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Chinese Corporations and the Scramble for Resources, a Study in the Oil Business

Les entreprises chinoises et la lutte pour les ressources, une étude dans le secteur pétrolier
Stefania Paladini et Suresh George

Résumés

La Géopolitique semble être de nouveau à la mode, et la géo-économie a gagné l’attention générale sous la forme de compétition entre les États pour les ressources naturelles. Bien que les implications de sécurité soient plusieurs et variées, et que la doctrine soit divisée sur les conséquences en terme de probabilité de conflits, elle a certainement provoqué une augmentation des tensions internationales sur les matériaux stratégiques. La Chine est au centre de ce phénomène, et beaucoup d’attention est consacrée à sa croissance économique ainsi qu’à ses possibles aspirations impérialistes dans le monde d'aujourd'hui.

Cet article explore en détails la quête de ressources des sociétés chinoises, en particulier celles impliquées dans le commerce du pétrole, et les conséquences en termes de sécurité à un niveau géopolitique.

Alors que la dualité « conflit / coopération » est prise en compte, cette recherche se concentre sur les sociétés pétrolières Chinoises et indiennes, qui agressivement tentent d'obtenir un accès privilégié aux marchés et aux ressources. Les multinationales des deux géants asiatiques font concurrence à celles des pays de l'OCDE et d'autres acteurs émergents. Pour illustrer les défis que ce phénomène implique, l'analyse va utiliser une étude de cas spécifiques, PetroChina (et sa société-mère CNOOC), en montrant la façon dont elles sont impliquées dans l'acquisition de ressources à l'étranger et comment cela les a placées sur une route de collision avec les sociétés indiennes ONGC et ONGC Videsh Ltd, impliquées dans la même activité.

Enfin, l’analyse se penchera sur la rivalité entre l'Inde et la Chine en termes économiques et géopolitiques dans le contexte plus large des questions économiques mondiales.

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Texte intégral

1. Introduction, Resource-driven conflicts and international security. A geopolitical approach

1The term geopolitics appears to be increasingly back in fashion, as a brief look at daily newspapers can easily prove. It seems that the term suffers from a degree of “inflation”, as sometimes it is clearly misused, with geopolitics being conceived in all possible forms, even when not appropriate. This needs to be mentioned, because an improper use of the term only increases confusion.

2In its original definition, the economic aspect was certainly present but not central to the analysis, as the focus was mainly on power politics. It was Luttwack, in 1990, who proposed the term geoeconomics, implying that one of the most important areas of the traditional geopolitics had by then become the scramble for resources, in particular highlighting the new centrality of economic and trade competition as substitution for military confrontation among great powers. This has not changed and the depletion (real or perceived) in strategic resources made it only more central. Competition between states will be increasingly centred not on “strategy and security” but to protect “vital economic interests’ by geoeconomic defenses, geo-economic offensives, geo-economic diplomacy, and geoeconomic intelligence” (Luttwak, 1993: 19). Luttwack was not alone in proposing a renovated approach to geopolitics. The so-called “Critical Geopolitics” does the same, as presented by John Agnew (2003), Simon Dalby (1990 & 2003), Derek Gregory (2005), Gerard Ó Tuathail (1996 & 2003), Neil Smith (2004 & 2005), Matthew Sparke (2007), and combines traditional geopolitics with a new formulation of the political discourse, even if not everybody agrees on the centrality of the economic aspects. However, the new geopolitics is quite often related to geo-economics. It is no longer about competition between states as such, but competition about resources. Therefore in the case of natural resources the widespread use of the term “geopolitics” seems appropriate. This is because not only is there an evident geographic connotation (natural resources are linked to a territory) but also the possession and exploitation of resources is normally linked to fierce competition and, in the case of energy, even wars.

