China: Taking Oil Home

by Song Yen Ling and Jason Fargo, Energy Compass, Feb 11, 2011
As China pushes deeper into the global upstream industry, it's widely assumed that the expanding portfolio is being used to funnel oil supplies back home -- feeding the country's insatiable appetite for energy. Yet the reality is not so simple: The strategy of energy security is more complex, faces competing pressures from other policy goals, and can bump into infrastructural and commercial constraints, Energy Compass analysis shows.

What's not in doubt is that Chinese companies have spent tens of billions of dollars acquiring large volumes of production overseas. Foreign equity oil and gas output averaged 1.4 million barrels of oil equivalent per day in 2010, an increase of 40% on the previous year, according to a new report by state China National Petroleum Corp. (CNPC). Oil accounted for the lion's share, at 1.2 million barrels per day.

Energy security was the original driver of overseas expansion, with Beijing instructing companies to amass sources of supply. But in recent years this has become intertwined with a parallel objective of turning state oil giants into global, commercially driven entities capable of competing with Western oil companies. Beijing has also become preoccupied with its rising energy import bill, as oil prices and Chinese demand growth feed off each other. The government now sees overseas investments as important in bolstering global oil production to meet the growing needs of its economy, while acting as a hedge against higher prices.

CNOOC [China National Offshore Oil Corp.] Chairman Fu Chengyu recently spelt out these overlapping goals, telling local media that his company's overseas drive was designed to increase world oil supply and fulfill the needs of the host market, rather than to ship crude oil back to China. "Our expansion strategy overseas is based on grabbing good opportunities. But more importantly, commercial value must be realized," he said. The strategy not only helps China's economy, Fu said, but also contributes to the global economy.

The government increasingly recognizes that China's large upstream footprint does not necessarily translate into supply security, says one Chinese oil insider. Chinese companies tend to operate in politically unstable parts of the world, increasing the risk of nationalization or domestic controls, and may be limited by fiscal regimes.

Cash-for-oil deals -- where Beijing extends huge loans to oil-producing governments in exchange for a fixed volume of oil supply -- are viewed as a stronger bet in this regard, and have been embraced in the past couple of years. Such deals are now in place with Venezuela, Brazil, Kazakhstan, Russia [please see remarks below -- D.R.] and Ecuador, and account for some 1.1 million b/d, according to Energy Intelligence calculations (EC Jul.9,p5). With equity oil and domestic production, China now effectively controls some 6.4 million b/d of global oil production.

Tacit Understanding

Industry sources say there still is an understanding that, in a crisis, national interests will trump all commercial or other objectives. In the event that Mideast crude supply to China is interrupted, for example, state companies would be expected to send as much oil home as possible. This has already played out in other markets: Beijing put pressure on CNPC to increase natural gas supply this winter, which the company did at a loss. Similarly, refiners were compelled to suspend diesel exports during recent domestic shortages (EC Dec.3,p7).

In a global oil crisis, China's new strategic stockpile would be the first line of defense; this already has capacity of almost 250 million bbl and is due to hit 500 million-600 million bbl by 2020. There would also be limits on how much crude could easily be shipped back to China. Older refineries were built to run local [relatively] light, sweet grades Daqing [...], and only 30% of the country's [...] capacity can process sour grades. And companies may be constrained by contractual obligations to existing customers or the politics of the situation, Chatham House's John Mitchell wrote in a recent report (EC Jan.14,p10). Indeed, if the host country is involved in the crisis, equity oil investments could become "hostages" that limit the importer's foreign policy options "in exactly the way that energy security policy is supposed to avoid," Mitchell wrote.

Sudan, for one, provides large volumes of equity oil for the Chinese market, but also offers some of the highest risks of disruption, especially after the south's vote for independence (EC Jan.21,p6). CNPC has equity stakes of 40%-95% in the country's three largest production ventures, equivalent to about 205,000 b/d of Sudan's 475,000 b/d production. With marketing options limited by crude quality and US sanctions, some 253,000 b/d of Sudan's oil was exported to China last year. CNPC has built a special 200,000 b/d refinery at Qinzhou to process Dar and Nile Blend crudes.

At the other end of the spectrum is Ecuador, where China has again built a dominant position in export trade -- but takes hardly any oil back home. Andes Petroleum and PetroOriental, both partnerships of CNPC and Sinopec, produce a total of about 50,000 b/d. In addition, China is entitled to lift 96,000 b/d of state Petroecuador's crude under a two-year, $1 billion loan signed in mid-2009 (EC Aug.21'09,p5). Yet Chinese crude imports from Ecuador averaged just 16,300 barrels per day in 2010, down 55% on the previous year. Transportation costs are high, and Chinese refineries are not optimized for Ecuadorean grades.

