In Central Asia, the norm is for the government to receive roughly one-third of the profit oil and for the oil company to receive the remainder. Yet in Afghanistan — one of the riskiest countries in Central Asia, with incomplete geological data and the near absence of key infrastructure — the task force pushed for a profit split that would give the Afghan government the majority of the profit oil. This was in addition to royalties and several other taxes included in the agreement, all of which are entirely atypical in Central Asia.

We provided the task force with several examples of contract terms in other Central Asian countries and repeatedly asked the task force to identify which countries served as the model for the unattractive commercial terms offered for the Amu Darya tender. The task force refused to answer our question, and the terms remained unchanged, resulting in virtually no interest in the tender among serious Western oil companies. The terms did not deter CNPC, however, which is willing to make investments in Central Asia that are not strictly profitable for the purpose of capturing resources and extending China’s political influence.

The other problem was the process, under which the company that bid the highest royalty would be designated the winner of the tender so long as it met the basic technical requirements for executing the project. It was clear from the beginning that CNPC would bid the highest royalty (especially given that the terms were unattractive to Western companies). Indeed, according to industry experts we consulted, it is common knowledge that CNPC typically bids $5 to $7 per barrel more than other interested bidders in oil tenders in which it participates. So this selection process all but guaranteed that China would win the tender.

The win in Afghanistan underscores the momentum of the Chinese model of development, known as the Beijing Consensus, which has allowed China to use soft power to foster influence abroad and feed its resource-hungry economy. From Reuters:

Chinese firms already have a stake in nearly 40 projects in Afghanistan, with contracts worth nearly $500 million at the end of June, according to Wu Gangchen, the commercial counselor at the Chinese Embassy.

“Reconstruction means markets, reconstruction means opportunity,” Wu was quoted as saying in a recent interview with Beijing-based newspaper the International Business Daily.

He urged Chinese investors to keep their eyes open for possible deals in Afghanistan, particularly in the sectors of “energy, infrastructure, trade, service and processing.”

Despite the threat a large Chinese coal project poses to an ancient Afghan Buddhist site, a September China Daily report claims such investments can show the way to peace and prosperity in Afghanistan:

According to the governor of Logar, Afegalla Loden, about 300 former members of the Taliban have recently turned their guns into the province. Many of them have obtained important posts in the government, while about 70 are taking part in the mine project.

“They (former Taliban members) now have houses and jobs and therefore tend to be doing good deeds.”

Moreover, the Afghan Power Human Resources Service Company is working with the Metallurgical Corporation of China to run a training program for the Afghans who will work on the project. Those who go through the training will receive a month of classes in technology, management, accounting, safe production and the Chinese language. They will then spend two months getting hands-on experience at their jobs.

…

The commercial counselor at the Chinese Embassy in Afghanistan, Wu Gangchen, said he has also observed that “The Afghan people show a great eagerness for development and for cooperation with their neighbor, China, which has no history of being in conflict with Afghanistan.”

The Globe and Mail also recently highlighted the parallels between China’s investments in Afghanistan and similar ventures in Iraq, while Bloomberg noted that China employed the same strategy that has opened the door to Africa’s wealth of natural resources.

© Scott Greene for China Digital Times (CDT), 2011. | Permalink | One comment | Add to del.icio.us
Post tags: Afghanistan, Beijing Consensus, CNPC, oil, oil diplomacy, soft power, U.S. relations
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French President Nicolas Sarkozy invited China to send a delegate to the Paris meeting when he made a stopover in Beijing a week ago.

China has been reluctant to join the Western nations in Libya, but Foreign Ministry spokesman Ma Zhaoxu said Vice-Foreign Minister Zhai Jun would attend.

“China supports efforts by relevant parties in restoring stability and promoting the smooth transition of power in Libya, and is willing to join the international community and play an active role in rebuilding Libya in the future,” Mr Ma said.