3This brings the discussion to another question. What is the likelihood of a conflict over resources? According to Klare (2001; 2010), in the future, conflicts over resources will be the primary cause of wars. This is nothing new. According to UNEP (2009), about 40% of all intrastate conflicts since 1950 have been connected to natural resources. Much research since the 1990s has been devoted to analysing this relationship. One of the most common approaches is commodity chain analysis (O’Lear and Diehl, 2005; Le Billon, 2005). However, this is generally undertaken to analyse intra-state conflicts, rather than addressing inter-state competitions, about which the evidence look less compelling. One of the most cited analyses of the relationship between conflicts and resources, Collier (2000), specifically focuses on civil wars, finding a positive correlation. Other studies (Fearon and Laitin, 2003), do not appear to find a strong relationship. In a quite detailed statistical analysis, De Soysa and Neumayer (2007) showed in their dataset, which uses rent data, that only energy wealth is positively correlated, increasing the risk for civil war onset; as a general rule, “countries that derive more than one third of their export revenue from oil have a higher risk of civil war onset” (De Soysa and Neumayer, 2007:12). The same, however, is not true, or proven, for mineral wealth, where things appear to be different. Finally, other studies (Humphreys, 2005; Smith, 2004) raised doubts even about energy correlation. As Samset (2009) in her review of the literature about conflicts and natural resources shows, while there is a certain link between the two, it is much more difficult to define the exact nature of the relationship, especially if energy is not included in the commodities. Also, the analysis works for natural resources broadly defined, but not for single commodities (Ross, 2004; 2006), as significant datasets are difficult to build. Furthermore, a great deal of the variability in the findings seems related to the different formulations in the dataset taken for analysis. This does not mean that the databases themselves are the only cause of the variability; it is rather that, given the variability in the dataset formulation, other sources of variance are difficult to identify and even more to prove at a statistical level. Finally, soft commodities (forestry, fishing and agricultural products) are generally not taken into account in these types of elaborations, as they are renewable, and subject to different dynamics. As some studies suggest (Homer-Dixon, 1999; Theisen, 2008) a scarcity of renewable resources seems to be less likely to provoke violent conflicts, and therefore responds to a different logic.

4The debate remains an open one, and it will not be addressed here, as the aim is to conduct the analysis on a different level. First of all, the focus of present research will be on interstate competition, leaving outside intra-state tensions that lead to conflicts and civil war. While in some cases they are linked, here only the interstate dimension will be taken into account. Also, instead of looking at the relationship with conflicts, the study will identify the vulnerabilities that can generate conflict situations. This can be assessed in terms of restricted access to resources resulting from a policy action of one of the players (increasing vulnerability which translates in heightened potential for conflict) or enhanced availability as the result of a cooperative deal which increases the net market availability of the resources themselves.

5The article will be specifically investigating a case-study in the oil business, analysing the activities of one of the Chinese oil companies, PetroChina, and the way they can lead to resource competition between China and India. Also, for the relevance of government interests in oil business, it will be assumed that the companies represent proxies of their national states. While this can be a matter of discussion in the case of Western oil companies, it represents a much safer bet when dealing with emerging countries’ corporations, where state interests and the degree of control is certainly stronger. China represents, without any doubt, the best example.

2. The Structure of the National Oil Companies in India and China

6Before focussing more in detail on the case-study involving PetroChina, it is necessary to briefly discuss the structure of the energy sector in the two countries. In both India and China the energy sector and the oil industry more specifically is regarded as crucial for the nation’s development and sustained growth and therefore subject to state management and control. The dominant player in China is the China National Petroleum Company (CNPC), which is 100% state owned with its president holding a ministerial rank (Tansey 1994). It is also a holding company for three partially privatised oil companies, the China National Offshore Oil Corp. (CNOOC), the China National Petrochemical Corp. (Sinopec) and PetroChina, where it holds 87% of total share, (Petrochina 2010). Table 1 below shows the ownership structure of the main players in the industry.

Table 1: China Oil & Gas Report (2009) 'Competitive Landscape'. China Oil & Gas Report, 55-60

Table 1: China Oil & Gas Report (2009) 'Competitive Landscape'. China Oil & Gas Report, 55-60

Source: (China Oil & Gas Report 2009)

7Chinese National Oil Companies (NOCs) have been on the hunt for more assets as China’s economic growth increases domestic oil demand. Many of these acquisitions have been mega deals as seen in Table 2 (Petroleum Economist 2009)

Tables 2: Showing Chinese NOCs Global Activities

Tables 2: Showing Chinese NOCs Global Activities

Sources: Petroleum Economist 2011 - Petroleum Economist 2010 - Petroleum Economist 2009a - Petroleum Economist 2009b

Petroleum Economist (2011) 'China's Upstream M&A Activity on a Roll'. - Petroleum Economist 78 (1), 26-26; Petroleum Economist (2010) 'Africa'. Petroleum Economist, 8-8; Petroleum Economist (2009a) 'Angola: China Cements its Position'. Petroleum Economist, 35-35; Petroleum Economist (2009b) 'Asia and Australasia'. Petroleum Economist, 31-31

8In the case of India, the main company is the Oil and Natural Gas Commission (ONGC) which controls 61% of India’s crude oil output and 71% of natural gas production, (India Oil & Gas Report 2009). The other major players are another state owned company, Oil India Limited (OIL) and the privately owned, Reliance Industries. State control of the sector was liberalised in 2002 with the ending of the Administered Pricing Mechanism (APM) used to control oil price. This set the stage for a partial privatisation of the oil industry, a long and still ongoing process (EIA, 2006), even though a form of state control was maintained by the introduction of the market driven price mechanism (MDPM). Table 3 lists the main players in the Indian oil industry.