Instead, the value of China's Ecuador presence has lain elsewhere, in providing a springboard for expansion in Latin America's oil industry and an avenue for PetroChina to develop an active global trading role, as the CNPC affiliate recreates itself as an international integrated company (EC Jan.14,p3). Virtually all of China's crude entitlement from Ecuador is sold on the open market, mainly to refineries in California, with PetroChina now the country's main lifter. PetroChina also swaps some supplies for crude more suited to China's refineries -- a twist demonstrating the increasing complexity and sophistication of China's energy security strategy.

Other overseas equity oil that doesn't make its way to China includes CNOOC's interests in Argentina and offshore Nigeria. [Read full]

(China agreed to loan Russian companies, Rosneft and Transneft $25 billlion to finance the East Siberia Pacific Ocean---ESPO---oil pipeline in exchange for 300,000 bbl/d of oil shipments---please see my post here. China is the world's second-largest consumer of oil behind the United States, and for the first time the second-largest net importer of oil in 2009---please see my post, including remarks, here.  -- D.R.)

World Watch [PFC Energy 50 Ranking of World's Top Energy Companies, Jan 2011]

by Tom Haywood, Houston, EI
Exxon Mobil, with a market capitalization of $368.7 billion, is back at the top of the heap in the 2010 ranking of the world's largest publicly traded energy companies. But it's cold comfort for anyone hoping that the Western IOCs may be staging a comeback. The real story behind the annual survey by Washington-based consulting firm PFC Energy is that the Western majors are continuing to lose ground to non-Western rivals. China's PetroChina (no. 2) and Brazil's Petrobras (no. 3) have market capitalizations of $303 billion and $229 billion, respectively, and rounding out the non-Western top 10 are Russia's Gazprom (no. 6 at $149 billion) and China's CNOOC (no. 10 at $106 billion). The PFC top-10 includes the usual Western suspects -- Royal Dutch Shell [no. 4 at $207.9 billion], Chevron [no. 5 at $183.6 billion], BP [no. 7 at $136.4 billion], Total [no. 8 at $124.5 billion] and Schlumberger [no. 9 at $113.9 billion]. However, there is no getting around the fact that the Western majors owned 85% of the world's energy reserves in the late 1960s and own 15% today. [Full story]

(The PFC Energy 50 is the definitive ranking of the world's leading publicly traded energy companies by market capitalization. The listing includes companies from nine sectors: International Oil Companies; National Oil Companies; Exploration & Production; North America-Focused E&P, Refining & Marketing; Gas/Utilities; Oilfield & Drilling Services; Equipment, Engineering & Construction; and Alternative Energy. The full report is available at https://workspaces.acrobat.com/?d=4sFQLTPinFv*dy6goC6pRw. ExxonMobil, with market capitalization of $368.7 billion, regained the top position it has held on the PFC Energy 50 list in every year but 2007 and 2009. The XTO merger---see also my remarks here---and 7% share price growth combined to increase the company’s market capitalization by 14%. The 2009 leader PetroChina, a subsidiary of CNPC, closed the year 18% behind ExxonMobil, following a 14% decline in its market value. Petrobras, this year no. 3 at $228.9 billion, was no. 27 on the first PFC Energy 50 list in 1999; its market cap has grown from $13.5 billion – a 27% compound annual rate. The effect of the 23% 2010 share price decline was more than offset by a ~$67 billion new offering. North America is home to no fewer than 20 of the top 50 firms in the world: 14 U.S. firms and six Canadian firms. U.S. companies on the list include No.1 ExxonMobil; No. 5 Chevron; No. 9 Schlumberger; No. 12 ConocoPhillips; No. 16 Occidental; No. 27 Apache; No. 30 Anadarko; No. 32 Halliburton; No. 36 Devon; No. 42 Natl Oilwell Varco; No. 44 Marathon; No. 45 Hess; No. 47 Baker Hughes and No. 49 EOG Resources. Canada's companies on the list include No. 23 Suncor; No. 25 Canadian Natural; No. 34 Imperial Oil; No. 46 Cenovus; No. 48 Husky amd No. 50 Talisman. Oilfield service companies averaged the greatest value gains (+44%). Schlumberger (no. 9) achieved its highest rank since 2001. All three service companies on the list, Schlumberger, Halliburton and Baker Hughes benefitted from the robust U.S. market for hydraulic fracturing---see the PFC report. Also, please read the press release from PFC Energy, here. Update: Please see my post "PFC Energy 50 Ranking of World’s Top Energy Companies: SuperMajors, led by Chevron, Top 2011 Value Growth Performance." -- D.R.)

