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China and India raise the stakes

The prospect of Chinese and Indian oil companies buying oil and gas-producing assets in the US and Russia is changing the landscape in which the western oil majors operate.

In a further sign of China's and India's aggressive pursuit of energy supplies, India yesterday signed a $40bn deal with Iran to import liquefied natural gas and join in developing three Iranian oilfields.

The deal follows reports that the China National Offshore Oil Corporation (CNOOC) is eyeing a $13bn takeover of Unocal, the US listed oil and gas producer, and that India's Oil and Natural Gas Corp was in talks with Russia about buying some of the assets of Yukos.

"These are the new strong players in the oil industry and they will provide very stiff competition to the majors," said Leo Drollas, deputy chief executive at the Centre for Global Energy Studies.

The Iranian gas accord follows last year's $70bn deal for China's Sinopec to take 250m tonnes of LNG over 30 years and a 50 per cent stake in the Yadavaran oilfield.

The growing ambitions of the Indian and Chinese oil companies will catch the eye of policymakers in the west.

However, Gary Ross, of PIRA Energy Group in New York, said: "This is a private transaction - it has nothing to do with what the [Capitol] Hill thinks . . . It will have more of an impact on the major oil companies because [CNOOC] is a government-sponsored company and is willing to accept lower rates of return than they will. They won't be able to compete when bidding for assets."

Rob Arnott, senior research fellow at the Oxford Institute for Energy Studies in the UK, said CNOOC's move was part of the growing trend over the past two years of Chinese energy companies aggressively pursuing international oil-producing assets.

If the Unocal acquisition was to proceed it would be the largest overseas acquisition by a Chinese company and would come as China's largest oil companies - China National Petroleum Corp, Sinopec and CNOOC - have been busy snapping up oil production assets around the globe in an effort to attain "security of supply" as the country's oil demand and imports expand rapidly.

Mr Drollas said the rationale for "security of supply" was redundant as no country could be immune from a significant disruption to global oil production.

"The Japanese have tried to develop a 'security of supply' policy for decades, but it has not worked. Now the Chinese are developing one, but they will fail too because the market is international where everybody is affected if prices go up," said Mr Drollas.

He said the Chinese approach contrasted with that of Japan, which is in the process of disbanding the Japan National Oil Company, its state-run company, after its large investments in overseas oil exploration yielded few new oilfields.

"I think [any CNOOC move] is quite smart. They have obviously looked at the whole energy market and looked at the lack of success with the Japanese exploration strategy and decided the best way to buy supply was through a takeover of a private company," said Mr Drollas.

Analysts said a key attraction for CNOOC was that Unocal had 70 per cent of its production assets in the Asian region, with its single largest asset, its interests in the Azeri-Chirag-Gunashli field in the Caspian Sea and the adjoining Baku Tbilisi Ceyhan pipeline.

(8 Jan 2004)

Editorial Notes: TJ writes: Interesting. The US engages in a "war on terror" to bring "democracy" to Afghanistan but some say it's just a way to get Southern Asian oil safely down to shipping points on the Indian Ocean through a pipeline through the region. Wasn't Unocal supposed to build the pipeline to serve US interests? Now it's reported below that the Chinese are trying to buy Unocal. If the transaction succeeds does this mean the pipeline, if it's actually built will ensure that China, and not the US, has "security of supply." TJ updates (10 Jan 04): The answer is... to ensure security of supply for both China _and_ the US. That's the plan, anyway. The US is in Afghanistan to pacify the region in order to facilitate the transportation of oil and gas out of Central Asia. The "war on terror" is a war to engender terrorist retaliation to create smoke screens to justify a continuing US military presence in resource rich regions to make imperial wars acceptable to the American people. The US is trying to secure it's _other_ sources of oil and gas by securing this pipeline route. That is, America is trying to secure it's share from Nigeria, Venezuela and other sources abroad, militarily securing Iraqi oil and apparently passing off Turkmenistan oil and gas to placate its competitors China and India. The wars in Afghanistan and Iraq are both about American energy resources and energy security. But the sale of Unocal would put China in Afghanistan. Is the next step the US selling or giving away its military installations to install the Chinese military next door to Iran? Or does the US maintain a military presence to ensure supply routes for China's and India's oil and gas under the guise of defending democracy, in reality corporate plutocracy? Please see: (excerpt) January 1, 2002 Former Unocal consultant Zalmay Khalilzad appointed as new US special envoy to Afghanistan. [Independent, 1/10/02; (if link down see mirror here: ); BBC 1/1/02 ] May 2002 The leaders of Afghanistan, Pakistan and Turkmenistan agree to the construction of a $2bn pipeline to bring gas from Central Asia to the sub-continent. [BBC, 5/30/02] December 2002 Deal signed to build gas pipeline across Afghanistan. [BBC article] December 2002 White House announces 10 new bases in Afghanistan 'in hopes of boosting reconstruction efforts and regional security', whose locations coincide with the route proposed by Unocal in 1998 for a gas pipeline from Turkmenistan through Afghanistan to Pakistan. [Boston Globe 12/2002] See also: Unocal and the Afghanistan pipeline See also: IT'S ALL ABOUT OIL! (excerpt) From The 1998 Congressional Record. I think the key words here are....
I should note that it is in everyone's interest that there be adequate supplies for Asia's increasing energy requirements. If Asia's energy needs are not satisfied, they will simply put pressure on all world markets, driving prices upwards everywhere. [...] The second option is to build a pipeline south from Central Asia to the Indian Ocean. One obvious route south would cross Iran, but this is foreclosed for American companies because of U.S. sanctions legislation. The only other possible route is across Afghanistan, which has of course its own unique challenges. The country has been involved in bitter warfare for almost two decades, and is still divided by civil war. From the outset, we have made it clear that construction of the pipeline we have proposed across Afghanistan could not begin until a recognized government is in place that has the confidence of governments, lenders, and our company.
These guys wanted to turn the American military into corporate mercenaries with the costs externalized to the American public. Under the current administration they've succeeded. See also: THE PENTAGON'S NEW MAP

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