China expands influence in Middle East with major oil deal

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China continues to expand its influence in the Middle East through oil and infrastructure deals, and the latest deal with ADNOC is a prime example of how Beijing is seeking to increase its presence in the offshore oil sector.

It’s hardly surprising to see that China – once again – is featured in yet another Middle East concession award, this time involving the Abu Dhabi National Oil Company (ADNOC). In the aftermath of Saudi Arabia’s disastrous second oil price war on the U.S. shale industry, virtually all of the major state-owned oil companies in the Middle East are looking to fill varying operational deficits, as are their governments.

In the absence of a major and sudden spike in oil prices, economic survival in practical terms now boils down to one of two main options. The first is to sell parts of state assets in initial public offerings (IPOs) or stakes in ongoing oil and gas projects, which ADNOC recently did with the sale of a stake. 49% in its gas pipelines for a little over 10 billion US dollars. international investors. The second is to sell the same assets to companies in countries where the immediate economic deficit inherent in such transactions is insignificant compared to the longer-term geopolitical and financial benefits. In this regard, Russia has its own financial constraints to overcome, but not China.

Specifically, ADNOC has announced the transfer of the ownership rights of its Lower Zakum, Umm Shaif and Nasr offshore concessions from the existing stake of the China National Petroleum Corporation (CNPC) to the subsidiary of the China National Offshore Oil Corporation (CNOOC), CNOOC Limited. To do so, CNOOC acquires a 40% stake in the subsidiary majority owned by CNPC PetroChina Investment Overseas (Middle East) Ltd (PetroChina) through its holding company, CNOOC Hong Kong Holding Limited (CNOOC HK). Once the proposal is approved by the Abu Dhabi Supreme Petroleum Council (SPC) – a rubber stamping business – CNOOC will join the main operating consortium of the Lower Zakum concession, comprising the CGSB Videsh of the India (10% stake), Japanese company INPEX (10%), CNPC from China (6%), Eni from Italy (5%) and Total from France (5%). CNOOC will also join the main operating consortium of the Umm Shaif and Nasr concession, comprising Total (20%), Eni (10%) and CNPC (6%). ADNOC will retain a controlling 60 percent stake in both concessions. Related: Iranian Oil Exports Much Higher Than Official Data Suggest

Significantly, aside from China’s relentless wider expansion in the Middle East, in line with its multi-generational “One Belt, One Road” program, the deal marks the first time that a Chinese offshore oil and gas company has been attached to an ADNOC. Concession. These points did not go unnoticed by CNOOC Chairman Wang Dongjin, who said, “CNOOC will leverage our extensive expertise in the offshore sector and be dedicated to creating value in these concessions for our mutual benefit.”

In this context, this latest agreement follows the signing on July 22, 2019 of a global framework agreement between ADNOC and CNOOC to “explore new opportunities for collaboration” in the upstream, intermediate and downstream oil sectors as well as in liquefied natural gas (LNG). Described at the time by ADNOC CEO Ahmed Al Jaber as “far-reaching”, the deal is such a significant move by China in the oil and gas interests of one of the few remaining vocal allies of the United States in the Middle East – the United Arab Emirates – that the signing ceremony of the agreement was attended in person by Chinese President Xi Jinping.

Although framed in the usual platitudes expected in such transactions, even official guidelines on its content have underscored its broad scope and breadth. For example, ADNOC and CNOOC, according to official notes published on the agreement, “will share knowledge, best practices and technologies in the development of ultra-acid gases to improve the operational efficiency of gas processing and processing, provide efficiency, performance and reliability for drilling. and draw up development plans for fields and reservoirs ”. Complementing this, the Chinese offshore petroleum engineering company (COOEC) would be in the top position for related engineering, procurement and construction opportunities, as would China Oilfield Services Ltd (COSL) for the provision of petroleum services. and to explore opportunities for collaboration in the offshore. oil and gas field assets in Abu Dhabi. Related: Big Oil Forced To Change Strategy After Oil Prices Fall

Also according to the agreement of July 2019, ADNOC and CNOOC would jointly explore opportunities to sell and purchase LNG, share their knowledge and expertise in the LNG markets, and assess partnerships and joint investment opportunities in the LNG market. LNG value chain. Finally, in the downstream sector, the two companies would collaborate in new integrated refining and petrochemicals assets in China, cooperate in the refining assets of CNOOC, and partner and jointly invest in the refining and refining value chain. petrochemicals.

One of these early, albeit indirect, investments in China may well be in an investment platform to finance local chemical projects, as part of a global push to invest US $ 45 billion in activities in China. downstream in Abu Dhabi, according to a senior oil and gas industry source. familiar with the project. The investment platform is to be managed as a joint project between ADNOC and the Abu Dhabi state-owned holding company, ADQ (formerly known as Abu Dhabi Developmental Holding Company) and will oversee the development of projects in the Ruwais Derivatives Park project. Although ADNOC has not made public the breakdown of the source of all funding, ADNOC and ADQ will jointly hold 60 shares in the project.

That the ADQ has money for such an investment, if not for anything, is surprising, given that less than two months ago it was in urgent talks to raise a loan of at least 3 billion US dollars, according to various reports. “ADQ’s attempts to set up a syndicate of banks have not worked well and yet it is here with the financing of investments, at a time when the broader agreement with China is progressing,” he said. he declared. “There are no public statements that China is involved in the funding, of course, but it is fair to say that if ADQ or ADNOC had asked China for funding for the platform investment, China would have given it ”, he concluded.

By Simon Watkins for OilUSD

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