'Top 100' Oil Rankings Heavy on Houston Firms

by Barrett Goldsmith, Houston Business Journal, Dec 3, 2010

The 2011 Energy Intelligence Top 100 rankings are heavy on Asian, Russian and Middle Eastern state-owned oil firms, but there is still no question about the nerve center of the global industry, as the Houston area is home to no fewer than 10 of the top 100 firms in the world.

The list, released ... by market research and news firm Energy Intelligence Group Inc., ranks companies in six categories including production and reserves of both oil and gas, as well as sales and refining capacity.

Houston companies on the list include No. 8 ConocoPhillips (NYSE: CPC); No. 32 Marathon Oil Corp. (NYSE: MRO); No. 41 Apache Corp. (NYSE: APA); No. 46 Anadarko Petroleum Corp. (NYSE: APC); No. 60 EOG Resources Inc. (NYSE: EOG); No. 74 Noble Energy Inc. (NYSE: NBL); No. 90 Southwestern Energy Co. (NYSE: SWN); No. 91 Newfield Exploration Co. (NYSE: NFX); No. 98 Ultra Petroleum Corp. (NYSE: UPL) and No. 100 El Paso Corp. (NYSE: EP).

Irving-based ExxonMobil Corp. (NYSE: XOM) was the only non-government oil major to crack the top five, ranked at No. 3. State-owned Saudi Arabian oil behemoth Saudi Aramco topped the list, followed by the National Iranian Oil Co. at No. 2; with Petroleos de Venezuela at No. 4 and the Chinese National Petroleum Corp. at No. 5. [U.K.'s BP retained its spot as the No. 6. Rounding out the Top 10 are, in order, Royal Dutch Shell of the Netherlands/UK, Chevron, ConocoPhillips and Total of France. -- According to the SPA. Actually, ConocoPhillips ties Chevron for No. 8 spot. Compare current--for 2009--Top 10 rankings to previous--for 2008--PIW's rankings here, including my remarks -- D.R.] Read full

(‘Energy Intelligence Top 100: Ranking the World’s Oil Companies,’ incorporates the Petroleum Intelligence Weekly (PIW) Top 50. Asia’s government-controlled national oil companies (NOCs) are increasingly dominant. ‘Energy Intelligence Top 100’ is the only oil company ranking that measures Asian and other government-controlled national oil companies (NOCs) side by side with privately controlled international oil companies (IOCs). This year 41 NOCs and 59 IOCs made the list. Malaysia’s Petronas (17), China’s CNOOC (38) and Thailand’s PTT (53) have been among the fastest rising companies in recent years. Korea’s National Oil Corp. (KNOC) made it back onto the list in this edition, landing at 77 following its acquisition of Canadian assets. Yet even more dramatic was the ascent of India’s Reliance Industries, which jumped a remarkable 26 spots to land at 40. Its success is the result of significant increases in both gas production and distillation capacity. The Top 100 control 87% of the world's oil reserves and 72% of its gas reserves. Rankings are based on operating metrics rather than more traditional measurements such as market capitalization or revenues. PIW's current ranking is based on operational data for 2009. Also, it is worth noting that an astonishing 48 companies appearing in the 1997 Top 100 have disappeared from the rankings due almost entirely to M&A. Read more >> Business Wire. On October 22, 2009, KNOC signed the contract to acquire Calgary-based Harvest Energy Corp. for US$3.95 billion, which has about 200 million barrels of oil and gas production fields, oil sands property, and concluded the deal on December 22, 2009. Petróleo Brasileiro/Petrobras retained its spot as the No. 15, in the 2011 PIW's ranking for 2009. Update: also, please see PIW's Dec 2011 company rankings for 2010, here.  -- D.R.) 

Emerging Economies to Lead Energy Growth to 2030 and Renewables to Out-Grow Oil, Says BP Analysis

BP website, Jan 19, 2011
World energy growth over the next twenty years is expected to be dominated by emerging economies such as China, India, Russia and Brazil while improvements in energy efficiency measures are set to accelerate, according to BP’s latest projection of energy trends, the BP Energy Outlook 2030.

BP's 'base case' - or most likely projection - points to primary energy use growing by nearly 40% over the next twenty years, with 93% of the growth coming from non-OECD (Organisation of Economic Co-operation and Development) countries. Non-OECD countries are seen to rapidly increase their share of overall energy demand from just over half currently to two-thirds.

