History and Achievements of Chinese Oil Companies Foreign Cooperation

Transcription

1 History and Achievements of Chinese Oil Companies Foreign Cooperation Jin Huandong Wu Mouyuan (CNPC Economics & Technology Research Institute) In 1993, in the context of China s opening-up, reforms, and economic globalization, Chinese oil companies, such as China National Petroleum Corporation (CNPC), started their international businesses under the guidance of the government s key decision to fully utilize its resources both at home and abroad. After twenty years of rapid development, Chinese oil companies have become important players in the international oil and gas market with their overseas business growing bigger and stronger. The history of overseas development During the past twenty years, the overseas oil and gas businesses of Chinese oil companies have seen four stages: the exploring stage, the rapid development stage, the large-scale development stage and the optimized development stage. The exploring stage ( ) is the exploring stage for Chinese oil companies going abroad. Due to their lack of experience and the weak strength of their international operations, Chinese oil companies, such as CNPC and China National Offshore Oil Corporation (CNOOC), adopted strategies of from small to big, step by step, selfaccumulation and continuous development, and exerted their own advantages from small projects. At this stage, Chinese oil companies had obtained 6 projects in total, with small levels of reserves and production, limited investment, and low levels of risk. These 6 projects were the starting point and the kick starter for the entrance of Chinese oil companies into the global markets. In 1993, CNPC successfully won the bidding for block 6/7 of the Talara oilfield in Peru, marking the beginning of Chinese oil companies overseas investment. CNPC exerted its technical advantage of developing and operating complex mature oilfields and increased the assets of the oilfield by two times in the following three years. In 1994, CNOOC acquired ARCO s oil assets in the Malaca Strait area in Indonesia, marking its first step in overseas acquisition, going abroad for international markets and building an international oil company. This project was an offshore project and was in Southeast Asia, which was familiar to CNOOC and allowed it to exert its advantage. After that, Chinese oil companies invested in small projects with low risks in Canada, Thailand and Papua New Guinea, and they also tried cooperation patterns such as PSCs, licenses and service contracts. Through the operation of these small projects, Chinese oil companies gradually became familiar with the international oil investment environment, learned international rules, accumulated investment experiences in oil projects, cultivated internationalized management talents and laid foundations for expanding overseas investment. The rapid development stage ( ) Then, from 1997 to 2007, the overseas oil and gas cooperation of Chinese oil companies entered into the rapid development stage. They took advantage of the financial crisis, focused on expanding reserves and scales and acquired a batch of big and medium projects after accumulating some experience. During this period, Chinese oil companies reached a stage of rapid growth in terms of their overseas business scale. By the end of 2007, their overseas oil and gas equity reserves had reached 300 million tons of oil equivalent, and equity 58

2 production had reached 30 million tons of oil equivalent, with an annual growth of 30 million tons and 3 million tons respectively. In 1997, CNPC signed three big projects the Sudan 1/2/4 project, Kazakhstan s Aktobe project and Venezuela s Land lake project marking the beginning of CNPC s participation in overseas mass oil/gas exploration and production projects on a large scale. In 2002, SINOPEC and CNOOC entered into the Middle East and Asia-Pacific regions respectively. By then, the overseas business of Chinese oil companies had entered into a preliminary layout of five oil/gas cooperation areas. After that, through a series of acquisitions, Chinese oil companies overseas businesses grew rapidly and became an important emerging power in the international oil market. In 2005, CNPC acquired Kazakhstan s PK Company at the price of 4.16 billion USD in Central Asia. This acquisition was the biggest M&A deal of Chinese companies at that time. Through this deal, CNPC s oil and gas business in Central Asia gained a leap-forward development. In the same year, CNOOC declared its record 18.5 billion USD bid for Unocal, which greatly shocked the international capital market. Although this bid was not successful due to various sources of resistance, it greatly influenced later overseas capital operations of Chinese oil companies, and it also offered precious experience to CNOOC, which culminated in CNOOC s successful acquisition of Canada s Nexen. In 2006, SINOPEC completed its acquisition of a 