Table 3: India Oil & Gas Report (2009) 'Competitive Landscape'. India Oil & Gas Report, 51-56

Table 3: India Oil & Gas Report (2009) 'Competitive Landscape'. India Oil & Gas Report, 51-56

Source: (India Oil & Gas Report 2009)

3. The Chinese quest for raw materials: the case of Petrochina.

9China is at the very centre of this debate about resource scramble, and a number of studies mentioned China’s economic growth together with its possible imperialistic aspirations. Many of these imperialistic aspects have been documented in previous studies. Some of these have termed China’s rise “a mixture of imperialism and nationalism” (Derbyshire 2001), while others see its imperialism as a by product of its economic success (Berry 2000); yet others view China’s renewed imperialism as part of its collective negative national identity from its historical past (I-Yao Shen 2009, Suzuki 2007). It is well known that China has long used state-owned enterprises (SOEs) in its effort to acquire resources. A measure of China’s aggressiveness is its increasingly large upstream M&A activities, worth around US $26bn in 2010 or about 15% of global M&A activity in the upstream sector (Petroleum Economist 2011). Fan (2008) was one of the scholars focussing on the rise of emerging market multinationals (EMM), of which PetroChina is only one of several. A characteristic of EMMs in general, and China’s in particular, seems to be the use of government-controlled companies especially in resource-seeking activities, and this point has proved problematic, as the failure of some recent acquisitions has shown (The Economist, 2010). It is generally accepted that China uses its SOEs to lock up strategic assets worldwide and to control the markets of strategic materials. Some authors (Ramesh 2010) also suggested that SOEs profits in general (and PetroChina’s in particular) in 2010 were partly as a result of the Chinese Government’s economy stimulus that increased the demand for petrochemical product consumption in the domestic market. Also, and a more serious concern, is the fact that China can act as a force to boost oligopoly in the resource market, instead of working toward its expansion by supporting non-dominant players, as Japanese companies did in the 70s and 80s (Wells, 1993). While China’s role in facilitating or constraining market access to resource is still a matter of controversy (Moran, 2010; Broadman, 2007) the net result is of China being prevented from acquiring strategic issues in areas dominated by other Western players, as in Canada and Australia (New York Times, 29 August 2009 ).

10In order to illustrate SOEs’ activities in the oil business in more detail, this article looks at the activities of PetroChina and of its parent company, CNPC. The rationale for this choice is the sheer size of the company based on market capitalization as well as the fact that its primary business is in natural resources (PFC energy 2010). Also, PetroChina is one of the most active SOEs quoted on international stock exchanges, ie in the USA, Germany, Hong Kong and China. Together with its parent company it is the largest oil and gas producer and distributor in China. PetroChina is also the world’s second largest company by market value (PFC energy 2010). Being state owned with the China National Petroleum Corporation (CNPC) owning over 86.29% of its shares (Petrochina 2010), its commercial policy and oil seeking strategies generally require government approval even when clearly profit-driven. Along with Sinopec, PetroChina is the only other company through which refined oil products reach the Chinese markets (Zhang and Saydak 2009), while CNOOC only deals with offshore investments and rarely exports to the internal market.

Chart 1: Petrochina’s Oil Resource activities

Chart 1: Petrochina’s Oil Resource activities

11PetroChina operates in 11 countries while its parent company CNPC is present in 29. The president of PetroChina, Zhou Jiping has been reported affirming that the company is interested in building oil and gas pipeline networks in Central Asia and Russia and also aims to build relationships with oil rich nations (China Chemical Reporter 2009d). There have been cases where CNPC has taken stakes in several countries and later transferred these stakes to PetroChina (Flannery 2007), which makes it difficult to separate the overseas activities of these SOEs. It has also been proposed (Toloken 2010) that Petrochina is keen on developing responsive strategies to the competitive pressures in order to avoid opening up the domestic market. An example being used here is the impact of cheaper petrochemical derivatives from Middle Eastern producers that could upset PetroChina’s market share. In this context, it can be assumed that SOEs like PetroChina may want to control resource assets worldwide to gain a price advantage over other producers. A recent statement by Jiang Yaoping, Vice Minister of Commerce, declaring that China will increase imports of technology and key equipment (Beijing Review 2010), seems to confirm this interpretation.

4. The coming conflict with the other emerging powers. PetroChina and its Indian competitors in the oil business

12International observers have quickly shifted from an idea of idyllic cooperation among China and India – the Goldman Sachs’ Chindia (Goldman Sachs 2005) to a scenario where the two countries, divided by ancient territorial claims among others (Dompierre 2009), appear competing fiercely on South-South dialogue leadership and natural resources acquisitions. Both Chinese and Indian scholars acknowledged, however, the complexity of this bilateral relation (Yin 2006; Zhao 2006, 2008) even if only a few (Sun, 2002) dared to produce a frank appraisal of the difficulties of cooperation.

