest bidding round, three out of eight contracts went to the Chinese.
What is worrying for the likes of ExxonMobil and Royal Dutch/Shell is that Asian firms are willing to develop oil and gas for lower returns. They may face the choice of lowering the profits or losing out.
Investment has brought impressive international growth. ONGC aims to be produce five times as much overseas oil for the Indian market by 2010, and CNPC's oil production is expected to jump 40% on 2003 to 700,000bpd in 2005.
Not everyone believes they can challenge western companies in terms of scale. Professor Paul Stevens at the Centre for Energy Law and Policy at Dundee University says: "They're working hard at it, but their opportunities to develop in the upstream remain limited."
They've had their fair share of dud investments. Petronas has succeeded in securing huge tracts of exploration acreage across Africa, partly because much of it is unprospective.
Asian companies are not always welcomed as partners. CNPC's Yuganskbid follows a string of failures to enter Russia and when BG Group sold a stake in the giant Kashagan oil field to Sinopec and CNPC, the other partners blocked the deal. One of Petronas' western partners complains that it is a cumbersome negotiator, with all decisions seeming to require approval from Hassan Marican, its president.
Stevens adds: "They're not a patch on the western companies, not so much in terms of technology - you can buy the technology from service companies - but in terms of project management." But every international partnership, this knowledge improves. Asian firms have had no problems overtaking western companies in other fields, why should the oil industry be different?