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China heads to South America in global energy 'scramble'
by Staff Writers
Shanghai (AFP) Oct 22, 2013


Rosneft, Sinopec sign 10-year oil payment deal
Moscow (AFP) Oct 22, 2013 - The world's biggest listed crude producer Rosneft and Chinese oil giant Sinopec announced on Tuesday a framework agreement on advance payment by Sinopec for Russian oil deliveries.

The deal will see Sinopec -- China's largest oil refiner -- pay 25-30 percent of the total cost of a 10-year contract under which Rosneft will deliver 10 million tonnes of oil per year starting in 2014.

"These are the normal terms that apply to our clients," Interfax quoted Rosneft chief executive Igor Sechin as saying during a signing ceremony in Beijing.

The deal was announced during a visit by Prime Minister Dmitry Medvedev to Beijing that aims to also lay the groundwork for the first Russian natural gas deliveries to the booming Chinese energy market.

Medvedev valued the total cost of the Rosneft-Sinopec contract at $85 billion (62 billion euros).

The heavyweight Moscow delegation in Beijing included the heads of the country's top oil and gas producers as well as Russian Energy Minister Alexander Novak.

Both Medvedev -- who once served as chairman of state-held energy behemoth Gazprom -- and Novak sounded an optimistic note on a potential deal being signed for Russian natural gas deliveries before the end of the year.

"We are now reaching a final agreement on a formula under which gas will start flowing from Russian to China," news agencies quoted Medvedev as saying.

"In essence, we have already agreed on a formula. Now we still need to agree on a price."

Moscow and Beijing have spent years haggling over the gas price -- a dispute that has seen China turn to the Central Asian energy market at Russia's expense.

Novak said that an agreement on the price and the signature of a contract before the end of the year would see Russian natural gas start flowing to the Chinese market in 2018-2020.

"The maximum volume would be 38 billion cubic metres of gas per year," the Prime business news agency quoted Novak as saying.

China's global hunt for crucial energy supplies is taking it into America's backyard, with two Chinese state firms winning production rights to a multi-billion-barrel deepwater oilfield off Brazil.

China National Petroleum Corp. (CNPC) and China National Offshore Oil Corp.(CNOOC) each took a 10 percent stake in Brazil's "Libra" field, alongside three other companies, at an auction on Monday.

Beijing is seeking oil, natural gas and other raw materials to keep the world's second largest economy moving and the government has is encouraging companies to "go out" and make acquisitions to gain both market access and international experience.

"Everyone is scrambling for resources worldwide," said Li Li, an analyst at consultancy C1 Energy.

"The whole of South America is relatively less developed with both abundant reserves and these kind of resources, so Chinese companies are more interested," she said.

China is already the biggest energy user in the world and the Organization of Petroleum Exporting Countries (OPEC) says it could also surpass the United States as the largest oil importer by 2014.

The chief executive of CNOOC, China's main offshore oil producer, said the latest deal will allow entry to an "ultra" deepwater field.

"It also aligns with our philosophy of seeking partnerships to expand our global footprints," Li Fanrong said in a statement.

CNOOC's traditional territory has been the South China Sea and East China Sea but last year it bought Canada's Nexen in a $15 billion deal despite some Canadian political opposition.

Less than two months ago, another Chinese state firm, Sinopec, bought a $3.1 billion stake in an existing oil and gas operation in Egypt -- despite political strife in that country.

The Libra auction drew several participants but no US firms, who saw too many strings attached, including major Brazilian government intervention through its Petrobras company.

Li Li played down the geographical proximity of the Libra field to the US, but acknowledged there was competition for energy resources.

"Chinese firms have a late start, so they must seek new assets which are harder to evaluate," she said.

Petrobras took a 40 percent stake in the field, while Anglo-Dutch giant Royal Dutch Shell and France's Total each grabbed 20 percent.

China already does significant business with Brazil, being a major buyer of its soybeans to feed its more than 1.3 billion strong population.

The two countries recorded $85.72 billion in bilateral trade last year, up 1.8 percent on 2011, making Brazil China's 10th-biggest trade partner.

For CNPC, China's largest oil and gas producer, the Libra deal comes at a time when the group and its listed unit are targets of a government probe into corruption -- which they claim has not affected operations.

A former CNPC chairman, Jiang Jiemin, is under investigation and has been removed as director of China's supervisory body for state-owned firms, state media said last month.

Four other executives of CNPC or subsidiary PetroChina are also under investigation, the companies and state media have said.

Stock investors were little moved by the Brazil venture. In Hong Kong trade CNOOC shares fell 0.63 percent, while PetroChina edged up 0.66 percent. However, Shanghai-listed shares of PetroChina fell 0.51 percent.

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