China isn’t just on the hunt for new resources – it is seeking to build out each part of its oil and gas supply chain, from the downstream refiners, to the upstream exploration and production (E&P) of needed resources. Analysts say that the country has been a quick learner in E&P, significantly boosting its technology to international standards over the past 10 years.
"For most geologies, most places around the world, the Chinese are just as capable as anyone if not better," said Daniel Rosen, a partner at the Rhodium Group, a New York-based macroeconomic advisory firm, and a visiting fellow at the Peterson Institute for International Economics.
There is, however, a finite amount of oil and gas left on the earth, and increasingly, much of it requires higher levels of technology to extract. This doesn’t just involve deepwater extraction, but also unconventional resources such as tar-sand oil. For Chinese firms to be competitive with the world’s largest international oil companies, they will have to master these technologies.
Among China’s three oil and gas majors, China National Offshore Oil Corp (CNOOC) is widely seen as the most technologically advanced in E&P, though most analysts say it still lags its foreign counterparts in certain areas. CNOOC’s chairman has gone on record this year saying the company will not use the financial crisis as an opportunity to make acquisitions, yet one of the firm’s subsidiaries has done just that.
In July 2008, China Oilfield Services offered US$2.5 billion for Norwegian offshore oil rig producer Awilco. The acquisition is part of a larger strategy on the part of Chinese firms to acquire technology at a bargain, said Geraint Hughes, a Hong Kong-based partner with Clifford Chance, who has worked on a number of Chinese energy-related deals, including Awilco.
"There’s been a longer-term perspective of buying companies that have the technology to allow China to ‘drill deeper,’ to be more efficient and to enhance and improve their recovery and economics long term," Hughes said.
The question remains whether Chinese companies can catch the foreign competition and emerge as bona fide players for unconventional and difficult-to-extract resources.
"I can’t really see Chinese companies being able to develop technology quickly enough to apply it in these truly frontier areas," said Holly Pattenden, an oil and gas analyst with London-based Business Monitor International.