96.86% stake in Russia s UDM Oil Company at a price of 3.5 billion USD, by which it obtained an annual production of 3 million tons. CNOOC bought a 45% stake in the AKPO oilfield of Nigeria s deepwater project OML130 at the price of 2, 268 million USD. This project became CNOOC s most important source of additional production in the following two years. It is an important method to realize rapid development through diversification. During this period, there was not only accumulative development based on exploration by one s own efforts but also M&A of various scales. Cooperation partners included the national oil companies of resource countries, international oil companies and national oil companies of emerging economies. Great changes were made in investment patterns and cooperation partners, which indicated that Chinese oil companies had made great breakthroughs in overseas business development. They not only realized the rapid increase of their business scale and profits, but they also learned from the advanced experiences of major western oil companies in regards to expertise and management, which laid a solid foundation for future rapid development. The large-scale development stage ( ) From 2008 to 2013, the outbreak of the global financial crisis had a great impact on the world economy and oil/ gas market structure, which, by the same time, provided uncommon development opportunities for the overseas business development of Chinese oil companies. During this period, Chinese oil companies invested heavily in overseas projects to achieve major breakthroughs in key oil and gas markets in the Middle East, Latin America and North America through independent bidding and acquisition of assets, and they completed a global distribution of oil and gas businesses. In 2013, the overseas oil and gas reserves of Chinese oil companies reached 3.2 billion tons of oil equivalent, an increase of nearly 10 times over 2007, and an oil and gas production of 110 million tons of oil equivalent, an increase of 175% over The rapid growth of production and reserves mainly came from the contribution of large-scale projects. The average oil and gas reserves of projects that were acquired during this period were as many as 80 million tons of oil equivalent. According to incomplete statistics, from 2008 to 2013, Chinese companies accumulated over 120 billion USD in overseas mergers and acquisitions, with the highest amount of M&A worth more than 33 billion USD in 2012, making the oil industry the largest industry in terms of overseas acquisitions. Among them, CNOOC s 19.2 billion USD acquisition of Nexen was by far the largest overseas mergers and acquisitions by Chinese companies. Through the skilled use of capital operations such as mergers and acquisitions, Chinese oil companies substantially increased the scale of their overseas business and resource reserves, successfully entered potential areas such as unconventional oil and gas area in North America, deepwater areas in Brazil, East Africa and Central Asia, and Australia s CBM, and widely employed Western companies management teams. Therefore, their international competitiveness significantly improved, they gradually established management modes and operation mechanisms in line with international standards, and they achieved a leapforward of their development of an international business scale and competence. During this period, independent bidding also made major breakthroughs. Since 2009, Chinese companies have successfully entered into important resource countries like Iraq, Iran and Brazil through independent 59

3 bidding. Under the intergovernmental economic and trade cooperation framework, Chinese companies strengthened their energy cooperation with Russia and countries in Central Asia and Latin America. Energy cooperation projects in the upstream, pipeline, reefing and chemicals launched one after another. At the same time, in addition to the three majors CNPC, SINOPEC and CNOOC other state-owned enterprises such as Sinochem, Zhenhua Petroleum, Yanchang Petroleum and some private enterprises went one after another out of the country to participate in overseas oil and gas investment. The layout of diversified investors in overseas investment was formed. During the six years, Chinese oil companies cooperated in the form of mergers and acquisitions, strategic alliances, and equity investments. The cooperation covers in the field of the upstream and downstream, conventional and unconventional oil and gas, onshore and offshore. The optimized development stage (since 2014) From 2014, China s three oil majors CNPC, SINOPEC and CNOOC began to implement the strategy of asset optimization and adjustment, with their operations focusing on efficiency from scale. This marked the transition of the overseas investments of Chinese oil companies into the optimized development period. During this period, the three majors took advantage of the nation s One Belt, One Road ( OBOR ) initiative and continued