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THE JOURNALISTS AND EDITORS WORKSHOP

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Title: THE JOURNALISTS AND EDITORS WORKSHOP


1
CHINAS ENERGY POLICY TOWARDS LATIN AMERICA
THE JOURNALISTS AND EDITORS WORKSHOP ON LATIN
AMERICAS ENERGY FUTURE Miami, Florida May 6,
2011 Simin Yu, LL.B., M.A., J.D. Senior
Associate Wenya Group
2
CHINAS ENERGY POLICY TOWARDS LATIN AMERICA
The Figures 1. In 2010 alone, China made US
20bn-worth of oil and gas deals in Latin America,
up from zero in 2009 US 1 billion in
2008 zero in 2007 US 0.43 billion in 2006
and US 1.42 billion in 2005   2. estimated
that by 2010, Chinese firms have secured deals in
LA worth at least 65 billion in stakes of
various projects.   3. Latin America as a region
has supplied around 8-9 of China's total oil
imports in 2010, up from 6-7 in 2009. 4.
Chinese companies have spent 24.6bn on overseas
oil and gas acquisitions in 2010, accounting for
a fifth of deal activity in the sector over the
period.  
3
The above investments are limited to LAs oil and
gas sector.
Source authors calculation
4
Chinese NOC Expansion in Latin America
5
Chinas Investments in Latin America
Unit US million
Source MOFCOM
6
Chinas Investments in Latin America, cumulative
Unit US million
Source MOFCOM
7
Chinas Investments in Latin America, cumulative
Unit US million
Source MOFCOM
8
CHINAS ENERGY POLICY TOWARDS LATIN AMERICA
Chinas Energy Policy towards LA The Chinese
government unveiled a policy paper on Latin
America and the Caribbean in November,
2008.   The following is what commonly
considered as key aspects of Chinas energy
policy towards LA   1. Trade - Further
diversify Chinas crude oil import sources.   2.
Investment - Through government level initiative,
encourage and facilitate Chinas NOCs
involvement in Latin Americas energy sector.
9
Sources of China's Crude Oil Imports
Gradual increase of oil imports from Africa,
corresponded with a recent decrease of Middle
East crude.
Source Dow Jones, Reuters
10
Dominate LAC Trade to China (2009)Five
Countries, Eight SectorsSource UN Commodity
Trade Statistics
11
Chinas Average Annual Trade Growth, by Key
Regional Partner, 1990 2009 ()
12
Chinas Rank as a Trading Partner for Selected
Countries in Latin America, 2000 and 2008
13
Chinas Import from Latin America Value and
Percentage of World Total
14
CHINAS ENERGY POLICY TOWARDS LATIN AMERICA
Chinas Energy Policy towards LA The Chinese
government unveiled a policy paper on Latin
America and the Caribbean in November,
2008.   The following is what commonly
considered as key aspects of Chinas energy
policy towards LA   1. Trade - Further
diversify Chinas crude oil import sources.   2.
Investment - Through government level initiative,
encourage and facilitate Chinas NOCs
involvement in Latin Americas energy sector.
15
Chinas NOCs in numbers
16
Estimated Chinese share of overseas equity in oil
exporting countries, Q1 2010
17
Major Chinese Acquisitions in Latin
AmericaSource Kevin Gallaher
18
Major Chinese Acquisitions in Latin America, 2005
- 2010Source Heritage Foundation
19
CHINAS ENERGY POLICY TOWARDS LATIN AMERICA
  • Argentina
  •  
  • Acquisition CNOOC bought a 50 stake in Bridas
    Corporation in March 2010 for US 3.10 billion
  •  
  • forming the CNOOC / Bridas JV
  • financing CNOOC internal resources
  • CNOOCs first major acquisition in Latin America,
    giving CNOOC 318 million barrels of reserves a
    12 increase for CNOOCs global portfolio
  •  
  • Acquisition CNOOC / Bridas JV acquired BPs 60
    stake in Pan America Energy in November 2010 for
    US 7.06 billion
  •  
  • acquisition limited to PAEs assets in Argentina,
    excluding its assets in Bolivia
  • financing - CNOOC contributed US 2.47 billion,
    Bridas Energy Holdings contributed US 2.47
    billion, with the remaining US 2.12 billion to
    be satisfied by third party loans to be arranged
    by Bridas or additional contribution from CNOOC
    and BEH