13While trade has been identified (Zhao 2010) as one of the main non-political areas of possible, positive interaction between the two Asian powers, the geopolitical aspects of this rivalry suggested that a conflict dimension can be indeed more likely than cooperation. Also (Huchet 2008) the achieved normalisation of the relations has not yet translated into a strategic partnership. Whereas trade and investment have been growing steadily (Voita 2009), China has generally adopted a passive attitude (Wen 2009) leaving quite often the initiative to New Delhi.

14Moreover, China and India seem still accusing each other of aiming at “hegemony” (Rajan 2010) in South Asia, while trying to mutate the status quo in other parts of the world to one’s own favour. This Indian view has been undoubtedly comforted by what appears a new Chinese assertiveness in defending its “core interests”, both in East and South China Sea, in what is another resource-linked territorial dispute. On the other side, hardliners in China assert that the real motivation of the emerging alliance US-India is “the Chinese factor”, i.e., a China-containment strategy (Zhang 2009).

15While the possibility of a resource-driven conflict among India and China is by no means confined to the oil business (steel represents another controversy-ripe sector; Business Standard 9 July 2010), the competition among the two Asian giants for oil is sustained and virtually reaching all areas of the planet. The issue is of a special geopolitical significance, as it involves also the security of the sea lanes (aka SLOC, Sea Lanes of Communication) and the development of deepwater ports to secure oil supplies, as Gwadar in Pakistan (Chen 2009), which can also be used as an overseas base for a fast developing blue-water Chinese Navy. This will pose formidable challenges to India’s dominance of Indian Ocean, and further hinder bilateral relations. This strategic threat is reinforced by the recent development of a series of Chinese basis, the so-called “the string of pearls”. Bustelo (2007:3) argues that ‘China’s energy trade is leading it to a greater economic, political, and military influence in the oil producing areas’, which bears great potential for conflict. Other scholars (Kumaraswamy 2007) identified another source of contention in the fact that India and China have the same set of potential suppliers of crude oil like Saudi Arabia, Iran & Russia; however, they also argued that China may be more willing to cooperate with India in areas which have anti-US tensions. On this, Feller (2006) has reported that both India and China oil firms have invested in states which are, or have previously been, anti-US, like Vietnam, Myanmar, Sudan, Libya, Syria, the Ivory Coast and Iran. Two initiatives worth to be mentioned are the India-China Strategic and Cooperative Partnership for Peace and Prosperity and the Shanghai Cooperation Organization, in which India has been granted observer status by China. This potential for cooperation is clearly political and government-driven. The rationale is for the two huge oil consumers to join forces and drive down competition (Hari 2005) and an example has been the CNPC (China) and ONGC Videsh Ltd-OVL (India) joint-bid in Syria for PetroCanada’s assets. However, this may change quickly if the relations between the two Asian powers deteriorate for whatever reason.

16Furthermore, the natural rivalry between the two countries (India and China are amongst the world’s biggest consumers of oil and energy importers) is enhanced by other issues of different kind. Political, as China continues to support Pakistan, while India meddles in Tibet. Economic, as China’s economic rise threatens India, which trails its neighbour on almost every conventional socioeconomic indicator. Industrial, as China may be strong in manufacturing and infrastructure and India in services and information technology, but the latter's manufacturing industry is becoming globally competitive, while China's technology sector threatens to match India's in a decade (Behrendt and Khanna 2003). An example of this generalised rivalry has been observed in a series of bids between January and October 2005, where China's Sinopec and China National Petroleum Corporation (CNPC) and India's Oil and Natural Gas Corporation (ONGC) clashed over purchases of oil assets in Angola, Ecuador, Kazakhstan, Myanmar, Nigeria, and Russia. In these cases, China won many contracts but at a higher price due to India’s aggressive bidding. In order to explore the potential for conflict versus cooperation, two Indian companies have been identified here as direct competitors of PetroChina: the Oil and Natural Gas Commission (ONGC) Company, together with its subsidiaries, ONGC Videsh Ltd. (OVL) and the Oil India Limited (OIL), all of them SOEs as their Chinese competitors.

Chart 2: OVL’s Oil Resource Activities

Chart 2: OVL’s Oil Resource Activities

17The Indian company OIL has been reported to have a fund of US $2.47bn for acquisitions, which is quite a low amount compared to the war chest of their Chinese peers. However, in March 2010 (Businessweek 2010b), Indian SOEs have been asked to speed up the process of acquiring new resources and in some cases to secure at least one asset a year. India is also considering setting up a sovereign wealth fund to help with these acquisitions, as China has already done with CIC in 2008.

5. A world map of PetroChina activity: geopolitical considerations and potential for conflicts. Acquisitions in advanced economies.

18In order to illustrate the geopolitical aspects of the Chinese scramble for resources, a map of PetroChina acquisition strategy will be proposed as a case-study, with the details of its acquisitions divided by continents and countries, and with the indication of the effects on market access. Also, a mention will be made when other players are competing for the same resources, to better illustrate the potential for conflict or cooperation.