to push forward their cooperation with OBOR countries while the pace of overseas business development slowed significantly. Meanwhile, this period highlighted the importance of diversified investors on overseas business investments, with private enterprises such as China CEFC Energy speeding up their global outreach efforts. In 2014, China s three oil majors put forward sustainable development strategies focusing on quality and efficiency. They started to adjust their paces of investment, optimized their asset structures and improved the operational efficiency of their overseas businesses. Low oil prices in 2015 accelerated the paces of adjustment of these companies. While focusing its investments on onshore conventional oil/gas projects, CNPC also began to consider selling some of its assets, transferring part of its stakes in the Kashagan project to China Reform Holdings and selling a 50% stake in the Central Asia Pipeline. SINOPC made an in-depth analysis over the operation of its overseas projects, and based on that, made new operational strategies of squeezing investment and reducing production capacity one by one. CNOOC strengthened the operational efficiency and profitability of overseas assets in different regions, continued to promote the deep integration of Nexen s assets, and optimized the allocation of resources and project management. Beginning in 2013, China s private enterprises have been actively involved in overseas oil and gas investment. In , private enterprises accelerated the pace of overseas business development and completed overseas acquisitions worth more than 5 billion US dollars. The private enterprises had two fields of investment: one was to take advantage of the OBOR initiative and actively carry out investment in OBOR countries; the other was to enter into the oil and gas industry of developed countries through mergers and acquisitions. The former was optimistic about the strategic opportunities of the OBOR initiative, consistent with the general trend, while the latter involved non-oil and gas companies hoping to enter the oil and gas industry through the acquisition of assets. Testing the water, private enterprises mainly acquired small-scale projects or minority interests for access to those projects and relied more on their partners technical and management capabilities. After 20 years of development, Chinese oil companies have made great achievements in overseas oil and gas cooperation. These companies have become an important power in the international oil and gas market, as they now possess both overseas operations around the world that cover all areas of business and overseas assets with a considerable scale. At the same time, Chinese oil companies, through continuous learning and exploring, have accumulated rich experiences in overseas investment and project operation. Combined with the advantages of China s market and foreign exchange reserves, they have innovated methods of cooperation. These factors will provide strong support for the future expansion of Chinese companies overseas businesses. Achievements of international cooperation After more than 20 years of overseas development, Chinese oil companies have made remarkable achievements. Dominated by upstream businesses, they covered the whole industry chain from upstream, midstream, and downstream to trade. They built six oil and gas cooperation areas and four major oil and gas strategic passages, and their internationalization content and management levels have continuously improved, thus making great contributions to ensure China s energy security. 60

4 Built six oil and gas cooperation zones So far, there have been more than 20 Chinese companies engaged in overseas oil and gas investment, and they are led by the three oil majors. Their businesses include more than 200 oil and gas projects and are distributed in more than 50 countries worldwide, covering the upstream, midstream, and downstream industry chains. Six oil and gas cooperation zones were basically built Russia-Central Asia, the Middle East, Africa, Asia- Pacific, the Americas and Europe (Figure 1). After going abroad for more than 20 years, Chinese oil companies have mainly invested in overseas upstream projects, which account for 70% of the total projects. Pipeline projects include the China-Russia Oil Pipeline, the China-Russia East Gas Pipeline, the Central Asia Gas Pipelines, the China-Kazakhstan Oil Pipeline and the China-Myanmar Oil and Gas Pipelines, etc. In addition, pipeline projects in Africa and other areas exist mainly as supporting projects for upstream projects. In recent years, Chinese oil companies have also begun to develop overseas downstream cooperation projects. Sinopec utilized its own advantages in the downstream and carried out cooperation efforts in Russia, Southeast Asia, Europe and other regions. CNPC acquired refineries in Japan, Singapore and Europe through mergers and acquisitions. The overseas equity oil and gas production of