Tradewinds Shipping China 2010 Aspiration versus reality in China’s drive to diversify oil and products import routes R

1. banchero costa (shipbrokers) Tradewinds Shipping China 2010 Aspiration versus reality in China’s drive to diversify oil and products import routes Ralph Leszczynski 28-29 September 2010, Beijing, China prepared by: banchero costa research www.bancosta.it - research@bancosta.it

2. banchero costa legal notice: the information and data contained in this presentation is derived from a variety of sources, own and third party’s, public and private, and is provided for information purposes only. whilst banchero costa has used reasonable efforts to include accurate and up-to-date information in this presentation, banchero costa makes no warranties or representations as to the accuracy of any information contained herein or accuracy or reasonableness of conclusions drawn there from. although some forward-looking statements are made in the report, banchero costa cannot in any way guarantee their accuracy or reasonableness. banchero costa assumes no liabilities or responsibility for any errors or omissions in the content of this report. 1

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5. banchero costa • Agenda: • Oil Production and Consumption in China • Crude Oil Import Requirements • Refinery Capacity and Products Requirements • Sources of Oil Imports and Security Concerns • Seaborne Oil Imports • Pipeline Projects • Investments Overseas and Control of Sources • Territorial Disputes 4

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14. banchero costa Refining Capacity 13

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19. banchero costa Oil Import Sources 18

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24. banchero costa Seaborne Imports 23

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27. banchero costa Pipeline Projects 26

28. banchero costa • Pipeline projects: • Kazakhstan-China Oil Pipeline (Atyrau-Dushanzi) • – 10/20 mln tonnes/year • Eastern Siberia-Pacific Ocean (ESPO) (Taishet-Kozmino) • – 50/80 mln tonnes/year • Eastern Siberia-Pacific Ocean Skovorodino-Mohe-Daqing spur • – 15/30 mln tonnes/year • Sino-Myanmar Oil and Gas Pipelines (Kyaukryu-Ruili) • – 12/22 mln tonnes/year 27

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30. banchero costa • Kazakhstan-China Oil Pipeline (Atyrau-Atasu-Alashankou-Dushanzi) • The first cross-border pipeline project in China, begun partial operations in 2006. • Developed by CNPC and KazMunayGas, it has a capacity of 10 million tons/year, due to be doubled in the future. • At full development it runs from Atyrau on Kazakhstan’s Caspian Sea shore to Aleshankou in Xinjiang Province in China and further to the Dushanzi refinery. • Construction of the pipeline was first agreed in 1997. The first section from the Aktobe region’s oil fields to Atyrau was completed in 2003. The section from Atasu to Alashankou was completed in December 2005. The missing link between Kenkiyak and Kumkol was completed in July 2009. In Atasu the China-bound section is also connected to Omsk-Pavlodar-Turkmenabet pipeline sourcing oil from Russia’s western Siberia (TNK-BP and Gazprom Naft). 29

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32. banchero costa • Eastern Siberia-Pacific Ocean (ESPO) (Taishet-Skovorodino-Kozmino) • The first stage of the pipeline, 1700 miles from Taishet in eastern Siberia to Svovorodino near the border with China was completed last year. It was facilitated in part by a $25 billion loan package from China. It has a design capacity of up to 1.6 million barrels per day (equivalent to about 80 million tons per year). • The second ‘main’ leg of the pipeline from Skovorodino to Kozmino on the Pacific Ocean, another 1300 miles, is projected to be completed in 2012. In the meantime shipments from Skovorodino to Kozmino are taking place by rail. • At the same time a spur link has been build from Skovorodino to the Chinese border and further to Daqing, home of China’s largest oilfield. This spur link should be operational by the end of 2010 with an initial capacity of up to 300,000 barrels per day (15 million tons/year). 31

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34. banchero costa • Sino-Myanmar Oil and Gas Pipelines (Kyaukryu-Ruili-Anning) • Two parallel oil and gas pipeline running from Kyaukryu port on the west coast of Myanmar via Mandalay to the Chinese border town of Ruili and then to Kunming, the capital of Yunnan Province (2380 kilometers). • The gas pipeline will continue east into Guizhou and Guangxi provinces. • Construction begun in the first half of 2010 by CNPC and is expected to be completed by 2013. • It will carry up to 12 and later up to 22 mln tons of crude oil per year/ • The oil pipeline saves 1200 kilometers of shipping avoiding the Straits of Malacca. • Construction of an oil refinery in Anning, Yunnan, with capacity of 10 mln tons. 33

35. banchero costa CHINA PAKISTAN GWADAR 34

36. banchero costa • Pakistan-China Pipeline/Rail Link (Gwadar-Karakorum-Kashgar) • Gwadar is located on the southwestern coast of Pakistan, on the Arabian Sea. • Opened in spring 2007 by then Pakistani ruler General Pervez Musharraf, in the presence of Chinese Communications Minister Li Shenglin, Gwadar Port is now being expanded into a naval base with Chinese technical and financial assistance. • In 2007, the government of Pakistan handed over port operations to PSA Singapore for 25 years, and gave it the status of a Tax Free Port for the following 40 years. The main investors in the project are the Pakistani and Chinese Governments. • Beijing is also interested in turning it into an energy-transport hub by building an oil pipeline or at least a rail route from Gwadar into Chinese Xinjiang. The planned pipeline would carry crude oil sourced from Arab and African states bypassing the Malacca Straits. 35

37. banchero costa Overseas Investments 36

38. banchero costa • Examples of Recent Overseas Investments by Chinese Oil Companies • China invested 40 billion USD in Iran’s oil and gas sector, of which $29 billion in upstream projects and $10 billion in petrochemical, refineries and pipeline projects. • In 2009 Petrochina agreed to pay USD 1.7 billion for a stake in two Canadian oil sends projects, MacKay River and Dover, which contain 5 bln barrels of bitumen. • In 2009 Sinopec paid $7.56 billion to takeover Geneva-based Addax Petroleum which has oil and gas assets in Nigeria, Gabon and Iraq and an annual oil output of over 7 million tons. • CNOOC agreed to buy a stake in an Angolan oil block from Marathon Oil for $1.3 billion (jointly with Sinopec), attempted a (failed) bid to secure the giant Jubilee oilfield in Ghana for over USD 4 billion, and attempted to bid for up to one-sixth of Nigeria’s reserves as the country’s licenses went up for renewal. CNOOC already had interests in African oilfields in Nigeria, Kenya and Equatorial Guinea. 37

39. banchero costa Territorial Disputes 38

40. banchero costa Diaoyu/Senkaku Islands 39

41. banchero costa Spratly and Paracels Islands (Xisha and Nansha Islands) 40

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