China had previously criticised the NATO-led bombing campaign against Gaddafi’s forces and refused to condemn the dictator. China is a big investor in Libya, with 26 Chinese companies taking on an estimated $US20 billion ($18.6bn) in business. The flagship newspaper of the ruling Communist Party repeated calls for the UN to take the lead in post-conflict arrangements in the oil-rich North African country.

The Telegraph points out that with China’s clout rising in global affairs, military actions like that taken against Libya by allied forces may not happen so easily next time:

Nearly a decade ago, Karl Rove famously mocked his critics in the “reality-based community” by claiming that America was “an empire now, and when we act, we create our own reality”. But today’s reality is that military forays such as the Libyan campaign are increasingly stepping on the toes of the rest of the planet.

When Nato went to war over Kosovo in 1999, the world was a different place. Russia was an economic basket-case led by a drunk. India, which faced international isolation for testing nuclear weapons, was growing at half the rate of 2010. China was neither the world’s second largest economy nor Washington’s biggest creditor. Today, all that has changed. True, it would still be foolish to underestimate the global reach and technological edge of Western military might – or, more particularly, American military might. But flexing those muscles will not be as simple as before.

© Sophie Beach for China Digital Times (CDT), 2011. | Permalink | No comment | Add to del.icio.us
Post tags: diplomacy, Libya, oil diplomacy
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Spokesman Ma Zhaoxu said in a statement on the ministry’s website that China had noted “recent changes in the situation in Libya” and that Beijing respects the choice of the Libyan people.

Ma’s statement made no mention of Gadhafi or the rebels fighting him but said Beijing was ready to work with the international community on rebuilding Libya.

“The Chinese side respects the choice of the Libyan people and hopes the situation in Libya can return to normal as soon as possible,” Ma said. “China is willing to work together with the international community and to play an active role in the future reconstruction of Libya.”

After fighting erupted in Libya in February, China evacuated 35,000 of its citizens working there. Estimates of China’s investments in Libya before the conflict began run as high as $18 billion.

Xinhua continues:

“We have noticed recent changes in the Libyan situation and we respect the Libyan people’s choice,” said Chinese Foreign Ministry spokesman Ma Zhaoxu when responding to a question on the civil war in Libya.

Earlier, a senior official from the National Transitional Council (NTC) said that opposition forces controlled the entire capital.

“(We) hope that the Libyan situation will stabilize at an early date so that people there can live a normal life,” he said.

Meanwhile, countries around the world are already scrambling to gain access to Libya’s considerable oil wealth, which now is mostly contracted to European companies. China, which evacuated 35,000 workers from Libya when fighting broke out in February, may or may not see a slice of the pie, the New York Times reports:

Even before taking power, the rebels were suggesting that they would remember their friends and foes, and negotiate deals accordingly.

“We don’t have a problem with Western countries like Italians, French and U.K. companies,” Abdeljalil Mayouf, a spokesman for the Libyan rebel oil company Agoco, was quoted as saying by Reuters. “But we may have some political issues with Russia, China and Brazil.”

Russia, China and Brazil did not back strong sanctions on the Qaddafi regime, and they generally supported a negotiated settlement to the fighting. All three countries have large oil companies that are seeking deals in Africa for oil reserves.

© Sophie Beach for China Digital Times (CDT), 2011. | Permalink | One comment | Add to del.icio.us
Post tags: diplomacy, Libya, oil diplomacy
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For the past few months Guinea has been ruled by a young army captain who led a successful coup. Not that you’d necessarily know about it: the regime has only hit the world news twice. The first time was for shooting 150 pro-democracy demonstrators: international protest at this abuse has now escalated into an arms embargo. The second time was when the regime signed a $7bn resource-extraction deal with the Chinese. This infusion of money has made a mockery of international pressure.

