Securing China's Energy Future

Russia and China will sign a much-delayed long-term oil supply deal on Tuesday and Beijing is in talks to lend Russian companies $20-$25 billion in export-backed loans, industry sources said on Monday.

The deal will give Beijing access to 300 million tonnes of Russian oil over the next 20 years, accounting for 4 percent of its annual demand, while allowing Russian firms to sort out immediate financing needs during an acute liquidity squeeze.

The deal will be on the agenda when Chinese Premier Wen Jiabao meets Russian officials on Tuesday, at a time when Moscow's relations with the West are at a low ebb.

The Kremlin is seeking to diversify its export routes away from the West and is targetting China as the main market for its East Siberian oil.

"It is a huge deal. The biggest ever between Russian and Chinese oil firms," said one source with the knowledge of the situation.

Sources said that if the loan was agreed, Russia's state-run oil major Rosneft would get three-fifths of the funds, while state pipeline monopoly Transneft would obtain the other two-fifths. Rosneft and Transneft declined to comment.

Russia's government has pledged $50 billion from its $500 billion reserves, the world's third largest, to help Russian firms repay and refinance some $120 billion in foreign loans, due by the end of 2009.

China has the world's largest reserves of $1.9 trillion.

Rosneft borrowed $6 billion from China in 2004 to help fund its purchase of assets belonging to bankrupt oil firm YUKOS.

Under that deal, Rosneft pledged its entire railway exports of around 10 million tonnes of oil to China, but has warned that it would not extend the deal beyond 2010 because it considered it poorly priced.

The new export-backed loan would come at a time when Russian companies find it difficult to refinance Western loans they have amassed to fuel growth at home and abroad in the past years. Rosneft owes over $20 billion to creditors.

Transneft also needs cash to finish construction of Russia's first pipeline to Asia, which will have a spur to China and a link to the Pacific.

The 600,000-barrels-per-day pipeline is estimated to cost over $14 billion and it needs to be finished by the end of next year. It will become the main link for exports of crude from East Siberia, mainly from Rosneft's fields, to China.

China mulls raising nuclear power target - official

BEIJING (Reuters) - China is thinking of raising its already ambitious goal to expand nuclear power in the next decade by aiming for 70 gigawatts of generating capacity by 2020, an energy official told state media.

Beijing in 2006 set a national target of 40 gigawatts (GW) of installed nuclear power generating capacity by 2020, and later lifted that target to 60 GW, a goal experts have said was already a testing challenge.

But Huang Li, head of energy conservation and equipment in the National Energy Administration, said the government is weighing up whether to lift the target to 70 GW, the official Xinhua news agency reported on Wednesday.

"The global efforts to reduce greenhouse gas emissions had prompted China, which relied heavily on coal, to revise its energy strategy and increase the proportion of clean energy," she told a meeting in southwest China, according to Xinhua.

She did not say when or how a firm decision on the proposal would emerge.

If the raised goal is approved and implemented, it could expand opportunities for international companies in China's nuclear power sector.

China's current nuclear capacity is only 9 GW, under 2 percent of its total installed power generation capacity.

But many local governments are keen to win the right to build a nuclear plant, because of the funds and jobs the projects can bring.

China last year sealed deals with France's Areva and U.S.-based, Japanese-owned Westinghouse for several third-generation reactors, and the blueprints to allow them to develop domestic versions.

Copyright © 2008 Reuters

The best thing that I can see, was to fully utilize the wind potential across many regions in China.

Followed up by Nuclear Power, or Natural Gas.

I think construction of Coal Fired plants must be put to halt. It would be nice top see Nuclear power and Wind power, receiving a huge share in the total electricity production of the country.

Just like France, a huge bulk of their power came from Nuclear. While Denmark from wind.

I think utilizing solar power would also be nice. By installing solar panels on newly built houses. Just to make them independent from power needs.

China, Iraq sign oil service deal


China and Iraq signed Monday an oil deal that would allow China National Petroleum Corporation (CNPC) to help develop al-Ahdab oil field in eastern Iraq's Wasit province.

Iraqi Oil Minister Hussein al-Shahristani signed the 2.9 billion U.S. dollars deal with CNPC President Jiang Jiemin in a ceremony held in his ministry.