Chart 3: India and China: a comparison

Chart 3: India and China: a comparison

19As we can observe from the map, the geopolitical dimension is extremely important here, and this is evident by looking at the areas in which PetroChina is not present. First of all, the US. It is well known that Chinese corporations have been so far vetoed from entering the US market of strategic commodities, as the well-known example of Unocal in 2005 showed. In that case, CNNOC was prevented to buy the company by the US government on security concerns’ ground, no matter how good was the deal for the American corporation and how many guarantees were given by the Chinese bidder (Shirk, 2007).

20Europe is another area where Chinese FDIs, even though in expansion as everywhere, have been concentrated in manufacturing (automotive) and services, but seldom in raw materials. However, quite recently (2009) PetroChina approached the UK oil market, in the form of a takeover of the Grangemouth refinery owned by INEOS Olefins & Polymers (Alperowicz 2009). The deal is nothing of a hostile takeover: the UK corporation, INEOS, had issues with falling profits and saw this investment as a cash injection as well as a link to a global refining chain. Therefore, PetroChina completed in 2010 a preliminary bid for one of the INEOS refineries producing about 200,000 barrels per day. This case is not an isolated one; actually China showed interest in several European refineries, which have been idle as the economic recession hit the consumption of crude oil in Europe. One of the reasons of PetroChina’s specific involvement in Grangemouth and by extension, in INEOS, is the intrinsic value constituted by the access to an integrated, high-tech refinery. This may well include a technology transfer agreement always sought after by the Chinese corporations, but it can also result in ‘locking’ refining capacity which can result in a future conflict situation. However, the acquisition was delayed, and there are hints that one of the reasons has been the interest of an Indian private oil company, ESSAR, to join the bidding process.

21Two other advanced economies, Canada and Australia, both rich in natural assets and relatively open to FDIs, have been since a while a favourite target for the Chinese resource-seeking, and PetroChina has been well positioned to exploit the possible deals.

22In Canada, PetroChina has been targeting Oil sands from Canada's Athabasca Oil Sands Corp (AOSC). A subsidiary of PetroChina, PetroChina International Investment Company Limited (PetroChina International), acquired 60% interest in AOSC’s MacKay River and Dover oil sands projects in February 2010 (AOSC 2009, China Chemical Reporter 2010b). The US $1.9 billion deal has already generated controversy regarding the environmental damages for converting bitumen from tar sands to oil. It has generated surprise the fact that PetroChina committed this amount of money in an investment-intensive, crude oil extraction process which uses steam to separate oil from the tar in the sands (New Scientist 2009), and that is certainly not for an immediate exploitation. From a geo-economical point of view, the Canadian government support for PetroChina investment in this area can be attributed to two basic reasons. First, and probably the most relevant, is the need for investments into the Alberta and British Columbia provinces where there is a severe deficit on account of declining royalties from natural resources. On the other hand, there is a recent trend for Canada to assert its sovereignty over Arctic areas, particularly over the strategically important North-West Passage, which has been disputed by both the EU and the US. Both players (China and Canada) have interests in joining forces to protect the Arctic Areas. Canada does not have the resources needed to enforce its sovereignty over the North-West Passage and China has an history of supporting regimes and states which have suffered from a lack of support from the major world powers or multilateral institutions. Also, in the case of China, there is also the not-so-vested interest in ‘locking up’ resources that could be valuable in the future – in this specific case, once the technology to separate the tar from the sands becomes more refined or when a market arises for tar sands and conventional oil resources run out. The Athabasca Oil Sands are the second largest oil sand reserves in the world and therefore the deal has potential for future conflicts, even if for now the exploitation of tar sands still looks uncompetitive.

23The other favourite hunting place for Chinese corporations is represented by Australia, where oil is only one of the strategic resources sought after by China (others being iron and the (in)famous rare-earth elements).

24The acquisition of Arrow Energy’s through a joint-venture with Anglo-Dutch Shell in August 2010 was one of the cases in which PetroChina consistently tried locking up resource assets. In this case, the US $3.2bn investment is looking at controlling physical assets– coal reserves - as well as the technology needed to extract the coal-bed methane gas. This technology would be particularly useful, as China has huge non-conventional gas reserves to which Arrow’s technology can be usefully deployed. A key aspect of this acquisition has been the Free Trade Agreement between China and Australia that has favoured the takeover. Other investments made by PetroChina include a deal with ExxonMobil to purchase gas from the Gorgon liquefied natural gas (LNG) project over a period of 20 years. This is reported to be worth US $ 41.1 bn over the entire period (China Chemical Reporter 2009b).