20
CHINAS ENERGY POLICY TOWARDS LATIN AMERICA
  • Argentina
  •  
  • Acquisition Sinopec acquired Occidental
    Petroleums operations in Argentina in November
    2010 for US 2.45 billion, closed in February
    2011
  •  
  • the agreement was signed two weeks after CNOOCs
    acquisition in PAE
  • one month before that, in October 2010, Sinopec
    signed a US 7.10 billion deal to buy 40 of
    Repsol SAs Bazillion assets
  • Sinopecs first investment in Argentinas
    upstream oil and gas sector
  • Occidental Argentina had gross proven and
    probable reserves of 393 million barrels of oil
    equivalent, and an interest in 23 production and
    exploration concessions in Santa Cruz, Mendoza
    and Chubut provinces in Argentina
  • Occidental Argentinas 2010 production 15
    million BOE and 14 billion cubic feet of natural
    gas equivalent
  •  
  • Acquisition (downstream) PAE, 30 indirectly
    controlled by CNOOC, agreed in February 2011 to
    purchase ExxonMobiles downstream business in
    Argentina, Uruguay and Paraguay
  •  
  • PAE currently has no downstream exposure
  • PAE will acquire the 87,000 barrel per day (b/d)
    Campana refinery as well as 500 service stations
    in Argentina and a further 220 in Uruguay and
    Paraguay
  • price not officially released, media report at
    around US800-850 million

21
CHINAS ENERGY POLICY TOWARDS LATIN AMERICA
  • Brazil
  •  
  • Acquisition Sinopec acquired 20 stakes in two
    offshore blocks from Petrobras in April 2010
  •  
  • Sinopec would take stakes in the BM-PAMA-3 and
    BM-PAMA-8 blocks in deep waters of the
    Para-Maranhao basin in northern Brazil
  • value of the sale not disclosed
  •  
  • Acquisition Sinochem acquired a 40 stake in
    Peregrino field from Norwegian Statoil ASA for
    US 3.07 billion in May 2010, closed in April
    2011
  •  
  • Sinochem, Chinas biggest chemicals trading firm,
    make its first oil and gas investment in 2003 and
    is now operating 12 projects in the Middle East,
    Asia and Latin America
  • The field has an estimated 460 million barrels,
    operation started in April 2011
  • Statoil is to maintain the remaining 60
    ownership, as well as the operatorship of the
    field
  • CNOOC was also in the bidding process
  •  
  • Acquisition Sinopec acquired a 40 stake in
    Repsols Brazil arm for US 7.1 billion in
    October 2010, closed in December 2010
  •  
  • through new share subscription
  • the second-largest overseas purchase by a Chinese
    company

22
CHINAS ENERGY POLICY TOWARDS LATIN AMERICA
  • Brazil
  •  
  • Oil-for-Loan Deal China Development Bank agreed
    to lend US 10 billion to Petrobras in April 2009
    in exchange for long-term supplies of oil
  •  
  • Petrobras agreed to sell Sinopec 200,000 barrels
    of oil per day roughly a tenth of Petrobrass
    current oil production from 2010 to 2019
  • The oil will be bought at a market price but has
    the benefit of securing supply to Sinopec
  • in April 2011, Petrobras confirmed that it is in
    talks with China Development Bank for a new loan,
    deals yet to be agreed
  •  
  • Gas Pipeline Construction Project
  •  
  • GASCAC project - 974-kilometer-long pipelines,
    work extension in GASENE project, Sinopecs
    largest overseas petroleum engineering project by
    then, financed by China Development Bank with US
    750 million, operation started in 2010
  • GASCAV project - 303-kilometer-long pipelines ,
    another part of the GASENE project, commenced in
    June 2006 and finished in 2007

23
CHINAS ENERGY POLICY TOWARDS LATIN AMERICA
  • Venezuela
  •  
  • Joint Venture Sumano Oil Company, CNPCs JV
    with PDVSA, awarded exploration rights in the
    Sumano field in 2007
  •  
  • CNPC to take a 40 interest in any commercial
    production in the block
  •  
  • Joint Venture CNPC agreed in April 2010 to
    invest US 900 million in another joint venture
    with PDVSA, with CNPC holding 10 ownership
  •  
  • to develop Junin 4 oil block in Orinoco heavy oil
    basin
  • Sinopec owns Junin 8 block
  •  
  • Joint Venture it is reported in February 2011
    that CNOOC will team up with Malaysia's Petronas,
    Algeria's Sonatrach, and a Russian consortium to
    develop offshore natural gas project Mariscal
    Sucre
  •  
  • the project is estimated to hold around 14.7
    trillion cubic feet of gas
  • PDVSA has spent more than a decade searching for
    partners to develop its Mariscal Sucre project