"This is an important participation from the Chinese side to develop the Iraqi oil fields, and we are looking forward for more participation in rebuilding Iraq," Shahristani said at the signing ceremony.

He added that the deal "would produce a total of more than 110,000 barrels per day (bpd), which would mainly be allocated to the Zubaidiyah power plant in the province and the surplus would go for export."

Zhi Yulin, board chairman of the Alwaha Co. which is affiliated with CNPC, told Xinhua that he hoped the project would boost Iraqi oil output, help facilitate post-war reconstruction, create job opportunities and contribute to the social stability.

While underlining security was the biggest challenge the company would face, Zhi promised to do their best to guarantee the staff's safety.

The state-owned CNPC had signed an agreement with Iraq's Saddam Hussein government in 1996, which was postponed by the UN sanctions on Iraq and the following U.S.-led invasion to the oil-rich state.

(Xinhua News Agency November 11, 2008)

Just when we got our hopes up...



Russia, China suspend $25 billion oil loan talks

MOSCOW (Reuters) - Russia and China have suspended talks over $25 billion in loans to Russian oil companies due to disagreements over interest rates and state guarantees, two Russian sources close to the talks told Reuters on Wednesday.

China was discussing lending Russian state oil major Rosneft (ROSN.MM: Quote, Profile, Research, Stock Buzz) and pipeline monopoly Transneft TRNF_p.RTS up to $25 billion in loans as part of a broader oil supply deal, which would allow Beijing to secure deliveries for 20 years and give Russian firms the means to sort out prompt refinancing needs.

A major delay in talks would deal a blow to the Kremlin's strategy to showcase its strategic relations with Asian energy consumers at a time of difficult relations with the West.

It will also put additional pressure on the finances of some of the biggest firms in the world's second-largest oil exporter at a time of plunging oil prices.

"The working groups have suspended talks after the Chinese side raised quite absurd lending conditions... One could have a feeling that there had been no previous round of talks in Moscow," one source, who asked not to be named because he is not allowed to talk about the issue publicly, told Reuters.

The shares of Rosneft (ROSNq.L: Quote, Profile, Research, Stock Buzz) fell 19 percent in London, underperforming the broader Russian index . Share trading on Moscow's main MICEX exchange .MCX was suspended on Wednesday after heavy losses on Tuesday.

Chinese Premier Wen Jiabao visited Moscow last month when the two countries agreed to jointly build a new overland supply route for Siberian oil to carry 15 million tonnes a year (300,000 barrels per day) between the countries' trunk pipelines from 2009.

Russia's top energy official, Deputy Prime Minister Igor Sechin, said Russian oil firms would receive "considerable" loans from China in return for increased oil supplies and outlined the end of November as a deadline for the deal.

TACTICS

"It (the talk suspension) really looks like some kind of negotiation tactic by the Russians," said Valery Nesterov, oil and gas analyst at Troika Dialog brokerage.

"A deviation from earlier agreements would mean reducing trading relations with a very important partner at a time when Russia is seeking new partners in Asia. I don't think that a dispute about interests would be decisive here," he added.

The source said the Chinese side had asked at the latest round of talks in Beijing to peg interest rates on the loans to LIBOR, after having agreed previously to lend the money at 7 percent a year.

He also said Beijing was seeking additional state guarantees from the Russian government and wanted direct access to some of Russia's biggest fields.

"They have demanded the entire Talakan field," the source said, referring to a large eastern Siberian field owned by No. 4 Russian producer, Surgutneftegas (SNGS.MM: Quote, Profile, Research, Stock Buzz).

Another source said the deal was complicated by the fact a $10 billion portion of the loan to Transneft should be guaranteed by export deliveries. Transneft cannot supply this as it does not produce its own oil.

"Everything is on hold now. It is all very high-level politics," the second source said.

Nesterov said the $10 billion loan for Transneft was very important to help it build the second stage of Russia's first pipeline to Asia, so it can reach the Pacific coast. The first link to China is estimated to cost $14 billion and is due to be completed by the end of next year.

But Nesterov also said that the $15 billion portion of the loan to Rosneft was of a much bigger importance as Russia's most indebted firm has to refinance a large part of its $22 billion debt in the next years while also financing an ambitious development program.

