FINANCIAL TIMES: India and China: Two titans adopt different strategies on energy policy: “Last October, ONGC’s bid to purchase half of the offshore Block 18 in Angola from Royal Dutch/Shell was spectacularly scuppered by the Chinese, who used a $2bn aid package to convince the Angolan government that it should buy the same block instead.” (ShellNews.net) 17 Jan 05
By Enid Tsui
Published: January 17 2005
Moscow’s decision to put Mikhail Khodorkovsky’s energy empire up for sale was equivalent to dangling a piece of fresh meat in shark-infested waters.
Since the ownership of Yuganskneftegas, the main production unit of Yukos, passed to state-owned Rosneft on January 3 industry watchers have been waiting for the moment when at least part of those assets are snapped up by countries hungry for natural resources.
And there are at least two companies waiting in the wings: India’s Oil and Natural Gas Corporation (ONGC) and China National Petroleum Corporation (CNPC). In December, Viktor Khristenko, Russia’s energy minister, said 20 per cent of Yuganskneftegas could be offered to CNPC.
A week later, ONGC announced that it was planning to make a $2bn bid for a 15 per cent stake. It remains to be seen if either country, or both, will indeed play a role in the future of Yukos’ valuable resources.
The clash of the titans – two of the world’s fastest growing economies – has been gathering pace in the energy arena during the past two years.
Towards the end of 2003 the Indian government was moved by a sharp rise in oil prices and political instability in the Middle East, to recognise the importance of diversifying its energy supply.
Compared with China, which imports only 40 per cent of its crude oil needs, India appears more vulnerable in times of high oil prices.
China relies on the Middle East for 40 per cent of its crude oil imports, while India buys 75 per cent of its oil from the region. At the same time, India’s domestic oil production is a lot less than China’s and relies on imports for 70 per cent of its needs.
The two countries have had a chequered past, with Beijing and New Delhi at war with each other as recently as 1962 over border issues. Battles are being raged over foreign oilfields but the weapon of choice is money.
Last October, ONGC’s bid to purchase half of the offshore Block 18 in Angola from Royal Dutch/Shell was spectacularly scuppered by the Chinese, who used a $2bn aid package to convince the Angolan government that it should buy the same block instead.
While both the Indian and Chinese national oil companies (NOCs) are mandated to take care of both shareholders and national energy security, China has been more willing to pay high prices in order to secure direct control over assets.
“China is a lot more set on the issue of energy security – and is willing to pay for it. Compared with Chinese oil companies, Indian NOCs do consider price a major concern in acquisitions,” says Praveen Martis, upstream analyst for Middle East and Indian subcontinent at Wood Mackenzie, the energy consultancy.
“ONGC was willing to outbid western independent oil companies. But China was willing to pay even more, an indication of how much value it places on securing direct control of assets,” says Keith Myers, associate fellow at London’s Chatham House Institute.
It remains true that China’s oil and gas footprint is a lot broader than that of India. This is partly to do with China’s cash-rich industry, which has launched three multi-billion initial public offerings and receives a lot of financial support from the central government.
China National Offshore Oil Corporation (CNOOC), the smallest of its oil producers, for example, has enough resources to consider taking over California-based Unocal for $13bn.
China’s largest listed oil companies, Petrochina, earned $8.4bn in net profit in 2003 on sales of $36.6bn. ONGC, India’s largest, earned $2bn in the 2003-04 financial year.
India may also appear to be lagging behind China in terms of the spread of its energy portfolio because of political reasons. “India has always had a good relationship with the Middle East. Energy security was not really considered a serious issue until the region became affected by political stability,” says Mr Martis.
“Compared with the Chinese, the need to secure direct ownership of assets does not seem quite as high up on the [Indian government’s] agenda,” says Dr Myers. “It may have to do with the fact that India is a democracy and each new government that comes into power has its own set of priorities. Meanwhile, Beijing sticks to strategies that are formulated over many years.”
However, in reality, China is not far ahead of India in terms of its exposure to the international oil market.
According to Chatham House Institute estimates, ExxonMobil has 35bn barrels of oil reserves outside of the US, its home country, while Totalfina has 22bn barrels outside of France. Petrochina only has 1bn barrels outside China.
Both Indian and Chinese NOCs have a long way to go yet to stamp their marks on the international supply chain of crude oil. But last week’s buyers’ conference in New Delhi is an encouraging sign of future co-operation between the two countries and their neighbours.
“Asia has little in terms of a global marker and even less in terms of a well-prepared oil and oil products market,” says Mani Shankar Aiyar, India’s petroleum minister, proposing an Asian oil price benchmark and longer supply contracts.
While China did not sign anything on paper, it, at least, sent a contingent to what may be a ground-breaking meeting that set the stage for more bargaining power and stronger ties among fellow net importers in the region.