24
CHINAS ENERGY POLICY TOWARDS LATIN AMERICA
  • Venezuela
  •  
  • Wide range JV cooperation
  •  
  • upstream oil exploration and production
    Sinovensa, CNPC holds 40 and PDVSA holds 60
  • Oil Transport JV CNPC and PDVSA each holds 50
  • downstream oil refinery JV located in both
    China and Venezuela, CNPC holds 60 and PDVSA
    holds 40
  • rig manufacturing JV capable of producing eight
    rigs per year, PDVSA has an 85 stake in the JV
    and CNPC 15
  •  

25
CHINAS ENERGY POLICY TOWARDS LATIN AMERICA
  • Venezuela
  •  
  • Loans-for-Oil Deal
  •  
  • Long-Term and High Volume Loan
  • signed in 2010, 10-year, US 20 billion credit
    line with China Development Bank
  • to be repaid with future oil shipments
  • earmarked for infrastructure projects, housing
    and agriculture
  • ICBC Loan
  • signed in 2011, totaling US 4 billion, with
    Industry and Commerce Bank of China
  • for housing projects in Venezuela, mostly to
    address an acute housing shortage in Venezuela
  • to be repaid with future oil shipments
  • Joint Investment Fund
  • set up in 2007 with an initial contribution of
    US 6 billion, (US4 billion from China, and US
    2 billion from Venezuela)
  • doubled its size to US 12 billion in 2008 (same
    contribution ratio)
  • Two previous Chinese installments into the
    bilateral fund, totaling 8 billion, have been
    mostly repaid by Venezuela
  • a third round injection in the amount of US 4
    billion will soon be made by China Development
    Bank, agreed in March 2011, for housing project,
    bringing CDBs total loans up to US 24 billion

26
CHINAS ENERGY POLICY TOWARDS LATIN AMERICA
  • Colombia
  •  
  • Acquisition in 2006, Sinopec and ONGC teamed up
    to buy a 50 stake in Omimex de Colombia for US4
    850 million
  • Omimex de Columbia's blocks in Columbia have
    proven reserves of around 157 million barrels
  •  
  • EP CNPC in 2008 formed a consortium with
    Pluspetrol (Argentine privately-held oil firm)
    and KNOC (Korea National Oil Corporation)
  • to explore oil in CPE 7 field, located in Llanos,
    eastern Colombia, which has about 130 oil fields
    under production
  • KNOC owns a 30 percent stake in the field, while
    Pluspetrol and CNPC own 40 percent and 30
    percent, respectively
  •  
  • Acquisition Sinochem indirectly acquired the
    following EP contracts in Colombia when it
    purchased Emerald Energy in 2009
  • Matambo Association Contract, Gigante field
  • Campo Rico Association Contract, Campo Rico
    Vigia Fields
  • Fortuna Association Contract
  • Maranta EP Contract
  • Ombu EP Contract
  • Helen EP Contract
  • Jacaranda EP Contract

27
CHINAS ENERGY POLICY TOWARDS LATIN AMERICA
  • Ecuador
  •  
  • Acquisition in September 2005, Andes Petroleum
    Corporation, a joint venture of CNPC and Sinopec
    (CNPC owns 55, Sinopec owns 45), purchased all
    of Canada-based EnCanas oil and pipeline
    interests in Ecuador for US 1.42 billion, closed
    in February 2006
  • Assets acquired in this action include three oil
    tracts with a crude oil output of 7 200 barrels
    per day
  • in August 2008, Andes Petroleum signed a new
    contract with Ecuadorean state oil company
    Petroecuador, tripling the Ecuadorean state
    participation in the production of crude from its
    two oil concessions, Blocks 14 and 17. Andes
    Petroleum will receive a fee for extracting oil
    in Ecuador instead of keeping a portion of the
    crude it produces.
  • Andes Petroleum planned to further invest 103.9
    million in Ecuador over the next 10 years.
  •  
  • Signing of the following Agreements Not
    Confirmed
  • 2009 - Sinopecs reported US 1.1 billion JV
    project with state-owned Petroecuador to conduct
    EP in Ishpingo-Tiputini-Tambococha, ITT oil
    field
  • 2010 - Sinopecs reported US 500 million
    investment in Ecuadors Olgan block