The first source said Transneft might now even decide against building a spur to China should talks over lending fail and could choose to construct only a direct pipeline to the Pacific coast, where a new oil terminal would be built.

"China is showing interest in this port. And Japan and Korea are also interested," he said.

Indications China taking advantage of cheap oil now to fill up the strategic reserves, as well as diversifying some of those foreign currency reserves into some real assets.


China seen topping up government reserves with cheap crude
Wed Nov 12, 2008 5:47am EST

By Chua Baizhen and Jim Bai - Analysis

BEIJING (Reuters) - Beijing appears to be taking advantage of falling crude oil prices to fill its strategic reserve tanks, potentially giving it a 100-million-barrel buffer by year's end that could help smooth out future demand growth.

A near 30 percent surge in China's crude oil imports to their third highest daily rate on record last month, coupled with widespread signs of anemic demand in the world's second-largest user, has stirred fresh speculation about Beijing's emergency reserves, the status of which remain a closely guarded secret.

Data due on Thursday is expected to show that the country's major refiners -- which have increased output by only 5.5 percent so far this year -- could not have processed all of that crude themselves, suggesting some of it has been put in storage.

Analysts say it is still too early to conclude that Beijing must have given the order to top up its national reserves, half of which were constructed over the past two years while the other half are due to be finished by the end of the year.

But from the economics point of view, oil's plunge from a record above $147 hit in July to below $60 definitely makes buying crude now an attractive and logical option, they say.

"There is no question about stockpiling," said Lin Boqiang, director of the Center for China Energy Economics Research (CCEER) at Xiamen University.

"Strategic storing needs to be done even without a plunge in oil prices, and China should go for three months (of buffer stocks) now," he said.

Building stocks now would also allow China to take advantage of the steep contango structure in oil markets, with prompt prices far cheaper than longer-dated futures, at a time when many oil companies and traders are struggling to profit from storage as the credit crisis drives up the cost of financing stockpiles.

September crude imports rose 28.2 percent from a year ago, their fastest pace in more than a year, to hit 3.81 million barrels per day (bpd), the third highest ever. Domestic production has also eked out modest growth, helping meet some of the growing demand.

China's first phase of its SPR plans, with tanks that can hold 100 million barrels of oil or just under a month's imports, are due to be commissioned by year-end with the completion of the last two out of four bases at Qingdao and Dalian.

The first two facilities at Zhenhai and Zhoushan were up and running more than a year ago.

Last year the government leased out its 33 million barrel capacity tanks at Zhenhai to top refiner Sinopec Corp (0386.HK: Quote, Profile, Research, Stock Buzz) for use as commercial storage, but it is not clear whether that arrangement continues or whether the tanks are full or not.

Beijing has maintained a near total silence on the status of these tanks and the location for a second batch of facilities to hold some 26.8 million cubic meters, plans for which have just been finalized, Beijing announced on Wednesday.

By comparison, the U.S. Strategic Petroleum Reserve (SPR) holds about 700 million barrels.

STRATEGIC OR COMMERCIAL?

The sensitive nature of the oil reserves program makes it hard for anyone to ascertain which crude shipments are ultimately bound for the SPR tanks and not commercial ones held by Sinopec and its top domestic rival PetroChina (0857.HK: Quote, Profile, Research, Stock Buzz).

Some of the crude is also likely to be burned at power plants or used by small-scale refiners, usage that doesn't appear in official data but may be growing as profit margins improve.

But looking at consumption patterns and oil product stockpile levels, analysts say there is little reason for the duopoly to step up crude purchases for their refineries.

China's apparent oil demand rose by just 2 percent in September, its slowest rate in 10 months, as the refiners dealt with the after-effects of an excessive build-up of fuel stocks ahead of the Olympics and as the global financial rout began to weigh on Chinese consumers and industries.

"One cannot say for certain that whether the high crude oil import reflects SPR accumulation or merely refiners stepping up runs," U.S.-based independent analyst Paul Ting said in a note.

"However, one can also question the wisdom of increasing refinery runs in the face of weak demand and high inventory."

A Reuters survey of China's biggest refineries showed last week that they were expected to cut their throughput in November by 5 percent as demand falters.

Beijing has pledged 4 trillion yuan ($586 billion) in extra spending to shore up the domestic economy, but the money is to be spent by the end of 2010, dimming hopes for any immediate boost to oil demand.

