Fu Chengyu, chairman of Sinopec Group (China Petrochemical Corporation), was the first leader of an Asia-based company to earn the “Petroleum Executive of the Year 2012” award at the 33rd annual Oil and Money Conference.
Chengyu is a transformational figure in China’s oil industry and by effectively harnessing China’s strong technical skills; he has been a catalyst in the globalisation of his country’s petroleum business.
The Sinopec Group, according to market reports is planning an initial public offering in Hong Kong for its newly-formed refining and petrochemical engineering unit in the second quarter of 2013, which could raise around US$1.5 billion.
Beijing-based Sinopec Engineering, which was set up in September with a registered capital of $500 million, is hoping that a Hong Kong listing could raise its profile in the international market, as it strives apparently to secure more overseas engineering and construction projects.
Sinopec Engineering was created through the consolidation of eight construction and engineering subsidiaries. It has undertaken engineering projects in Kuwait, Saudi Arabia, Qatar, Kazakhstan, Nigeria, Singapore and Bangladesh.
Emergence of the Chinese energy industry is effectively redrawing the world energy map. An important corollary to this world domination is that China is making massive investments in the Middle East refining and petrochemical sectors.
The IMF forecasts that China and India will lead the world’s economic growth in the next five years. While China realizes that its attention on the Gulf region is important to satisfy its energy demands, it multiplied the purpose by leveraging on the financial and technical resource at its command.
In 2011, foreign trade between China and Middle East states amounted to $195.9 billion, a 34.7% increase over 2010.
China’s need to ensure energy supply, combined with the necessity to export its products as smoothly as possible, is making the Middle East an essential part of the Chinese plan known as the “String of Pearls,” which refers to the Chinese sea lines of communication which run through several major ‘choke points’ such as the Strait of Mandeb, the Strait of Malacca, the Strait of Hormuz and the Lombok Strait near the islands of Bali.
Overseas acquisitions
So, what is driving China to an active global and in particular Middle East role in business? Increasing dependence on oil, the need to secure and diversify energy supply, the need to develop technical expertise in unconventional resources, and attempts to capture value upstream are factors driving Chinese NOCs to invest in international projects and form strategic commercial partnerships with IOCs.
The economic downturn is a tail wind and China took advantage and stepped up its global acquisitions and used its vast foreign exchange reserves (estimated at over $3 trillion in 2011) to help purchase equity in projects or acquire stakes in energy companies.
Since 2009, the NOCs have purchased assets in the Middle East, North America, Latin America, Africa, and Asia. The NOCs invested $18 billion in overseas oil and gas assets in 2011.
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They increased their natural gas purchases abroad and invested $12 billion in 2011, out of a total $18 billion of oil and gas purchases, to gain more access to LNG and unconventional gas.
“The largest expansion by any oil company in the world”, is how the Sinopec’s deal with Saudi oil giant Aramco oil refinery in the Red Sea port of Yanbu called.
The $8.5 billion joint venture, which covers an area of about 5.2 million square meters, is already under construction. It will process 400,000 barrels of heavy crude oil per day. Aramco will hold a 62.5 % stake in the plant while Sinopec will own the remaining 37.5%.
Sinopec Group chairman Chengyu said the project propels the two companies’ strategic cooperation and contributes to enhancing the partnership between China and Saudi Arabia.
Khalid Al-Falih, Saudi Aramco CEO called the endeavour the latest chapter in a long history of cooperation, collaboration and trade between China and the Arabian Peninsula. The setting up of the refinery would promote economic development, said Shen Yamei, a researcher with the China Institute of International Studies.
For the alliance between China and the Middle Eastern countries to last the test of time, China makes it a two-way street with the Middle Eastern countries.
National oil companies from Kuwait, Saudi Arabia and Qatar have also entered into joint-ventures with Chinese companies to build integrated refinery and petrochemical projects and gain a foothold into China’s downstream oil sector. Saudi Aramco has even set up its Asian headquarters in China and said that the office will help for the petrochemical trade.
Key among the Middle East–China Joint Ventures in refining projects are:
• CNPC/PetroChina Saudi Aramco joint venture in Anning/Yunan province with a capacity of 260,000 barrels planned to commission in 2014
• CNPC’s joint venture going with Qatar in Jiangsu/Taizhou province with a capacity of 400000 barrels to be commissioned in 2017
• Sabic’s agreement with Sinopec to build a $1 billion-plus polycarbonate plant in Tianjin where the two companies have already started operating a petrochemical joint venture in 2010
Middle Eastern energy giants are opening up huge facilities in China. Sabic in mid 2012 has begun work on a $100 million technology center in Shanghai, focusing on alternative energy and new materials for the construction and auto sectors.
Abu Dhabi’s principal petrochemical producer Borouge launched a marketing and sales company in Beijing. Abu Dhabi’s Mubadala is planning to build a petroleum coke facility in Zhenjiang, China, in a joint venture with the Jiangsu Surun High Carbon Company (Surun).
The joint venture, called Suyadi, will help supply aluminium smelting plants in the UAE, Mubadala said in a statement. China also continues to hold a top position among Jafza’s global trade partners.
The Asian giant’s trade through Jafza is expected to cross Dhs 40bn in 2012, a 10% increase over the 2011. The GCC countries have long aspired to achieve levels of diversification in their economies and see China as a concrete mechanism through which to promote such a goal.
Whether one sees it as China courting the Middle East for access to oil, or the Middle East roping in China for long term buying source, the partnership has mutual benefits and can build a common vision.