Chinese oil companies has been growing rapidly for several consecutive years. In 2015, overseas equity oil and gas production reached 150 million tons of oil equivalent, an increase of 4.5 times over 2005 s production. The growth rate of overseas production was far higher than that of domestic production growth. Overseas equity oil and gas production mainly came from the state-owned oil companies, including CNPC, SINOPEC and CNOOC, which accounted for more than 90% of the total output. CNPC s overseas equity oil and gas production in 2015 reached 73 million tons of oil equivalent, accounting for 50% of all Chinese oil companies total overseas equity oil and gas production. SINOPEC s overseas equity oil and gas production was 40 million tons of oil equivalent, accounting for 27% of the total. CNOOC s overseas equity oil and gas production was 23.5 million tons of oil equivalent, accounting for 16% of the total. Other Estonia Netherlands UK Belgium France Azerbaijan Turkmenistan Uzbekistan 1 company, 3 projects Tajikistan Kazakhstan 9 companies, 27 projects Kyrgyzstan Russia 4 companies, 11 projects Canada 7 companies, 15 projects USA 7 companies, 12 projects Tunisia Algeria 1 company, 5 projects Niger Chad Sudan 1 company, 9 projects Nigeria 3 companies, 6 projects Angola 1 company, 6 projects South Sudan 2 companies, 3 projects Cameroon Uganda Equatorial Guinea Gabon 2 companies, 5 projects Republic of Congo Mozambique Yemen 2 companies, 4 projects Oman UAE Qatar 2 companies, 3 projects Saudi Arabia Iran Iraq 3 companies, 6 projects Syria 3 companies, 4 projects Mongolia Japan Afghanistan Pakistan 2 companies, 5 projects Myanmar 6 companies, 8 projects Thailand 2 companies, 3 projects Cambodia Singapore Indonesia 5 companies, 7 projects Australia 6 companies, 14 projects Trinidad& Tobago 3 companies, 5 projects Costa Rica Venezuela 2 companies, 5 projects Columbia 3 companies, 5 projects Ecuador 3 companies, 5 projects Peru 2 companies, 3 projects Brazil 4 companies, 7 projects Argentina Fig. 1 Distribution of Chinese oil companies overseas projects. Note: Including upstream, pipeline and downstream projects. Excluding engineering services projects. 61

5 companies overseas equity oil and gas production were 10 million tons of oil equivalent in 2015 (Figure 2). (1) Major productions areas are Africa, Central Asia-Russia, the Americas and the Middle East. Overseas equity oil and gas production of Chinese oil companies mainly came from Africa, Central Asia- Russia, the Americas and the Middle East, accounting for 26%, 21%, 20% and 18% of the total equity production, respectively. Added up together, these areas accounted for 84% of the total equity production. Equity production from Africa was as many as 38 million tons of oil equivalent, mainly from CNPC s Chad, Sudan and South Sudan projects, SINOPEC s Addax project and Egypt project, and CNOOC s OML130 project in Nigeria. Central Asia- Russia, the Americas and the Middle East produced 30 million tons of oil equivalent separately. Equity production from Central Asia-Russia mainly came from CNPC s Aktobe, the right bank of the Amu, PK and other projects in Kazakhstan, and SINOPEC s UDM project in Russia. Equity production in the Americas mainly came from CNPC s MPE-3 project in Venezuela, SINOPEC s Argentina project and CNOOC s Eagle Ford project in the US and oil sands in Canada. Equity production from the Middle East mainly came from CNPC s Rumaila, al-ahdab and Halfaya projects in Iraq, and CNOOC s Missan Project in Iraq (Figure 3, Figure 4). (2) The Americas and Africa are the most heavily invested regions. Since the 1990s, when Chinese oil companies first began to expand globally, the Americas and Africa have been the areas with the heaviest levels of Chinese investment. The cumulative investment in the Americas accounted for 32% of the total overseas investment. The funds were used for several largescale acquisitions in recent years, of which CNOOC s 19.4 billion USD acquisition of Nexen accounted for nearly one-third of the investment in this region. The cumulative investment in Africa accounted for 27% of the total overseas investment. There are two reasons: firstly, SINOPEC s acquisition of Addax Petroleum accounted for about 15% of the total investment in this region; secondly, China s three oil majors entered Africa at a very early stage and created more projects there than in other places because Africa offered major production increments. Moreover, the cumulative investment in Central Asia accounted for about 16% of the 10 thousand tons Others CNOOC SINOPEC CNPC Fig.2 Overseas equity oil and gas production of Chinese oil companies. 21% 5% 10% 26% 20% 18% Central Asia-Russia Middle East Africa Americas Asia-Pacific Europe Fig.3 Distribution of Chinese oil companies overseas equity production. 32% 14% 3% 16% 27% 8% Central Asia-Russia Middle East Africa Americas Asia-Pacific Europe Fig.4 Distribution of accumulated overseas investment of Chinese oil companies. 62