The pessimistic near-term outlook on demand will be amplified by brimming inventories of oil products after months of heavy stockpiling ahead of the Olympics.

Sinopec (600028.SS: Quote, Profile, Research, Stock Buzz) and PetroChina 601857.HK held record levels of gasoline and diesel inventories in September, at 31 million barrels and 47.6 million barrels for each of the transport fuel respectively, state media reported.

LITTLE GLOBAL IMPACT

Even if indeed China has accelerated the SPR top-up, analysts see only limited impact on international markets against the backdrop of a global slide in oil demand.

"China alone is not enough to change" the downtrend in prices, said Kang Wu of FACTS Global Energy in Hawaii, noting that the September rise amounted to around only 200,000 bpd, a small sum in the 85 million bpd world market.

"Of course we cannot talk about a trend in one month. But if refinery runs are not matching imports, you know they are buying for the future or for SPRs," he added.

(Editing by Jonathan Leff)

Dalian and Qingdao are way too vulnerable for strategic reserves, any future reserve sites should be in areas much more easily defended.

China increases its carbon footprint.



China's Xinjiang reports mega coalfield with reserve up to 23 bln tonnes
2008-11-22 00:36:07 Print

URUMQI, Nov. 21 (Xinhua) -- A huge coalfield with 23 billion tonnes in reserve has been discovered in northwest China's Xinjiang Uygur Autonomous Region, the regional land resources department announced on Friday

The coalfield, about 800 meters underground, covers an area of more than 300 sq km in Shanshan County in the Turpan Basin.

The coal reserve, rich in low-sulfur steam coal, is close to the Lanzhou (Gansu's capital) - Xinjiang railway, the only rail line connecting Xinjiang to the inland cities.

It is also 800 km nearer to China's inland than the region's largest Zhundong coal production base, which could cut transportation cost by 40 yuan (5.8 U.S. dollars) per tonne.

Xinjiang, with estimated coal reserves of 1.82 trillion to 2.19trillion tons, has 40.5 percent of China's total coal reserves. With an annual production of 50 million tonnes, it is the country's second largest coal producer after the northern province of Shanxi.

However, China is also a big coal consumer with a large amount of coal resources wasted every year. According to the 2007 Energy Blue Paper, while a tonne of coal was produced in China, five to 20 tonnes of coal resources were consumed.

This topic came up every once in the while for the past few years (including me earlier this year), with a lot of talk, but little to no action. I think it's finally going to happen starting next year:

N.B. About the source, I could've chosen the BBC, but the Straits Times actually had a detailed map, and I guess that's the most important part about it.

BEIJING: China will start building oil and gas pipelines through Myanmar next year, which will enable it to bypass the Strait of Malacca for crude oil imports from the Middle East, state media said yesterday.

The pipelines running into China's south-western Yunnan province will also strengthen the country's access to the rich energy reserves in Myanmar, reports said.

Yunnan will start constructing the pipelines in the first half of next year. Mr Mi Dongsheng, head of Yunnan's Provincial Development and Reform Commission, was quoted by the China Daily as saying that the move was part of a plan to spend 72 billion yuan (S$16.1 billion) on energy projects next year.

Running from the Myanmar port city of Kyaukphyu on the Bay of Bengal to Yunnan's provincial capital Kunming, the pipeline for gas will cost US$1 billion (S$1.53 billion), and the one for oil US$1.5 billion, Japan's Nikkei newspaper reported.

State-owned China National Petroleum Corporation (CNPC), China's biggest oil producer, will hold a 50.9 per cent stake in the project, which it co-manages with the other stakeholder, Myanmar Oil & Gas Enterprise, the paper said.

In May, CNPC said it would jointly explore for oil and gas in Myanmar and the country's seabed with South Korea's Daewoo International, but gave no details.

Analysts said that in addition to Yunnan, the other provinces and regions in south-western China would also benefit from the pipelines.

The pipelines had been discussed in Yunnan, as well as between the province and Myanmar, for at least five years, but were put on the back-burner. The reason the project has been revived could be China's drive to boost its economy to withstand the fallout from the global financial crisis.

China's demand for oil has also expanded rapidly in recent years to fuel its double-digit economic growth, with imports coming close to 200 million tonnes last year, up more than 10 per cent from 2006, the China Daily said.