25Another important agreement PetroChina had signed in Australia was the US $ 37bn deal in 2007 with Woodside Petroleum to sell 2-3 million tonnes of LPG per year to China (Chemical Engineer 2007); its relevance resides in the fact that Australia has the world’s 2nd largest LPG reserves after Qatar. In a recent development, one of the other investors in Woodside, Shell BV, has now offered to sell at least 24% of its stake to PetroChina, which then brings the Woodside reserves within reach of the Chinese government.

26It has to be noted that in both countries Indian corporations have just started to show up and no significant deal has been inked yet by the two companies taken here into exam.

6. Competition in the emerging countries. Shopping for the best offer.

27While the examples given so far are a good illustration of the potential for conflict, it is in the emerging countries where the competition between China and India has got really fierce. In a lot of cases, the target states have been able to exploit this rivalry in a convenient way, playing the corporations of the two countries one against the other and generally securing a better deal. This has been especially the case of some Asian resource-rich countries, as Myanmar, which has recently seen the interest of both growing significantly together with the FDIs and grants obtained.

28In Middle East both players have a consolidated presence – and the region represents the largest source of China’s oil imports, even if diversification of suppliers is well on the way. In Qatar PetroChina has signed a joint production bid for Block D off the coast of Qatar along with Shell and Qatar Petroleum. Although PetroChina has a stake of 25%, the agreement states that the production will be sold to Qatar Petroleum (China Chemical Reporter 2010a). In a related development, Alperowicz (2009) reports that these three oil companies have also created a joint-venture for inward investments in China. The joint-venture will also set up a refinery in Taizhou, China, with the feedstock (ethylene) being supplied by Qatar Petroleum.

29PetroChina also started an investment in Iraq, by entering into collaboration with TOTAL, Petronas and the Iraq NOC, South Oil Company, to develop and operate the Halfaya Oilfield for 20 years. With a 37.5% stake, the firm has access to a total potential of 4.1bn barrels of oil (China Chemical Reporter 2010c).

30Saudi Arabia is still the second China’s supplier (overtaken by Angola in 2010) and the centre of Chinese interests in the region. This is not surprising, given the country’s world largest oil reserves and its ability to regulate oil prices by peaking production. However, this key state has traditionally gravitated into the US orbit, and only recently has been opening up to different players. In 2006, the Saudi monarch paid visits to both India and China as an opportunity to develop alternative spheres of influence. While not completely trusted by the Saudis, relations with China have been improving. So far, SINOPEC has been active in the Rub al-Khali Desert of Saudi Arabia and Saudi Arabia has invested in the Chinese city of Aksu as well as in many refineries. With respect to India, both as a consumer state and a growing regional power, the Saudi approach is somehow different, as the country hosts the 2nd largest Muslim population and there are about 1.5mn workers from India that work in Saudi Arabia.

31Different considerations have to be done in the case of Iran, which is China’s third crude oil provider; the links between the two countries look strong. PetroChina’s parent, CNPC, has been active in phase 11 of the South Pars gas field in Iran for which it has paid US $4.7bn. The South Pars field is the world’s largest pure gas field. However, in recent times, there have been reports that the Chinese government has informally asked its SOEs to slow down the cooperation in Iran because of the US-led sanctions (Aizhu 2010). India has been so far less present in the country, even if OIL has an exploration agreement with the Iranian National Oil company for an Exploration & Production Service Agreement in the North Farsi offshore basin (Oil India Limited 2010) and is currently producing 3,300 bpd. There have been also some instances of cooperation between China and India in Iran, as in the case of the joint exploitation of SINOPEC and OVL in the Yadavaran oil field (Kumaraswamy 2007).

32Another US-sanctioned country, Myanmar, looks well - positioned in doing business with both its powerful neighbours. So far, China has been the dominant player, but in the last years India has been catching up. Future plans hint at an even more substantial Chinese presence as in the case of the joint-venture that CNPC has with India’s OVL in the PipeCo 1 & 2 projects. The Chinese corporation CNPC is going to build a 2,250Km pipeline from China to Myanmar with a capacity for 440,000 barrels per day. This pipeline is geopolitically important to China as it would help to solve the ‘Malacca Strait security dilemma’. Currently over 80% of China’s oil supplies are shipped through the narrow straits of Malacca (Reuters 2010e) and this represents a potential security threat to China in case of hostilities. The access to Myanmar will provide access to the Indian Ocean for the South-Western Chinese provinces.

33South-East Asia is an area in which China’s economic power is growing steadily, and this has effects on the commodity market as well. The PetroChina story in Indonesia fits a classic case of resource acquisition. In 1970, the local national oil company Pertamina created a corporation called Sante Fe Energy with several multinational companies. This company was taken over by Devon Energy which was subsequently acquired by PetroChina in 2002, giving the SOE access to the E&P assets in Indonesia. A recent report indicates that PetroChina is increasing its investment in the local subsidiary, PetroChina International Indonesia, from US $491 million to US $639 million in 2010 (Beijing Review 2010). In addition, PetroChina is the operator on the Salawati Island (Reuters 2010f) another Indonesian basin oil field however small by international standards (produces only 2,200 bpd).