6 total investment, most of which was mainly used by CNPC to invest in its large and medium-sized projects in Kazakhstan for several years. (3) Overseas investment business focuses on onshore and conventional oil and gas fields. Chinese oil companies have management experience and advantages in onshore projects. Overseas investment projects are mainly onshore projects. 135 onshore projects accounted for nearly 80% of the total upstream projects and contributed heavily to production. With the development of the global oil and gas industry, large-scale oil and gas discoveries in recent years have mainly been located in the offshore. Offshore and even deep-water projects are the development trend of the industry. China s oil companies have begun to give consideration to offshore projects, but for most of the offshore projects that they invest in, they do so as minority shareholders. With the development of unconventional oil and gas technology, unconventional assets have become the industry s major concerns. Since 2008, Chinese oil companies have been receiving access to Canadian oil sands, American shale oil and gas, and Venezuelan super heavy oil. Currently, there is only a small level of production from unconventional assets, accounting for only 14% of the total production. (4) Overseas cooperation in refining and chemicals develops slowly. In contrast to the rapid growth of upstream businesses, Chinese oil companies overseas refining project cooperation development has remained slow. Up until now, a total of 13 refining projects, located in Central Asia, Russia, Africa, Asia-Pacific, the Americas, Europe, the Middle East and other regions, has had a total refining capacity of nearly 70 million tons / (as of 2014) a crude oil processing capacity of nearly 50 million tons. Early refinery projects were designed to meet the requirements of the resource-based governments in upstream projects, such as in Central Asia, Kazakhstan and Africa. In recent years, Chinese oil companies have also begun to develop overseas refining businesses in Singapore, Japan, Europe and other developed regions. Sinopec specifically is to enter the Middle East, Russia and Southeast Asia. (5) Overseas projects are mainly located in medium-tohigh risk areas. The overseas investment projects of Chinese oil companies are mainly located in Africa, Latin America, Central Asia and other medium-to-high risk areas. The main reason is that, at the early stage of expanding, Chinese oil companies had to look for opportunities in medium-to-high risk countries that were in urgent need of investment because these companies did not possess advanced technology for oil and gas development and lacked project management experience. In recent years, political policy and other risks began to appear in these regions and countries, affecting the normal operation of some projects. As Chinese companies improved their technology and management, they also tried to expand businesses in the United States, Canada, Australia and other developed countries. The smooth running of four strategic oil and gas passages So far, the Northwest, Northeast, Southwest and East Maritime Passages have been preliminarily completed. The Northwest Passage refers to the China-Kazakhstan Oil Pipeline and Central Asia Gas Pipelines. The total capacity is planned to reach 100 million tons of oil equivalent per year in 2020, including million tons of crude oil and 85 billion cubic meters of natural gas. The Northeast Passage refers to the China-Russia Oil and Gas Pipelines. The first phase of the crude oil pipeline project was put into operation in 2010, with an annual capacity of 15 million tons. The second phase is being pushed forward steadily. The east natural gas pipeline project was started and is planned to be put into operation in 2018, with an annual capacity of 38 billion cubic meters. The Southwest Passage mainly refers to the China-Myanmar Oil and Gas Pipelines. The Gas Pipeline was put into operation in July 2013 with an annual capacity of 12 billion cubic meters. The Oil Pipeline has been completed and will be put into operation in 2016 with an annual capacity of 22 million tons. The East Maritime Passage has facilitated steady oil and gas supply passages, with an annual crude oil loading capacity of 530 million tons and an LNG receiving capacity of 40.8 million tons (equal to 55.5 billion cubic meters). References [1]Wu Mouyuan. The review and outlook of Chinese oil companies 20-years going out. The Report on Oil and Gas Industry Development at home and abroad, [2] Bo Qiliang. The 20-years going out of Chinese oil companies [J]. International Petroleum Economics, 2013, 33(3):1-5. [3] Luo Zuoxian. The analysis of successes and failures of Chinese oil companies going out. Economic Analysis of China s Petroleum and Chemicals, 2007, 21(1):

