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Chinese Oil Investments in Africa: Why, Where, How and to What Effect?. Erica Downs World Bank China Panel 12 March 2008. Why?. Drivers of Foreign Oil Investments (1): Reserve replacement. Attractive opportunities abroad. Drivers of Foreign Oil Investments (2): Profits.
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Chinese Oil Investments in Africa:Why, Where, How and to What Effect? Erica Downs World Bank China Panel 12 March 2008 The Brookings Institution, Washington, D.C.www.brookings.edu
Why? The Brookings Institution, Washington, D.C.www.brookings.edu
Drivers of Foreign Oil Investments (1):Reserve replacement Attractive opportunities abroad The Brookings Institution, Washington, D.C.www.brookings.edu
Drivers of Foreign Oil Investments (2):Profits • Historically, upstream most profitable segment of oil industry • Especially true for China’s national oil companies (NOCs) • Rising crude costs • Domestic price controls The Brookings Institution, Washington, D.C.www.brookings.edu
Drivers of Foreign Oil Investments (3):Oil demand exceeds domestic supply Source: BP Statistical Review of World Energy The Brookings Institution, Washington, D.C.www.brookings.edu
Drivers of Foreign Oil Investments (4):Oil imports expected to grow Source: IEA, World Energy Outlook 2007 The Brookings Institution, Washington, D.C.www.brookings.edu
Drivers of African Oil Investments (1):Growth in African oil reserves The Brookings Institution, Washington, D.C.www.brookings.edu
Drivers of African Oil Investments (2):Access to reserves Africa is open for business Reserves held by Russian cos. Full IOC access NOC oil reserves (equity access) NOC oil reserves (no equity access) African countries Source: PFC Energy, 2005 The Brookings Institution, Washington, D.C.www.brookings.edu
Drivers of African Oil Investments (3):Warm welcome from hosts The Brookings Institution, Washington, D.C.www.brookings.edu
Where? The Brookings Institution, Washington, D.C.www.brookings.edu
China’s NOCs are invested throughout Africa… The Brookings Institution, Washington, D.C.www.brookings.edu
…but the value of Chinese oil assets in Africa lags behind that of other firms The Brookings Institution, Washington, D.C.www.brookings.edu
China’s NOCs: small producers in Africa Sources: Company reports, Wood Mackenzie The Brookings Institution, Washington, D.C.www.brookings.edu
Most of the African oil production of China’s NOCs is currently in Sudan… Source: Wood Mackenzie and industry press The Brookings Institution, Washington, D.C.www.brookings.edu
Why are China’s NOCs small players in Africa? (view from China) • Stiff competition for assets • Latecomers to the region • IOCs have a historical advantage • Technology hurdles • No deepwater capacity • Insufficient use of diplomatic tools to help secure assets The Brookings Institution, Washington, D.C.www.brookings.edu
How? The Brookings Institution, Washington, D.C.www.brookings.edu
China’s NOCs are able to finance most investments on balance sheet • High profits from high oil prices • Most deals not big enough to need big loans Source: Company annual reports and Form 20-Fs The Brookings Institution, Washington, D.C.www.brookings.edu
Direct state financial support:less than meets the eye • Minimal reliance by China’s NOCs on Chinese bank loans • One example: • 2006: CNOOC Ltd. received a US$1.6 billion low-interest loan from China Eximbank for OML 130 (Nigeria) • Expensive project (US$ 2.3 billion) • Attractive interest rate The Brookings Institution, Washington, D.C.www.brookings.edu
Indirect state support:a mixed bag • “Oil-for-infrastructure” deals have yielded mixed results for China • Chinese loans to Luanda helped Sinopec gain some upstream assets in Angola…but not everything it wants • Efforts to link Chinese oil and non-oil investments have not won China’s NOCs attractive blocks in Nigeria The Brookings Institution, Washington, D.C.www.brookings.edu
To What Effect? The Brookings Institution, Washington, D.C.www.brookings.edu
Impact on Development (1) • Follow the oil: China Eximbank loans for large infrastructure projects in oil-rich states • China Eximbank’s lending priorities shaped by Chinese foreign policy priorities • Energy a top priority in China’s African diplomacy • But there are other motivations • Gaining support of recipients in multilateral orgs. • Creating opportunities for other Chinese firms • Preventing diplomatic recognition of Taiwan The Brookings Institution, Washington, D.C.www.brookings.edu
Impact on Development (2) • China’s NOCs helping to develop host countries • CNPC/Sudan: US$ hundreds of millions spent on roads, bridges, schools, hospitals, training and education • Sonangol-Sinopec/Angola: US$ tens of millions pledged for social welfare projects • China’s NOCs likely to continue good deeds to: • Remain welcome guests • Reduce investment risk • Improve global images The Brookings Institution, Washington, D.C.www.brookings.edu
Impact on Governance:The Case of Angola • Chinese loans probably have reduced IMF influence on oil revenue transparency • But rising oil revenues more important factor The Brookings Institution, Washington, D.C.www.brookings.edu
Impact on Industry Competition • State support for China’s NOCs has had minimal impact on IOCs because competing for different projects • China’s NOCs have no deepwater capacity • Many blocks offered in “package deals” of little interest to IOCs • Larger impact on Asian NOCs • Seoul and New Delhi competing to offer better “package deals” • Competition encouraged by some host countries (Nigeria, Angola) The Brookings Institution, Washington, D.C.www.brookings.edu
Extra Slides The Brookings Institution, Washington, D.C.www.brookings.edu
Africa provides one-third of China’s crude oil imports Total = 3.3 million b/d Total = 3.3 million b/d Source: General Administration of Customs of China The Brookings Institution, Washington, D.C.www.brookings.edu
Angola supplied almost half of China’s crude oil imports from Africa in 2007 Total = 1,065,209 b/d Source: General Administration of Customs of China The Brookings Institution, Washington, D.C.www.brookings.edu