34Singapore, with its strong Chinese community and its political links to China is an ideal partner for Chinese corporations. Here PetroChina has used a 100% subsidiary to take over a 45.51% stake in SPC, Singapore Petroleum Company Limited (China Chemical Reporter 2009a). The acquisition of SPC seems to fit a precise geopolitical plan, according to Hennock and Foroohar (2009), as the company would give China access to the oil wells of 5 different Asian countries (Thailand, Vietnam, Cambodia, Malaysia, Indonesia) and Australia, as well as the control of a part of the trans-ASEAN gas-pipeline network. There are also other motivations in what seems to be the Chinese choice of Singapore as Chinese regional hub. First of all, the fact that the city-state is close to the resource-rich Spratly Islands where Vietnam, China, Philippines and Japan have tried to assert claims upon. Moreover, as an open and respected market, Singaporean companies like SPC can be used as proxies to acquire assets indirectly in other nations where Chinese companies are more likely to be blocked.

35Looking to the former Soviet bloc, China’s links with both Russia and ex-Soviet Republics in Central Asia are expanding rapidly. China has signed an agreement with Russia to supply 15 million tonnes of crude per year from 2011 until 2030 (China Chemical Reporter 2009c) and PetroChina is building a refinery near Liaoyang. The refinery will receive the crude through the ESPO, the East-Siberian Pacific Ocean pipeline (Reuters 2010b). The ESPO represents a key strategic point in the region as a major artery for Russian oil exports and will provide China 300,000 barrels per day, about 3.8% of China’s total requirements for crude oil (Reuters 2010c). Both India and China had clashed over the refinancing of Yuganskneftegaz in December 2004 (Businessweek 2005). Although no stakes were sold, China had lent the Russian government US $6bn in return for oil at special prices. On another hand, India has instead invested over US $1.7 billion in Sakhalin-1 oilfields.

36Kazakhstan is another area of possible conflict between India and China. In 2007, PetroChina acquired 67% in PetroKazakhstan from CNPC for US $2.73bn (China Chemical Reporter 2007). This is yet another case where the independent role of the SOEs is not very clear. In this case, one Chinese SOE bought an interest in overseas countries and then transferred it to another. CNPC acquired PetroKazakhstan for US $4.18bn after bidding US $600mn more than India’s OVL consortium and has been mentioned as throwing that much money to stop a potential rival from acquiring assets. The Indian Government is reported to have tried to lobby with the energy giant LUKOIL in order to get support in this bid, as the Russian company owns a stake in PetroKazakhstan (Kumaraswamy 2007).

37China’s links with Africa are the results in some case of long-term relationships (Cheng & Huanghao, 2009), even if in the last ten years the Chinese search for resources has made them blossoming further and has created new partnerships. India started later but seems rapidly catching up. Angola is now the first Chinese supplier of oil. While Indian companies have been trying to enter the market, they have been so far not successful. In 2005 OVL lost to SINOPEC in a bid to take over the Shell-owned Angolan oilfields, as the Chinese government offered a US$ 2bn aid package to Angola to swing the deal in their favour (Economist Intelligence Unit 2005).

38Sudan is another China’s stronghold, where CNPC and PetroChina operate the 100,000 barrels of oil per day Khartoum Refiner. There is evidence of a possible conflict between the two; OVL is building a US $1.2 bn refinery and a 460 mile pipeline (Gee 2005) which will put it in direct conflict with China. China has up to 40% stake in Sudan's GNPOC as well as interests in three other Sudan oilfields. One of the factors that could aid Chinese attempts to control oil supplies is the fact that China has supplied arms to the Sudan government (Economist Intelligence Unit 2005). The dichotomy of power in North and South Sudan makes a conflict even more possible. In 2007, Khartoum looked at the possibility of renegotiating the contracts with Chinese while the government in the South refused to negotiate with Chinese companies (Zhao 2007). With the ongoing separation of Sudan in two different states the future of these deals is unsure.

39India has also tried to enter markets not completely dominated by the Chinese. In Gabon, for example, OIL has showed interests in the FT-2000 basin in Remboue oil field. This oilfield is operated as a joint-venture with another Indian company and a minority 10% stake of a Singaporean company (Oil India Limited 2010). In Nigeria, where Petrochina has an agreement with Nigerian National Petroleum corporation to sell 30000 barrels of oil per day to China (Reuters 2010a), a joint-venture with ONGC and Mittal Investments has started drilling in deep offshore oil exploration block 279 (Businessweek 2010a)

40Finally, Latin America represents the last, but not the least, area that has seen the interest of the two Asian powers growing fast. In the case of China, in the last ten years trade and investments have been growing exponentially, while India has only started looking at the region and looks far behind its competitor.

