The Hungry Dragon: China's New Oil Market
If you ever happen to eavesdrop on a conversation between energy investors, two words are sure to crop up - China and oil. Usually, they're used together and usually, it's about China's increasing presence on the global oil scene.
It's a pretty safe bet that, as one of the world's fastest growing economies, China needs a lot of energy. And with an oil appetite that grows by 7.5% each year, seven times faster than the U.S., the country's reserves don't even begin to compare to the consumption.
But fuelling the blistering pace of its economy is China's number one priority, and it is on a mission to lock down its energy interests all around the world. The emerging powerhouse has often felt that it was the last one onto the energy playing field with a lot of catching up to do.
Today, Chinese national oil companies (NOCs) are setting up shop everywhere from the Middle East all the way to the oil sands of Canada, and they're open for business. The three NOCs - CNPC/PetroChina, Sinopec and CNOOC Ltd - are slated to produce a record breaking one million barrels daily. That's Australia's daily fuel consumption!
It isn't just their oil production that's going through the roof. Since 2009, China has committed nearly US$25 billion into corporate and asset acquisitions. China isn't going it alone either, and fully realizes the importance of forging partnerships with other international oil companies to develop oil fields.
And with Beijing firmly behind them, they're only doubling their efforts this year. Chinese NOCs accounted for nearly 20% of all global deal values in the first quarter of 2010. This share will only get bigger as the year carries on and energy security continues to dominate the agenda.
Armed with strong finances, an aggressive approach, and implicit government backing, Chinese companies are well placed to spearhead the nation's mission of diversifying its international energy portfolio. The latest thing to catch their attention: the mysterious oil elephants of East Africa.
Hunting for Elephants: Fortune Favours the Bold
Africa might be the last place left on Earth where elephant deposits - very large oil and gas deposits - remain to be found. But contrary to popular belief, the real money in African oil is not in the West nor the North, but thousands of miles away in East Africa.
It is here that one of the last oil elephants of the world waits. A lack of significant discoveries and long-term instability left the region largely unexplored and ignored for the last 50 years. Until last year, when Irish giant Tullow Oil found over two billion barrels under the waters of Lake Albert, Uganda.
The excitement running through the region's oil market at the moment is palpable. The first annual Eastern Africa Energy Week held this year in Nairobi, Kenya, was resplendent with the heavyweights and superstars of the oil business; prominent amongst them were delegates from China's CNOOC, who were out in full force. That they were all there to study strategies, policies and regulation, and the critical issues facing companies in the market shows exactly how seriously they're taking East Africa.
In a region where the market is populated largely by smaller-cap firms hoping to get in on the ground floor of emerging energy-nations, the takeover potential is enormous. It's no surprise then that CNOOC is jostling with the big names of oil exploration in Africa - Tullow, Total SA, and Anadarko - to get a slice of what could be an energy goldmine.
But East Africa will be no cakewalk for oil explorers. They will face a multitude of challenges and there is risk by the bucket in each venture. Only those companies with the right project locations and the right people to execute business plans in the difficult working conditions of East Africa will survive to win the jackpot. So pick your portfolio wisely and buckle up for this jungle ride... it's going to be intense.
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Author: Marin Katusa
Marin Katusa
Senior Editor Energy Division
Casey
Research, LLC.
Marin Katusa, an accomplished investment analyst, is the senior editor of Casey Energy Opportunities, Casey Energy Confidential, and the Casey 50. He left a successful teaching career to pursue analyzing and investing in junior resource companies. In addition, he is a member of the Vancouver Angel Forum where he and his colleagues evaluate early seed investment opportunities. Marin also manages a portfolio of international real estate projects. Using advanced mathematical skills, he has created a diagnostic resource market tool that analyzes and compares hundreds of investment variables. Through his own investments, Marin has established a network of relationships with many of the key players in the junior resource sector in Vancouver. Marin has the connections, the mathematical and analytical acumen to bring the best investment ideas and most promising private placement offerings to Casey Research subscribers.
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