Over the same period, energy intensity, a key measure of energy use per unit of economic output, is set to improve globally led by rapid efficiency gains in the same non-OECD economies, under these projections.

According to the BP Energy Outlook, diversification of energy sources increases and non-fossil fuels (nuclear, hydro and renewables) are together expected to be the biggest source of growth for the first time. Between 2010 to 2030 the contribution to energy growth of renewables (solar, wind, geothermal and biofuels) is seen to increase from 5% to 18%. [According to BP, the rate at which renewables penetrate the global energy market is similar to the emergence of nuclear power in the 1970s and 1980s. -- D.R.] 

Natural gas is projected to be the fastest growing fossil fuel, and coal and oil are likely to lose market share as all fossil fuels experience lower growth rates. Fossil fuels’ contribution to primary energy growth is projected to fall from 83% to 64%. [...] 

BP’s ‘base case’ projections are that world primary energy demand growth averages 1.7% per year from 2010 to 2030 although growth decelerates slightly beyond 2020. Non-OECD energy consumption will be 68% higher by 2030 averaging 2.6% per year growth, and accounts for 93% of global energy growth. In contrast, OECD growth averages 0.3% per year to 2030; and from 2020 OECD energy consumption per capita is on a declining trend of -0.2% per year.

Transport growth is seen to slow because of a decline in the OECD. The region’s total demand for oil and other liquids peaked in 2005 and will be back at roughly the level of 1990 by 2030. Toward the end of the period, coal demand in China will no longer be rising and China is projected to become the world’s largest oil consumer. [According to the BP Outlook, China is the largest source of oil consumption growth, with consumption forecast to grow by 8 million barrels a day to reach 17.5 million barrels a day by 2030, overtaking the United States to become the world's largest oil consumer -- D.R.] 

OPEC’s share of global oil production is set to increase to 46%, a position not seen since 1977. At the same time, oil - and gas - import dependency in the US is likely to fall to levels not seen since the 1990s, because of improved fuel efficiency and the increased share of biofuels. Global consumption growth is also impacted by higher oil prices in recent years and a gradual reduction of subsidies in oil-importing countries.

The fuel mix changes over time, reflecting long asset lifetimes. Oil, excluding bio-fuels, will grow relatively slowly at 0.6% per year; natural gas is the fastest growing fossil fuel with more than three times the projected growth rate of oil at 2.1% per year. Coal will increase by 1.2% per year and by 2030 it is likely to provide virtually as much energy as oil excluding biofuels. The strong carbon policy drive in OECD countries risks being more than offset by growth in emerging economies. [Among non-fossil fuels, renewables are expected to grow at 8.2% per year from 2010 to 2030.] 

Wind, solar, bio-fuels and other renewables continue to grow strongly, increasing their share in primary energy from less than 2% now to more than 6% projected by 2030. Biofuels will provide 9% of transport fuels and nuclear and hydropower will grow steadily and gain market share in total energy consumption.

“The slowing of growth in total energy in transport is related to higher oil prices and improving fuel economy, vehicle saturation in mature economies, and expected increases in taxation and subsidy reduction in developing economies,” said Rühl. “In percentage terms, oil demand is reduced the most in the power sector (-30%) because this is the easiest oil to displace with gas or renewables and is the sector most likely to employ carbon pricing.” [...]

Global liquids demand is forecast to reach 102.4 million barrels per day (mmbpd) in 2030. The net growth of 16.5 mmbpd over the next 20 years comes exclusively from the emerging economies of the non-OECD. “Non-OECD Asia will account for nearly two-thirds of non-OECD consumption growth over the next 20 years and more than three-quarters of the net global increase, rising by nearly 13 million barrels a day,” said Rühl.

The largest increments of new supply will come from OPEC – conventional crude in Saudi Arabia and Iraq, as well as OPEC natural gas liquids (NGLs) which are not subject to OPEC quotas.”

Non-OPEC liquids are likely to rise modestly, driven by a large increase in biofuels, along with smaller increments from Canadian oil sands, deepwater Brazil, and the FSU which offset continued declines in mature provinces. [...]

According to the Energy Outlook’s projections, oil continues to suffer a long run decline in market share, while gas steadily gains share. Coal’s recent gains in market share, on the back of rapid industrialisation in China and India in particular, are reversed by 2030, with all three fossil fuels converging on market shares around 27%. [...]

Biofuels production is expected to reach 6.7 mmbpd by 2030 from 1.8 mmbpd in 2010 and will contribute 125% of net non-OPEC supply growth over the next 20 years. Continued policy support, high oil prices, and continued technological innovations all contribute to the rapid expansion.

