China Chases More Oil Assets (SNP)(RTP)

China is scouring the world for oil as its expanding economy needs more crude to fuel its transportation and infrastructure needs. The world’s most populous nation is close to a deal to loan Brazil oil giant Petrobras $10 billion for off-shore drilling. The deal would help China lock up more than 100,000 barrels of crude a day.

China has been an aggressive bidder for rights to Iraqi oil fields although it is too early to say how that will work out. Sinopec (SNP) has bid $7.2 billion for oil company Addax Petroleum.

The latest move by China to get access to oil exploration and production outside its own borders may be a move to buy assets from a big European producer. According to Bloomberg, “Repsol YPF SA, Spain’s biggest oil producer, has been approached by companies interested in its $12 billion Argentine YPF unit.” The suitors are probably China National Petroleum and another mainland operation, CNOOC.

Governments in the countries where these large oil firms are based are going to have to decide whether they want so much Chinese capital going into companies that may be considered “strategic” to their nation’s futures. Oil will become more scarce over the next several decades. If China has locked up enough supply, it will control an asset that will be extremely important to GDP expansion in most developed and developing countries.

Governments have recently moved to block Chinese investments, or at least threaten to. The Australian government may have had a hand in keeping China mining company Chinalco from buying a large stake in metals firm Rio Tinto (RTP) which is based in London and has substantial assets in Australia. The battle for those kinds of critical assets, which will end up being a de facto battle between the Chinese government  and other nations has only begun.

Douglas A. McIntyre