41So far, only China signed significant deals. Venezuela, with its huge oil reserves, is one of the main partners. Petrochina is a major buyer of the Venezuelan company, PDVSA, which provides up to 7.2 million barrels of oil per month. Most of the oil shipment is used to pay off a US$20bn loan given to Venezuela in April 2010 (Reuters 2010d) and there are suggestions that the government wants to increase the shipment to 1 million barrels per day, about 12.5% of China’s total requirement. Also, PetroChina has recently started the construction of huge refineries in Guangdong, in Southern China, to treat the heavy Venezuelan oil (Stratfor 6 May 2008).

42Even more promising appears the future Chinese cooperation with Brazil, the region dominant power now in steady growth. During the recent crisis, in 2009, the two states signed a currency swap agreement of weak financial impact but of great political significance. Regarding oil deals, PetroChina has allegedly entered into an agreement to cooperate on ethanol projects with PetroBras (Sissell 2010). The joint venture is expected to be used to export ethanol from Brazil to China.

Conclusions

43While resource-seeking activities are more often involving fierce competition than cooperation, instances of armed conflicts have been rare, even in the oil business. If Iraq war is taken out from the dataset, positive correlation goes rapidly down. However, this does not mean there are not risks; commercial wars and retaliations, in an interconnected and globalised world thriving on global supply-chains, are dangerous and to be avoided at all costs. China, among all players, is the one now especially on the limelight for its aggressive resource acquisition strategy, and there is evidence this policy has started to backfire. As a consequence, the Asian giant now faces increasing opposition and government restrictions (e.g. Australia).

44As for the competition with other players, it is safe to say that, where the size of the investment matters, China has outpaced India in seeking resources worldwide, as a brief look at the world map can confirm. Although it has been not discussed here, Chinese corporations look well positioned even compared to other aggressive resource-seeking countries, as Japan and South-Korea, even if in some cases they have been more successful in gaining a privileged access (e.g., South-Korea agreement with the Bolivian government for lithium exploitation; Bloomberg, 24 August 2010). There are also suggestions that India’s democratic form of government makes it slower when compared to China’s and that this is a reason of being uncompetitive when bidding for big oil deals.

45While the net effect of China’s resource seeking has been largely positive in the sense of strengthening non-dominant players and opening new markets, and therefore enlarging the supply side, it seems nevertheless likely is that China will go on facing aggressive competition and opposition toward its acquisition strategy, as the world gets scared by its perspective dominance. A more flexible approach in term of cooperation and transparency will certainly help China to enjoy an unrestricted access and avoiding containing strategies.

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Table des illustrations

Titre Table 1: China Oil & Gas Report (2009) 'Competitive Landscape'. China Oil & Gas Report, 55-60
Crédits Source: (China Oil & Gas Report 2009)
URL http://espacepolitique.revues.org/docannexe/image/2151/img-1.png
Fichier image/png, 134k
Titre Tables 2: Showing Chinese NOCs Global Activities
Crédits Sources: Petroleum Economist 2011 - Petroleum Economist 2010 - Petroleum Economist 2009a - Petroleum Economist 2009b
URL http://espacepolitique.revues.org/docannexe/image/2151/img-2.png
Fichier image/png, 67k
Titre Table 3: India Oil & Gas Report (2009) 'Competitive Landscape'. India Oil & Gas Report, 51-56
Crédits Source: (India Oil & Gas Report 2009)
URL http://espacepolitique.revues.org/docannexe/image/2151/img-3.png
Fichier image/png, 113k
Titre Chart 1: Petrochina’s Oil Resource activities
URL http://espacepolitique.revues.org/docannexe/image/2151/img-4.png
Fichier image/png, 449k
Titre Chart 2: OVL’s Oil Resource Activities
URL http://espacepolitique.revues.org/docannexe/image/2151/img-5.png
Fichier image/png, 400k
Titre Chart 3: India and China: a comparison
URL http://espacepolitique.revues.org/docannexe/image/2151/img-6.png
Fichier image/png, 384k
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Référence électronique

Stefania Paladini et Suresh George, « Chinese Corporations and the Scramble for Resources, a Study in the Oil Business », L’Espace Politique [En ligne], 15 | 2011-3, mis en ligne le 26 octobre 2011, consulté le 24 avril 2017. URL : http://espacepolitique.revues.org/2151 ; DOI : 10.4000/espacepolitique.2151

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Auteurs

Stefania Paladini

Senior lecturer in statistics and international trade
Coventry University
aa5862@coventry.ac.uk

Suresh George

Senior lecturer in strategy, business and management
Coventry University
aa3262@coventry.ac.uk

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