But to grasp the deeper affront, the sheer scale of the deal must be appreciated. Guinea is currently a no-go area for reputable resource-extraction companies and so the Chinese faced no competition. If under these conditions they are prepared to pay $7bn for the rights to resource extraction, it is reasonable to suppose that they are worth much more. Yet the national income of Guinea is only $3bn. These natural assets, vast relative to its income, were the society’s lifeline out of poverty. They have been disposed of in haste by a regime without legitimacy.

Guinea is an extreme instance, but the disregard of the Chinese for standards of governance in winning resource-extraction contracts has become a leitmotif.

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Post tags: Africa investment, Guinea, natural resources, oil diplomacy
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Philip Andrews-Speed, an energy expert at the University of Dundee in Scotland, says that by doing this, China is actually increasing the global supply of oil.

“They’re going in and producing in countries that otherwise people might not be producing in. So actually, at the margins, they are producing more oil to market than would be if nobody was going into those countries,” Andrews-Speed says.

He says oil producers have various reasons for selling to China.

Some poorer nations want the infrastructure investment that China often pledges to sweeten an oil deal. Other countries, like Venezuela, see China as a political counterweight to the United States.

But many are just betting that the global focus of political and economic power is shifting China’s way.

© Sophie Beach for China Digital Times (CDT), 2009. | Permalink | No comment | Add to del.icio.us
Post tags: energy demand, natural resources, oil diplomacy
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On Tuesday, Nigeria’s oil minister and a presidential spokesman said state-owned China National Offshore Oil Corp., or Cnooc, is in advanced talks with Nigeria to take over blocks that are owned by Royal Dutch Shell PLC and other companies, but are underutilized.

An official with Nigeria’s state oil company said about 20 onshore blocks were on offer and that negotiations were at a late stage with some companies, including Cnooc. He said he wasn’t sure exactly how much crude Cnooc was vying for, but that targeted investment would run into several billion dollars.

Cnooc officials couldn’t be reached for comment.

However, a Nigerian government official told Reuters that this is not true:

Nigeria is not offering oil licences currently operated by Chevron (CVX.N), ExxonMobil (XOM.N) and Royal Dutch Shell (RDSa.L) to China while renewal negotiations are ongoing, a government minister said on Tuesday.

“We are not offering leases that are up for renewal in the middle of negotiations to renew. That is not happening,” Minister of State for Petroleum Odein Ajumogobia told Reuters in a telephone interview.

He said CNOOC, China’s no. 3 oil and gas producer, was one of several state-owned Chinese companies searching for opportunities in Nigeria and elsewhere.

“We are talking to them about their quest to buy proven reserves. This is not new, this predates this administration,” Ajumogobia said.

The second half of the Wall Street Journal article focuses on the backlash facing China in Africa, as locals increasingly resent the way Chinese companies operate in their countries:

The news of the Nigeria talks followed setbacks for China this month on deals in Angola and Libya. On Sept. 8, Libya vetoed a $462 million bid by China National Petroleum Corp. for Libya-focused Verenex Energy Inc. Days later, Angola’s state-owned Sonangol said it wanted to block the sale of Marathon Oil Corp.’s 20% oil-field stake to Cnooc and China PetroChemical Corp., or Sinopec.

The setback in Angola — China’s largest African partner — is in stark contrast with the enthusiastic reception it found there five years ago, when China was launching a quest for African resources to feed its economic boom.

[...] But some in Africa are starting to find the Chinese embrace too tight. The formula of bartering oil for infrastructure initially had given China’s oil concerns a competitive advantage against Western companies, whose investors were largely unwilling to fund such projects. But those same projects have become a key factor in China’s setbacks. In particular, China state companies’ insistence on keeping local hiring to a minimum has brewed resentment.

© Sophie Beach for China Digital Times (CDT), 2009. | Permalink | One comment | Add to del.icio.us
Post tags: Africa investment, Africa relations, CNOOC, Nigeria, oil diplomacy
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In recent weeks, China has significantly expanded its economic presence in the energy-rich Central Asian nation of Kazakhstan, where a number of countries including India and the United States have in the past few years been in a scramble for a share of its vast resources of oil and gas.