The US and Brazil will continue to dominate biofuel production with 76% of total output in 2010 but falling to 68% in 2030 as output from Asia-Pacific begins to rise. [Read More]

(The BP Energy Outlook 2030 is the first of BP’s forward-looking analyses to be published, after 60 years of producing definitive historical data in the BP Statistical Review of World Energy. The Energy Outlook has been used only internally so far. Prof. Christof Rühl is Chief Economist of BP plc. The BP Energy Outlook 2030 is available in pdf format here  -- D.R.)

China: The World's Largest Energy Consumer and Investor in Clean Energy

PR Newswire via EIN News: Oil & Gas Industry Today, Jan 12, 2011

New Wilson Center Publication Explores China's Energy and Climate Trends

In 2010 China achieved number one status in two infamous categories: energy consumption and carbon emissions. In the same year, however, it was also the world's number one investor in clean energy, nearly doubling the U.S. investment over the same period.

While counterintuitive, these are just some of the indicators of the intriguing trends in China's energy and environment sectors. This China Environment Forum publication takes a deep look into fast changing energy and climate trends within China and how they pose opportunities and challenges to U.S.-China relations.

"China and the United States are the two largest national emitters of the greenhouse gases that contribute to global climate change, and together comprise almost half of global emissions. Any global solution to climate change must therefore include participation by these two countries." –Joanna Lewis, Georgetown University.

Highlights of the report include:

• An extensive overview of the history of U.S.-China climate and energy cooperation
• The status and potential of carbon capture and sequestration in China
• Spotlights on NGO activities in China
• Extensive articles looking into green jobs, MRV issues, U.S.-China cooperation on renewables,  industrial energy efficiency, and water pollution and supply issues within China

Read the China Environment Forum's China Environment Series 11. [Full]

(The IEA data--World Energy Outlook 2010 - Executive Summary--suggests that China overtook the United States in 2009 to become the world's largest energy consumer. Srikingly, Chinese energy use was only half that of the United States in 2000 -- D.R.)

Deutsche Bank Forecast Sees Slower Transportation Electrification and Greater Gasoline Demand Near-Term; Increased Confidence in the Pace and Breadth of Long-Term Shift to Efficient Transportation Systems

by Green Car Congress, Jan 1, 2011
In a December 2010 research note on the 2011 outlook for the oil market, Deutsche Bank (DB) analysts have revised their earlier expectations of the pace of near-term transportation electrification trends (slower) and gasoline demand (greater) but note that the developments in the global transportation sector in 2010 have increased their confidence “in the pace and breadth of the long-term shift to a more efficient transportation system.”

Their analysis is in the context of the “surprising [oil] demand strength of 2010“; 2010 saw absolute incremental demand at around 2.2mb/d of growth—the second highest in 30 years, despite oil prices in the $90/bbl region. Key developments in the transportation sector that they note include:

Positive for gasoline demand:

• Strong Chinese car growth in 2010, particularly in the first half of the year, with vehicle sales up 30% year-on-year (YoY) through the first eleven months of 2010. In DB’s Fall 2009 note, they had forecast 12% growth. By mid-2Q, the team had increased its estimate to 25%.
  Deutsche Bank’s China Auto analyst, Vincent Ha, continues to see robust light vehicle sales over the next few years, with a slow to about 11% YoY growth in 2011 (due to a high base from the 2010 surge, and reductions in government stimulus), followed by sustainable low double digit growth in 2012. He also believes that sub-1.6L passenger cars will outgrow larger vehicles due to favorable policies.
• Slower than expected sales of hybrids everywhere in the world but Japan in 2010. In the US hybrids fell from about 3% of total sales in 2008-09 to 2.2% in 2010. The DB team attributed the reduction to less concern about gasoline prices, and therefore fuel efficiency, as well as fewer government subsidies for hybrids.
  

  As we’ve said before, it may take another $140/bbl+ oil price surge to truly and finally change US transportation behavior and policy.

• Increasing political animus towards the ethanol tax credit, which was “begrudgingly renewed for one year in the lame-duck tax bill.” The team suggests that this may be the last extension for the credit. ...

Negative for global gasoline demand ... :

• Rapidly falling lithium-ion battery prices, and steepening expected cost reduction curves for both batteries and electric drive components.

Based on discussions with industry experts and several automakers, the DB Auto team has lowered its advanced lithium ion battery cost projection by about 30% for 2012. Current prices have fallen from $650/kWh+ in 2009 to about $450/kWh now, and DB’s forecast is the price to fall at about a 7.5% CAGR from 2012 through 2020 to about $250/kWh.