7 IN BRIEF China unveils market reform for oil and gas industry On May 21th, Chinese authorities announced a reform plan for the country s oil and gas industry, eyeing better efficiency and competitiveness by giving market a decisive role in the sector. The plan was approved by the Central Committee of the Communist Party of China (CPC) and the State Council. Market should play a decisive role in resource allocation and the government role should be better played in order to safeguard national energy security, boost productivity and meet people s needs, according to the reform guideline. The reform is a key plank of the country s 13th Five-Year Plan for It reaffirmed the leadership s commitment to deepening the reform of state-owned oil and gas companies, encouraging eligible enterprises to diversify their shareholder base and introduce mixed-ownership reform. The prime goal of mixed-ownership reform is to create a flexible and efficient market-oriented mechanism with the incorporation of private shareholders, to improve the management of state-owned companies. The reform calls for the participation of eligible enterprises in the prospect and development of regular oil and gas resources which used to be dominated by state-owned companies. Gas companies are encouraged to split sales and pipeline businesses in a step by step manner in order to promote a market-based pricing mechanism. The pricing mechanism of fuel and diesel should also be more market-oriented, while government should step in when abnormal price fluctuations occur. Private capital is welcomed to invest in and run oil and gas storage facilities. China tops the world in renewable energy production: BP report China surpassed the United States as the top producer of renewable energy in 2016, according to the latest BP Statistical Review of World Energy. Renewable power, excluding hydro power, in the world grew by 14.1 percent in 2016, the biggest increment on record, the report said. Although the share of renewable power within primary energy was just 4 percent, its strong growth meant it accounted for one-third of the increase in primary energy. China continued to dominate renewables growth, contributing about 40 percent of global growth - more than the entire OECD - and surpassed the United States as the largest producer of renewable power last year, said Spencer Dale, BP s chief economist. China also provided the main source of world growth for both hydro and nuclear power. Global hydro power rose 2.8 percent in 2016 from a year ago, with more than 40 percent of growth from China. In the meantime, global nuclear power went up by 1.3 percent, or 9.3 million tonnes of oil equivalent, with China contributing almost all the growth. Carbon emissions were essentially flat over the past three years, Dale said, with China again the key player. The BP data showed carbon emissions in the world rose slightly by 0.1 percent in 2016, while in China, the emissions fell 0.7 percent from a year ago. China s carbon emissions are estimated to have actually fallen over the past two years, after growing by more than 75 percent in the previous 10 years, and some of the improvements reflect structural factors that are likely to persist, Dale said. China s first successful pilot production of marine natural gas hydrates On May 18th, the Ministry of Land and Resources of the People s Republic of China held an on-the spot meeting at the Blue Whale 1 semi-submersible drilling rig in the Shenhu Area of the Northern South China Sea to announce China s first successful pilot production of natural gas hydrates. Natural gas has been extracted from the gas hydrate deposits at a depth of 1,266 meters below sea level since May 10th. As of 10 am on May 18th, more than 120,000 cubic meters of natural gas had been yielded, with the highest instant output of 35,000 cubic meters per day and an average daily output of more than 200,000 cubic meters. The methane content of the produced gas is up to 99.5%. At present, the project is operating normally and maintaining a steady output. The target for daily production of 10,000 cubic meters for one week has been over fulfilled. This marks a major innovation in theory, technology and engineering. It is a historic breakthrough in China s technology and engineering for gas hydrate exploration and pilot production, and is of great significance to securing China s energy security and optimizing its energy mix.natural gas hydrates usually exists in seabed or tundra areas with the strong pressure and the low temperature necessary for stability. The substance can be ignited like solid ethanol. One cubic meter of natural gas hydrate is equal to 164 cubic meters of regular natural gas.cnpc Offshore Engineering Company Limited (CPOE) is the general contractor of the pilot production. Drawing on overseas experience and based on CNPC s expertise in drilling engineering, CPOE has carried out elaborate planning, design and operation in terms of deepwater drilling and completion, sand control for silty reservoirs, HSE, and well control, guaranteeing success in China s first attempt to test marine natural gas hydrates. 64

