BP is keen to gain a foothold in the world's second largest petroleum consuming market and the Financial Times reported that extensive talks have been held between the two companies, with Hu Jintao also involved.
Although nothing is yet certain, particularly given Beijing's protective stance towards its domestic energy market, the partnership potentially allows Sinopec to expand its exploration plans at a time when operations have been delayed to cut costs. In particular, a partnership with BP could help fill a gap in its upstream exploration activities, where it is behind domestic rivals PetroChina and CNOOC.
Having lost US$160 million during the first half of 2005, Sinopec in October announced it would weather the storm by reducing expenses by 6.5% this year, bringing total expenditure down to US$7.1 billion.
China, which already has the world's biggest trade deficit in oil, is beginning to feel the strain of a 40% rise in oil prices. Efforts redress this balance through the purchase energy resources around the globe, with Ecuadorian oil and pipeline assets being the latest additions to the shopping basket.
The purchase was made by Andes Petroleum Corp, a consortium of Chinese oil companies led by China National Petroleum Corp, which agreed to pay Canada-based EnCana Corp US$1.42 billion for access to 75,000 barrels a day of Ecuadorian oil and proven reserves of 143 million barrels. Nevertheless, State Information Center economist Niu Li warned that the country will be faced with a bill for an extra US$15 billion if the international price of oil rises by US$15 this year. He blames factors such as the number of cars per Chinese family increasing more than six-fold between 1999 and 2004 for the country's bloated trade deficit in oil export and import.
The problem is in part due to China's fuel subsidy system, which makes it near impossible for refiners to turn a profit on domestic sales because pump prices are capped to an affordable, but globally unrealistic, level.
Oil imports fell 6.1% in August to 8.8 million tons as oil companies sold their products abroad rather than at home. The government was forced to suspend tax breaks on exported petroleum products to make the firms focus on satisfying domestic fuel demands, pushing imports for September to 10.85 million tons.
Acknowledging that this subsidy system cannot work in the long term, Zhang Guobao, vice-minister of the National Development and Reform Commission, announced plans to increase domestic prices rather than use imports to build up the country's strategic oil reserves.
No resolution on resource rights
Talks between China and Japan failed to resolve the row over disputed gas exploration rights in the East China Sea but Japanese officials said the two sides had agreed to further dialogue on Tokyo's offer for joint development. Tensions rose earlier this month after Japan said China had sent warships to the area and started extracting natural gas from the Tianwaitian oil field, near waters over which Japan claims sovereignty. Eager to assert its claims, Japan has granted exploration firm Teikoku Oil Co a license to conduct test-drilling in the disputed area. Experts say there could be as much as 200 billion cubic meters of gas in the area but it would be difficult to extract.
CNPC agrees to compromise sale
China National Petroleum Corp has signed an agreement to sell a 33% stake in PetroKazakhstan to a state-owned Kazak oil group order to clear political obstacles to its US$4.18 billion acquisition of the company, The Wall Street Journal reported. KazMunaiGAz will pay US$1.4 billion the stake, thereby matching the US$55 price per share CNPC agreed to pay for the whole company in August. The move came about after the Kazak parliament passed a giving it the power to intervene in the sale. CNPC's offer for the company was to be voted on by PetroKazakhstan shareholders on October 18. However, oil company OAO Lukoil has said it will go to court to oppose the sale.
HK Stock Exchange blasts CNOOC
The Hong Kong stock exchange's listing committee criticized state-owned oil CNOOC for its selective disclosure of information and for lacking shareholder approval for certain transactions. CNOOC apologized for its misconduct and promised to take more care in its future presentation of information. Richard Williams, head of the listing committee, spoke of inner circle of privileged counter-parties" with better access to information other shareholders. The exchange criticized CNOOC for breaking listing rules by failing to obtain shareholder approval for its transactions with CNOOC Finance, its parent company.
Russia, China discuss gas pipeline
Russia's OAO Gazprom, the world's largest gas producer, entered into talks with China National Petroleum Corp to finalize a gas pipeline crossing from Russia China. The pipeline, with an annual capacity of 20-30 billion cubic metres of will cross the border in either Xinjiang province in the west or Heilongjiang provice in China's northeast. Gazprom would build the Russian sections while CNPC would lay the Chinese pipeline. If the western route is chosen it will likely link with China's forthcoming west-to-east pipeline, which will transport 12 billion cubic metres of natural gas from the Tarim Basin in Xinjiang to Shanghai.
Plan to open up the power grid
China is planning a pilot scheme that would allow small independent operators to sell electricity into the centrally-administered distribution grid, increasing the competition an industry currently dominated by five national state power groups, the South China Morning Post reported. The pilot project, planned for the northeastern provinces, aims end the chaotic project development cycle that tends to result in volatile swings of undersupply and oversupply. Under the new system, the government would call for companies to submit tenders for projects based their specified power needs. At present, power generation companies submit plans the government for approval.
Rio rejects state-backed bid Rio
Tinto has rejected Chinese attempts to buy a stake in its global resource projects. The Chinese government has been leaning Chinese companies to buy up stock in foreign energy companies but Rio's chairman Paul Skinner said that long-term contracts were the way for China to secure its energy supply for the future. Rio's sales to China have increased from 5% to 13% of the company's total sales.
Peabody announces China plans
Peabody Energy Corp, one of the world's largest coal companies by revenue, opened Beijing Office in September and announced plans to take a minimum 20% stake in a joint venture or in local companies in China in the next 12 months. "In ve to ten years [China] will be a meaningful segment of our business," Peabody CFO Richard Navarre told The Wall Street Journal. Demand in China's coal market expected to grow 70-80% in the next 15 years according to the US-based company 's estimates.
Officials give up stakes in coal mines
A total of 497 officials have withdrawn their stakes in coal mines as part of a nationwide bid to crackdown on collusion between mine owners and officials. Industry insiders say that mines owned or part-owned by officials often avoid inspection and fall below safety standards, a practice which has been blamed for the frequent coal mining accidents in China. The officials, 325 of whom are government officials and 172 of whom are company officials in state-owned enterprises, come from nine provinces including Guizhou, Hunan and Hebei.
Carrier urges end to fuel monopoly
China Eastern Airlines, one of the country's top three carriers, has demanded an end to the fuel supply monopoly held by China Aviation Oil Holding Company (CAOHC) the domestic market, which has depressed its profits. Airlines spent more than US$409million on fuel in the first half of the year, up 44% from a year ago. According previous state media reports, the central government is considering reforms to the fuel-supply system.