The consumer economics of a pure electric start to work without subsidy by about 2020 under this battery price decline scenario. The industry rule of thumb suggests that consumers will consider a 3-4 year payback to be an economic choice. With no subsidy, 2012 electric vehicle models will have a 10+ year payback vs. a typical combustion analog, assuming $3.25/gallon gasoline. With a $7,500/vehicle subsidy in 2012, an electric will have about a 5 year payback. Around 2015, assuming a $4,500/vehicle subsidy, the payback period starts to fall into a range at which consumers will view the economics favorably. By 2020, the economics should be able to more or less stand on their own with subsidy, and a small subsidy would clearly nudge the payback below 3 years. 

• Strong indications of commitment by the Chinese government to support the rapid development of both domestic demand for electric vehicles and a competitive domestic electric vehicle industry.
• New US fuel efficiency/emissions standards which will not be achievable without significant penetration of electric vehicles, according to the DB analysis.
• Fuel standards in Europe, Japan and Canada that will require widespread adoption of electrics. There is pressure to make European standards even more aggressive.
• More governmental consumer incentives (rebates or tax credits) to encourage the purchase of new electrics and plug-in electrics.
• An explosion of hybrid sales in Japan. The Toyota Prius became the biggest selling car in Japan in 2009, and has remained in that position throughout 2010. Several other hybrid models also made the leaderboard. Hybrids went from about 8% of sales in 2009 to over 11% in 2010. Honda believes that hybrids will account for 23% of the market by the end of 2011.
• Strong pre-sales of electrics in the US by commercial enterprises. In November General Electric put in a pre-order for 12,000 GM electric cars, and said it planned to buy 25,000 EVs from all manufacturers by 2015 for its corporate fleet. At the consumer level, dealers have put in more 2011 orders than can be produced for both GM’s Chevrolet Volt and Nissan’s Leaf. Volt manufacturing capacity will rise from 10K in 2011 to about 65K in 2012. Nissan is building a 150K capacity plant in Tennessee for the Leaf which will come on line in 2012.
• New business models, combined with government incentives and subsidies, that dramatically lower the entry price for consumers.
• A growing number of xEV options around the world. The DB auto team counts at least 130 models in the global pipeline for 2012.
• Aggressive near-term OEM lease pricing.
• Increasingly micro-hybridization, with a majority of ICE’s being micro-hybrids (e.g., equipped with start-stop and/or some regen functionality) by 2020.

Read Full

What is Beijing Willing to Do to Secure Oil and Gas Supplies?

by Michael Richardson, The Japan Times online, December 27, 2010
China's dependence on increasing amounts of oil imported from potentially unstable areas of the Middle East and Africa through vulnerable shipping channels has become an uncomfortable fact of life for the government in Beijing.

Chinese policymakers have called it their "Malacca dilemma," a reference to fears that the Straits of Malacca and Singapore in Southeast Asia, the channel used by most ships steaming between East Asia and the Middle East-Africa region, could be disrupted or even closed in a crisis.

Countries flanking the straits, chiefly Indonesia, Malaysia and Singapore, have sought to reassure China that this key artery for international shipping is secure.

Indeed, the bigger risk to oil supplies today is the possibility that a confrontation between the West and Iran could threaten the flow of oil from the Persian Gulf through the narrow Hormuz Strait, the only way into and out of the gulf by sea. China gets about half its imported oil from this energy-rich but volatile zone.

From being a net oil exporter in the early 1990s, China now imports just over half the oil it uses. Last year, it surpassed Japan to become the world's second-largest oil importer after the United States. The U.S. Defense Department reckons that China will import almost two-thirds of its oil by 2015 and four-fifths by 2030.

As if that was not set to create a perfect storm of energy supply worries, China in 2007 became a net importer of natural gas as well, after almost two decades of self-sufficiency.

While oil meets nearly 20 percent of China's total energy consumption, gas accounts for just 3 percent. But this is rapidly changing, as the government tries to move electricity generators, heavy industry, and home-heating and cooking away from polluting coal to gas, the cleanest of the fossil fuels.

China's gas consumption has tripled in the past decade and is expected to make a similar leap over the next 10 years, driven by growing industrial production and expanding urbanization in the world's second-biggest economy. By 2020, gas is projected to have a 10 percent share of energy use.