28
CHINAS ENERGY POLICY TOWARDS LATIN AMERICA
  • Ecuador
  •  
  • Prepayment-for-Oil Deal CNPCs publicly listed
    arm, PetroChina, signed the agreement with
    Petrocuador in February 2011
  • Under the new two-year agreement, Ecuador
    received US1 billion from PetroChina as
    prepayment in full for 69 million barrels of
    crude, which it will begin to ship to China this
    August
  • This agreement is an update to the 2009 contract
    signed, which will expire July 2011, Ecuador
    received its first US 1billion through its
    loans-for-oil deal with China in 2009, following
    Ecuadors US 3.2 billion bonds default in 2008.
  • The new 2011 payment will be used to finance
    investment project already budgeted for 2011, in
    addition, the money will be invested in
    Petroecuador's Strategic Operational Plan and
    will help pay off the company's prior debts.
  • The contract does not entail an oil prepayment as
    do regular contracts, since the Ecuadorian state
    will have to pay an interest rate of 7, higher
    than the ones typically offered by IMF or World
    Bank
  • It is said to be a Loans-for-Oil deal in guise
    a money loan from China, guaranteed with
    petroleum and including the payment of interests
  •   
  • Loan for hydroelectric plant and other public
    projects
  • not loans-for-oil deal
  • US 1.68 billion from China Eximbank, carrying a
    6.9 interest rate, signed in 2010, for
    construction of the Coca Codo Sinclair
    hydroelectric dam
  • Additional US 1 billion, also signed in 2010,
    energy, oil and telecommunications projects

29
CHINAS ENERGY POLICY TOWARDS LATIN AMERICA
  • Cuba
  •  
  • Framework Agreement with CNPC
  • signed in 2008, no details have been outlined in
    the agreement
  • on expanded cooperation in engineering services,
    oil equipment and joint exploration of Cubas
    offshore oil and gas fields
  •  
  • Production Sharing Agreement with Sinopec
  • signed in 2005
  • between Sinopecs unit Shengli Oilfield
    Administration Bureau and Cupet
  • explore Block 3 in the northern part of Pinar Del
    Rio province and covers 1700 square kilometres
  •  

30
CHINAS ENERGY POLICY TOWARDS LATIN AMERICA
  • Peru
  •  
  • Sinochem
  •  
  • Emerald Energy, bought by Sinochem in 2009 and
    now its wholly owned subsidiary, won exploration
    contracts in five blocks offered by PeruPetro in
    November 2010
  •  
  • CNPC
  •  
  • Block 6/7 project in Talara Oilfield - the first
    overseas oilfield development project CNPC
    operated, taken over by CNPC in January 1994 and
    October 1995 respectively
  • Blocks 8 and 1 A/B CNPC acquired a 45 stake
    from Argentine PLUSPETROLs Peruvian oil fields
    in 2003, making CNPC the second largest oil
    producer in Peru after Pluspetrol
  • Block 111 and Block 113 in the MDD basin CNPC
    signed these two risk exploration contracts with
    Peru in 2005

31
CHINAS ENERGY POLICY TOWARDS LATIN AMERICA
  • Bolivia
  •  
  • Energy-related Loan
  •  
  • Bolivian government borrowed US 60 million from
    Chinas central bank in 2009 for completing its
    domestic gas networks and purchase of two
    drilling rigs.
  •  
  • Framework Agreement
  •  
  • In September 2005, China's Shengli International
    Petroleum Development Co. Ltd. signs a framework
    pact with state-run Yacimientos Petroliferos
    Fiscales Bolovianos to invest 1.5 billion over
    40 years in Bolivia's onshore oil and gas sector.
  • There are no follow-ups being reported

32
CHINAS ENERGY POLICY TOWARDS LATIN AMERICA
  • Costa Rica
  •  
  • Refinery Projects
  •  
  • CNPC invested US 1 billion in a JV with Costa
    Ricas state-run Recope for a refinery upgrading
    project in 2008
  • CNPC is planning a US 5 billion investment to
    build a new refinery there, aimed to provide
    fuels through the region and its neighbors from
    Costa Rica