8 IN BRIEF LNG imports soar in first half of year China significantly ramped up imports of liquefied natural gas (LNG) in the first half of the year, as part of broader efforts to clean up its coal-dominated energy mix. LNG channeled into the country totaled million metric tons in the January-June period, a 38.3 percent increase year-on-year, according to data released by the General Administration of Customs on July 23rd. The growth rate, which was much higher than the 21.2 percent year-on-year increase for the same period last year, was boosted by the easing of barriers against LNG from the United States entering the Chinese market. The country s appetite for natural gas continues to rise as the government eyes more clean fuel to help gradually replace dirtier coal as a main source of energy. China plans to increase its percentage of gas in primary energy consumption to a range of 8.3 to 10 percent in 2020, from 5.9 percent in Natural gas imports will play an increasingly important role in the country s energy mix. Oil giants sign deal to tap Gulf gas reserves Chinese, French and Iranian energy giants signed a $4.8 billion deal on July 3 to develop the world s largest natural gas reserve in the Persian Gulf. The parties China National Petroleum Corp, France s Total and the National Iranian Oil Co, through its Petropars subsidiary will develop the South Pars gas field, the first major energy investment since sanctions against Iran were lifted early last year. Production is to begin within 40 months, according to the agreement. The French company will have a 50.1 percent interest, with CNPC owning 30 percent and Petropars 19.9 percent. According to the International Energy Agency, the South Pars field holds an estimated 51 trillion cubic meters of gas. It accounts for approximately 19 percent of the world s total gas reserve. With the new deal, China and Iran are expected to further enhance cooperation in the energy sector. But challenges also exist, including geopolitical risks and currency instability. China starts building large private coal-to-liquid project Work began on indirect coal-to-liquid (CTL) project with an annual output of 2 million tons in North China s Inner Mongolia autonomous region. The indirect coal liquefaction line is located in Zhungeer county in Ordos City. It is operated by Inner Mongolia Yitai Group Co Ltd, a private firm. At a cost of 29 billion yuan ($4.2 billion), it is expected to produce 2.15 million tons of oil products each year, including diesel, naphtha, liquefied petroleum gas and liquefied natural gas. As part of its clean energy strategy, China has launched a number of direct or indirect coal liquefaction and coal gasification projects in Inner Mongolia, Shaanxi, Ningxia, Xinjiang and Liaoning in recent years. At the end of last year, the world s biggest single CTL project, undertaken by a subsidiary of the state-owned Shenhua Group, went into production in northwest China s Ningxia Hui Autonomous Region. It is able to turn more than 20 million tons of coal to 4 million tons of oil products annually. Petrobras, China s CNPC to jointly exploit energy resources Brazil s state-run oil giant Petrobras announced on July 4th that it signed a memorandum of understanding with the China National Petroleum Corporation (CNPC) to exploit energy resources in Brazil and abroad. In the statement, Petrobras said that the deal will allow the two state oil companies to benefit from each other s capacity and experience in oil and gas production. The MOU was signed by Petrobras President Pedro Parente and the vice president of CNPC and president of PetroChina, Wang Dongjin. Since 2013, Petrobras and CNPC have partnered to explore the Libra offshore oilfield in southeast Brazil, which is considered potentially the most valuable oilfield in Brazil by its government. The agreement is a key to establishing an arrangement in which both companies are expected to share risks and jointly contribute to investment. Sino-Mexican consortium wins oilfield exploration contract in Mexico On July 12th, a consortium of one Chinese and two Mexican companies won a contract to explore and extract hydrocarbons from a field in eastern Mexico. The consortium, which consists of three companies China s Shandong Kerui, and Mexico s Sicoval MX and Nuevas Soluciones obtained the contract for Area Six, a field of 193 square kilometers in the Veracruz oil belt, which has potential to provide liquefied gas. The award was a close-run affair after the consortium presented a proposal which was equal to two other bids in terms of investment. However, the Sino-Mexican consortium offered to pay $2.179 million in cash for the contract, a superior sum to its competitors, Mexican firm Carso Oil and Gas and a consortium of four American and Mexican companies. According to Mexico s National Commission of Hydrocarbons, the Chinese firm is a subsidiary of the Kerui oil firm, dedicated to oil and gas exploration and production. 65