Where will all this extra oil and gas come from and how will China seek to secure its foreign energy sources and supply lines? More

(According to the U.S. Energy Information Administration's--EIA--China Country Analysis Brief, November 2010, here: " China consumed an estimated 8.3 million barrels per day (bbl/d) of oil in 2009, up nearly 500 million bbl/d from year earlier levels. During that same year, China produced an estimated 4.0 million bbl/d of total oil liquids, of which 96 percent was crude oil. China’s net oil imports reached about 4.3 million bbl/d in 2009, making it the second-largest net oil importer in the world behind the United States and for the first time surpassing Japan’s imports. " - See EIA graphic below, sorry for the blurriness, D.R.)

Notes: EIA graphic accessed via China Country Analysis Brief, Nov 2010. Top 10 includes UK (not indicated). Also, Dutch net oil imports were larger than Taiwan's imports. -- D.R.

Petroleum Intelligence Weekly Ranks World's Top 50 Oil Companies

Accessed through http://www.energyintel.com/
Petroleum Intelligence Weekly's annual ranking of the world's 50 largest oil companies is a perennial benchmark survey recognized industry-wide and the leading source of comparative corporate performance assessments. The rankings are based on six operational criteria that allow the comparison of private sector and state-owned oil companies. This survey is the precursor to the more comprehensive Energy Intelligence Top 100: Ranking The World's Oil Companies.

Key findings from the PIW Top 50 [published in late 2009 -- D.R.]:

• Oil firms collectively weather a volatile year to keep rankings stable
• Natural gas’ contribution to reserves and production growth continues to gain traction
• France’s Total ties Chevron for No. 9 spot ...

Firms are compared in six different operational areas, with companies assigned a separate rank within each category. These criteria include:

• Liquids — Output ('000 b/d), Reserves (Million Bbl)
• Gas — Output (MMcf/d), Reserves (Bcf)
• Product Sales ('000 b/d) and Distillation Capacity ('000 b/d)

Financial and other measures of size include:

• Revenue (US$ million), Net Income (US$ million), Total Assets (US$ million), # of Employees ... 

To view the PIW Top 50 rankings, click here

(PIW's ranking is based on operational data for 2008. PIW measures government-controlled national oil companies -- NOCs, side by side with privately controlled international oil companies -- IOCs. Saudi Aramco maintains its hold on the top spot. It has achieved the top spot in the PIW rankings for 21 consecutive years. Rounding out the Top 10 are, in order, Iran's NIOC, Exxon Mobil, Venezuela's PDV, China's CNPC, the U.K.'s BP, Royal Dutch Shell of the Netherlands/UK, ConocoPhillips, Chevron and Total of France (Total ties Chevron for No. 9 spot). Petróleos Mexicanos/Pemex ranked at No. 11 in the 2010 Petroleum Intelligence Weekly's/PIW's ranking for 2008. Pemex retained its spot as the No. 11, in the 2011 PIW's ranking for 2009. Petróleo Brasileiro S.A./Petrobras ranked at No. 15 in the 2010 Petroleum Intelligence Weekly's/PIW's ranking for 2008. Petrobras retained its spot as the No. 15, in the 2011 PIW's ranking for 2009. Compare the PIW's rankings for 2008 with the 2009 Platts rankings for 2008, here and here. Furthermore, compare the PIW's rankings for 2008, to the PIW's rankings for 2009, here. BP, which faces huge costs associated with Deepwater Horizon disaster - see here - may be adversely affected in the future rankings. See also Christopher Helman, "The World's Biggest Oil Companies," Forbes, here. Also, please see PIW's Dec 2011 company rankings for 2010, here. - D.R.)

Transneft Finishes Crude Trial Runs on ESPO Pipe Spur to China

Platts, December 21, 2010
Russian pipeline operator Transneft's new 300,000 b/d pipeline spur for ESPO crude shipments to China is ready to begin commercial shipments on January 1 following the completion of trial runs Sunday, it said in a statement said late Monday.

Transneft pumped the first trial shipment of crude on November 1, shipping a total of 250,000 mt (61,000 b/d) in November and 300,000 mt in December, the statement said.

The spur travels from Skovorodino, currently the end point of the East Siberia-Pacific Ocean (ESPO) pipeline, to Daqing in China. [See the map below, provided by Reuters - My addition, D.R.]

The main ESPO route was launched in December 2009, and consists of a 600,000 b/d pipeline from oil fields near Taishet in East Siberia to Skovorodino in Russia's Far East, near the border with China.

From there, around 300,000 b/d is currently shipped by rail from Skovorodino to an export terminal at Kozmino on the Pacific coast.