33
CHINAS ENERGY POLICY TOWARDS LATIN AMERICA
  • Uruguay
  •  
  • Acquisition (downstream) PAE, 30 indirectly
    controlled by CNOOC, agreed in February 2011 to
    purchase ExxonMobiles downstream business in
    Argentina, Uruguay and Paraguay
  •  
  • PAE currently has no downstream exposure
  • PAE will acquire the 87,000 barrel per day (b/d)
    Campana refinery as well as 500 service stations
    in Argentina and a further 220 in Uruguay and
    Paraguay
  • price not officially released, media report at
    around US800-850 million
  • its assets in Bolivia
  • financing - CNOOC contributed US 2.47 billion,
    Bridas Energy Holdings contributed US 2.47
    billion, with the remaining US 2.12 billion to
    be satisfied by third party loans to be arranged
    by Bridas or additional contribution from CNOOC
    and BEH

34
CHINAS ENERGY POLICY TOWARDS LATIN AMERICA
  • Paraguay
  •  
  • Acquisition (downstream) PAE, 30 indirectly
    controlled by CNOOC, agreed in February 2011 to
    purchase ExxonMobiles downstream business in
    Argentina, Uruguay and Paraguay
  •  
  • PAE currently has no downstream exposure
  • PAE will acquire the 87,000 barrel per day (b/d)
    Campana refinery as well as 500 service stations
    in Argentina and a further 220 in Uruguay and
    Paraguay
  • price not officially released, media report at
    around US800-850 million

35
CHINAS ENERGY POLICY TOWARDS LATIN AMERICA
  • Trinidad Tobago
  •  
  • Acquisition Sinopec acquired Canadian oil
    company Talimans local assets in 2009, through
    its subsidiary SOOGL Antilles (Trinidad) Ltd
    (SOOGL stands for Sinopec Offshore Oil and Gas
    Ltd.)
  • purchased assets portfolio
  • a 25 non-operating interest in the Angostura
    development area of block 2(c)
  • a 36 interest in the block 2(c) Howler
    assessment area
  • a 26 interest in the Greater Ruby-Delaware
    appraisal area of block 3(a)
  • a 40 interest in the exploration area of block
    3(a)
  • a 65 operating interest in the onshore East
    Brighton block
  • net total proved reserves in Trinidad Tobago
    6.23 billion cubic meter of natural gas and 4.3
    million barrels of oil and NGLs

36
CHINAS ENERGY POLICY TOWARDS LATIN AMERICA
Major Chinese approaches to energy
resources I. Long term contract negotiation
of price II. Investing in equity at company
level III. Investing in specific project /
asset IV. Loans-for-Oil Deals V.
Cooperation with other multinational
companies VI. buying other IOCs local
assets VII. Joint Development Model
37
(No Transcript)
38
Source authors calculation
39
CHINAS ENERGY POLICY TOWARDS LATIN AMERICA
  • Interpreting Chinese NOCs Strong Interests in
    LA
  • LA has vast reserves that are concentrated
    geographically
  • Recent new oil discoveries in Latin America
  • China has a real need to secure long term supply
    of oil
  • Less competition with other IOCs
  • China has a longer-term horizon
  • Despite their deep pockets, Chinese NOCs have
    mostly been unwelcome in other parts of the
    world
  • To diversify imports
  • A number of LA countries are cash-strapped
  • Many LA countries in favour of like-minded
    state-owned national oil companies for EP join
    ventures
  • ICOs in the region willing to sell assets
  • A change of pace by Chinese resource companies
    over the past two years in terms of acquisition
    activity
  • Chinese firms will seek to establish more
    consumer bases abroad

40
CHINAS ENERGY POLICY TOWARDS LATIN AMERICA
  • A Few Observations
  • - Geopolitical Considerations
  • How importance of Latin America for Chinas
    energy security?
  • Drastic Increase in Crude Imports?
  • Investment Boom expected to continue?
  • Chinese NOCs Challenge - Policy Uncertainty,
  • Regulatory Framework, Social Risks, Intense
    Market Competition,
  • Environmental Clauses, Transportation Costs,
    Technology of refinery

41
CHINAS ENERGY POLICY TOWARDS LATIN AMERICA
THANK YOU
Simin Yu, LL.B., M.A., J.D. Senior Associate
Wenya Group Email syu_at_ualberta.ca
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