China’s Overseas Oil Output to Rival OPEC Members

Last Updated: 20, February 2013

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China’s foreign oil production could soon match rival OPEC members such as Kuwait and the United Arab Emirates, after Beijing’s state-owned oil companies spent a record $35 billion in foreign oil investments in 2012.

In the first tally of the impact of China’s recent overseas oil investments, the International Energy Agency estimates China’s national oil companies will produce 3 million barrels per day abroad in 2015, double their 2011 output of 1.5 million bpd and equivalent to Kuwait’s annual output.

Speaking at the sidelines of International Petroleum Week, IEA chief economist Fatih Birol said:

[quote] China is set to become a major producing country outside of its borders. A significant part of the increased foreign production comes from [merger and acquitsition] transactions last year. [/quote]

In recent years, the three major Chinese national oil companies (NOCs) – China National Petroleum Corporation (CNPC), China Petroleum & Chemical Corporation (Sinopec) and China National Offshore Oil Corporation (CNOOC) – have emerged as significant players in global mergers and acquisitions in upstream oil and natural gas.

State-owned national giants CNOOC and Sinopec have been on an investment spree, spending $92 billion since the start of 2009 on oil and gas assets in countries from the United States to Iran to Nigeria.

In February, CNOOC won approval from U.S. lawmakers for a $15.1 billion takeover of Canadian oil and gas company Nexen – a win that would grant CNOOC access to exploration and offshore opportunities in the North Sea, Gulf of Mexico and offshore West Africa.

According to data from the IEA, China is the world’s second-largest consumer of oil behind the United States and has accounted for roughly 10 percent of the world’s oil consumption and 40 percent of global growth in oil use in recent in years.

Non-IEA member China will continue to make the biggest contribution to the growth in global energy over the next 30 years and is set to overtake the U.S. as the world’s biggest oil consumer before 2030, according to the IEA.

China says its objective for investing internationally is to increase its national oil and gas reserves, to expand production and to diversify its sources of supply.

[quote] However, mistrust of Chinese companies is prevalent in Washington as it is presumed that China’s NOCs are acting under instruction and in close coordination with the Chinese government. [/quote]

Despite some instances of coordination, the IEA said there “seems to be a high degree of independence of the NOCs from government, and sometimes of subsidiaries of the NOCs from their headquarters.”

“As with many companies … Chinese energy firms are also trying to secure production outside of their country,” Birol said, adding their actions appear to mainly be driven by commercial incentives to take advantage of available opportunities in the global market place.

This independent, commercially driven behaviour is particularly pronounced in upstream investments and operations, while policy drivers seem to play a larger role in some, though not all, transport (pipeline) projects. Their investments have, for the most part, helped to increase global supplies of oil and gas via the same international market that other importers rely on.

In addition to the upstream supply activity, Chinese NOCs are investing in transnational oil pipelines in North, Central and Southeast Asia, adding new dimensions to the market and political dynamics of these regions while enhancing economic development.

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