'Geopolitically, having alternative routes for energy supplies into China is attractive,' said Mr Jason Feer, a Singapore-based analyst with Argus Media, an energy market research firm.

'The Strait of Malacca is a very busy waterway. It's a quite narrow one. There's always been concerns that it could be disrupted because of terrorism or piracy.'

Around 80 per cent of China's oil imports, from areas such as the Middle East and Africa, are currently transported through the strait, earlier Chinese media reports said.

But some analysts doubt the Myanmar project will take off, as the investment is so huge that it may be a better option to continue depending on the Malacca Strait.

The major sea route has maintained a good security record in recent years, although imports would take at least seven days longer to reach China.

Few Western companies invest in Myanmar because of its poor human rights record and continued detention of Nobel Peace Prize laureate Aung San Suu Kyi, which has led to a broad range of United States and European sanctions.

China, typically wary of supporting or imposing sanctions, is one of Myanmar's few diplomatic allies, and has shown no reservations about investing in its military-ruled neighbour, eyeing its natural gas, oil, minerals and timber.

Click to expand...

Personally, I think this is a great opportunity for China to make it's energy routes a bit more secure. It also cuts transport times by up to 2 weeks, supposedly.

This is an extremely strategic move.

I'm just curious as to what percentage of the oil will be diverted from the usual oversea route (80%) to the overland route once the pipelines are finished and ready to transport oil.

CNOOC plans $29 bln deep sea exploration in S.China

By Ruth Wong

SHENZHEN, China, Nov 24 (Reuters) - China's offshore oil explorer CNOOC will step up deepwater exploration in the South China Sea from 2009 and plans to invest 200 billion yuan ($29 billion) until the end of next decade despite a worsening global financial crisis, a senior executive said.

The investment is a long-term one and will be paid in phases, Li Fanrong, president of CNOOC's Shenzhen unit, told reporters.

He said he believed the South China Sea has tremendous oil and gas reserves that could support this mega development project but did not specify the exact location for CNOOC's exploration.

The investment will come from CNOOC's two Hong Kong-listed arms -- CNOOC Ltd (0883.HK: Quote, Profile, Research, Stock Buzz)(CEO.N: Quote, Profile, Research, Stock Buzz) and China Oilfield Services Ltd (2883.HK: Quote, Profile, Research, Stock Buzz)(601808.SS: Quote, Profile, Research, Stock Buzz) -- and foreign investors, Xiao Zongwei an investor relations official said.

With slower output growth expected after 2010, the state-owned oil firm needs to develop remote deep sea areas to help feed the heavy energy demand of China, the world's second largest consumer of oil after the United States.

CNOOC expected its annual deepwater production capacity in the South China Sea to be around 1 million barrels of oil equivalent per day, or 50 million tonnes a year, a similar size to the country's Daqing oilfield, in the next decade, the company's Shenzhen chief development engineer Luo Donghong said.

The South China Sea has estimated geographical reserves of about 3.1 billion tonnes of oil and gas.

"Based on the plan, CNOOC will gradually develop 1,500 metres to 3,000 metres deep water exploration and development ability from 2009 to 2010," Luo said.

CNOOC has signed 4 deep sea production sharing contracts with small to medium independents, including Husky Energy (HSE.TO: Quote, Profile, Research, Stock Buzz).

CNOOC, which lacks experience and equipment for deep sea exploration, may need to team up with proven deep sea hands, such as BP (BP.L: Quote, Profile, Research, Stock Buzz), Total (TOTF.PA: Quote, Profile, Research, Stock Buzz), Shell (RDSa.L: Quote, Profile, Research, Stock Buzz) and Chevron (CVX.N: Quote, Profile, Research, Stock Buzz) in the project, analysts said.

But Luo said CNOOC had been developing its own technology and started research and development in the production of heavy equipment, including deep water drilling and pipe laying ships, with total investment of 15 billion yuan.

He said the company had not yet been affected by the global financial crisis but will be very cautious in executing the deep sea project.

Some analysts said territorial rows and claims from China's Southeast Asian neighbours may limit the scope of the country to make an aggressive foray into deep sea regions. ($1=6.830 yuan) (Writing by Alison Leung; Editing by Ben Tan)