In the last couple of months, through the acquisition of oil companies by State-owned enterprises, the extension of a 3,000-km oil pipeline and a number of “loan for oil” deals, China has seemingly strengthened its grip over the country’s energy resources.

On Thursday, the Xinjiang-based Guanghui Industry company received approval from China’s top economic planning body, the National Development and Reform Commission, to acquire a 49 per cent stake worth $40.5 million in a Kazakh oil company. This will allow the company develop oil and gas fields in the Zaysan region.

© Sophie Beach for China Digital Times (CDT), 2009. | Permalink | No comment | Add to del.icio.us
Post tags: central asia, kazakhstan, oil diplomacy
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© Sophie Beach for China Digital Times (CDT), 2009. | Permalink | 2 comments | Add to del.icio.us
Post tags: CNOOC, CNPC, foreign oil dependence, oil diplomacy, sinopec
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The attack on Chinese oil workers and interests in Sudan comes as many international diplomats are hoping that China will influence its business partner, Sudan, to come to terms with rebel groups and end the six-year war in Darfur. While it is not clear who carried out the killings, the very proximity of Kordofan to both Darfur and to South Sudan – which had its own 21-year civil war against Sudan – is a sign that Sudan’s conflicts may widen and converge.

“This is very bad news,” says Alex de Waal, a Sudan expert at Harvard University. “The Chinese feel unfairly targeted by world opinion, and reasonably so, because they actually don’t have as much influence in Sudan as some people think. They can’t dictate what the Sudan government does.”

He says China might decided the risks are too great to continue oil operations in Sudan. “On the other hand … they need oil, and they are not as sensitive to losing people as the Americans or the British would be,” since they don’t have an open news media to criticize Chinese policy in Sudan.

© Sophie Beach for China Digital Times (CDT), 2008. | Permalink | One comment | Add to del.icio.us
Post tags: Darfur, oil diplomacy, Sudan
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Venezuela, the world’s fifth-largest oil exporter, and China plan to build refineries and boost oil shipments, said President Hugo Chavez, who is seeking to lessen dependence on the U.S.

The countries will sign agreements that will include building a refinery in block Junin 8 in the Orinoco Belt, South America’s biggest oil area, Chavez said today in Beijing in a phone interview with Venezuelan state television. The accords will deepen cooperation between the two countries, he said.

Chavez, who is in China this week on a tour that includes Russia and Cuba, has sought closer ties with U.S. rivals. Earlier this month, Chavez expelled the U.S. ambassador to Caracas and signed an agreement with Russia’s OAO Gazprom on offshore projects. China, the world’s second-biggest oil user, needs fuel as its economy grows at a double-digit pace.

Read also Chavez sees 1 million-barrel oil exports to China from AP and a report from CNN.

Forbes reports on the triangular relationship between China-Venezuela-United States:

Chavez wants to market more of his country’s oil to China so that it is less dependent on U.S. demand. The United States consumes about 60% of oil exports from Venezuela, the fifth-biggest exporter in the world. “Venezuela has enough oil to last for 200 years,” said Chavez, who heads to Russia on Thursday for the next stop on his five-country tour. “And the Chinese are already working to tap that.”

While Chavez visited Beijing, Chinese Premier Wen Jiabao was in New York for the opening of the U.N. General Assembly session this week, remarking on Tuesday that China and the United States are “partners,” not rivals. A Foreign Ministry official also sought to reassure the world, emphasizing at a press conference that relations between China and Venezuela are “not based on ideology, are not targeted against any third party and will not affect other countries’ relations with Venezuela.”

But, in a development likely to irritate Washington, Chavez said he also hopes to cement an agreement to buy combat aircraft, specifically 24 K-8 planes for his country’s air force, from China.

© Liu Yong for China Digital Times (CDT), 2008. | Permalink | One comment | Add to del.icio.us
Post tags: oil, oil diplomacy, venezuela, weapons exports
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