China is on track to produce enough crude oil outside its borders to rival OPEC members such as Kuwait and the United Arab Emirates, after its state-owned oil companies spent a record $35-billion (U.S.) buying foreign rivals last year.
In the first tally of the impact of China’s recent overseas oil investments, the International Energy Agency calculates China’s national oil companies will produce 3 million barrels a day abroad in 2015, double their 2011 overseas output of 1.5m b/d and equivalent to Kuwait’s annual output.
“China is set to become a major producing country outside of its borders,” Fatih Birol, chief economist at the IEA, told the Financial Times on the sidelines of IP Week, an annual gathering of the oil industry in London. “A significant part of the increased foreign production comes from [merger and acquisition] transactions last year.”
The surge of acquisition activity by Chinese oil companies – and their investment in unconventional drilling technologies – is reshaping the global oil industry.
Chinese national oil companies such as CNOOC and Sinopec have been on a buying binge over recent years, spending $92-billion since the start of 2009 on oil and gas assets in countries from the United States to Angola, according to Dealogic. Last year, their acquisitions hit a record of $35-billion. Transactions involved joint ventures as well as outright purchases.
Some analysts and policy makers fear China is grabbing oil fields to secure its own energy needs. Analysis by the IEA and others, however, indicates that Beijing’s oil companies generally sell their overseas production in the international market, rather than shipping the crude back to China.
Chinese oil executives say that it would be impossible for them to meet their country’s domestic energy needs through overseas acquisitions because of the sheer scale of the demand. China is the world’s second-largest importer of crude.
“As [with] many companies . . . Chinese [energy firms] are also trying to secure production outside of their country,” Mr. Birol said, adding that their main drivers were “commercial interests.”
China’s state-owned energy companies have a mandate from Beijing to achieve annual production targets. As China’s largest domestic fields are depleted, the firms are turning overseas to meet their targets.
Acquiring key technologies is another goal of the acquisitions, particularly for deep water drilling and extraction of shale gas and oil sands deposits. China’s expanding global energy presence has also exposed Beijing to a range of political risks, forcing it to take a more pro-active role in foreign conflicts such as the dispute between Sudan and South Sudan.
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