Starting January 1 [2011], Russia's largest oil producer Rosneft is to start to supply China with 15 million mt/year (300,000 b/d) of ESPO crude. The exports are in line with a contract signed in 2009 to supply 300,000 b/d of oil over 20 years to China [i.e., cash-for-oil or loan-for-oil deal -- D.R.]. [Full story]

--Jake Rudnitsky, jake_rudnitsky@platts.com

Similar stories appear in Oilgram News. See more information at http://bit.ly/OilgramNews

For related news, please see Platts Russian Crude Oil Exports feature at http://www.platts.com/newsfeature/2010/espo/index

                                                            

  Сlick on map to enlarge                                                             

     Source: UK. Reuters, RPT-UPDATE 3-Russia Prepares to Open Oil Pipeline to China, Sep 27, 2010 

(The second phase of the pipeline will involve the construction of a 2,046 km (1,271 miles) section from Skovorodino to the Pacific Ocean terminal at Kozmino, and will replace the rail line -- see map above. It would be commissioned by 2013 or 2014. The first phase of ESPO, running some 2,700 km from Taishet to Skovorodino, was completed in late 2009. See also Takeo Kumagai article in my blog , here. Update 1: In early November 2012, Transneft announced that ESPO-2 has been filled with technological oil and start-up works have started. The filling of the 2,046-km ESPO-2 with oil took about 4 months. The company plans to launch the oil line by the end of the year---please see here. Also, please see another map of the 4,700 km or 2,900 miles ESPO pipeline, the combined ESPO-1 and ESPO-2, here. Update 2: On December 25, 2012, Transneft JSC put into operation the second line of the East Siberia – Pacific Ocean pipeline (ESPO-2) [ ... ]. According to N. Tokarev, the Head of Transneft, “the American market gets about 35 per cent of oil through Koz’mino port, the final destination point of ESPO; Japan gets about 30 per cent; China gets 25-28 per cent. And the rest part goes to Singapore, Malaysia and South Korea”. “I believe such proportions shall be preserved”, he noted. [...]. During the second stage of the project, an oil pipeline sector from Skovorodino to Koz’mino port was built and the capacity of the marine terminal was increased. ESPO-2’s putting into operation will allow increase of the volume of oil dispatched from Koz’mino twice, up to 30 million tons per year [ i.e., 600,000 b/d -- D.R.]. The volume of oil exported from Koz’mino port may reach 15.6-16 million tons [i.e., 312,000-320,000 b/d -- D.R.] in the year 2012, and 21 million tons [i.e., 420,000 b/d -- D.R.] in the year 2013. Considering the route to China (15 million tons of oil per year or 300,000 b/d), 36 million tons [720,000 b/d -- D.R.]  are to be pumped in 2013. Handling through Koz’mino may amount 24-25 million tons [i.e., 480,000-500,000 b/d -- D.R.] in 2014, and 30 million tons [i.e., 600,000 b/d -- D.R.] in 2015. N. Tokarev reported that oil delivery to Koz’mino by railway still remain in the near term and shall amount about 3-4 million tons [i.e., 60,000-80,000 b/d --D.R.] per year. [ ... ] Also, N. Tokarev informed that Khabarovsky oil processing plant [i.e., refinery] would get oil from the ESPO system in the year 2014, and Komsomol’sk [-on-Amur] oil processing plant – in the year 2015---please read Transneft website, Dec 25, 2012 (in English).  -- D.R.)

Platts Report: China's November Oil Demand Surges to All-Time High of 9.3 mil b/d

Platts Media Center: Press Releases via Platts, December 20, 2010
China's apparent oil demand* in November surged to an all-time high of 38.09 million metric tons (mt), or an average 9.3 million barrels per day (b/d), according to a just-released Platts analysis of official data from the People’s Republic of China. This analysis is based on a data series of Chinese oil demand which Platts has been reporting since 2005.

Oil demand in November was 13.1% higher than November 2009 and was marginally higher than October's apparent oil demand at 37.88 million mt, or 8.96 million b/d.

China's apparent oil demand from January to November totaled 393.67 million mt, or an average of 8.64 million b/d, which was a 10.7% gain from the same period of 2009. This 2010 figure surpasses the total apparent oil demand last year, Platts data showed.

Crude throughput by Chinese state-owned refiners in November was at 36.65 million mt or an average of 8.96 million b/d, which was an increase of 9.86% above the throughput in November 2009, data released by the National Bureau of Statistics showed.

Most domestic refiners continued to operate at full or near full capacity in November as they tried to optimize output of middle distillates to meet a diesel shortage that has gripped the country since late September.

"Sinopec and PetroChina kept refinery run rates high in November after being told by Beijing to ensure sufficient supplies of diesel," said Calvin Lee, Platts senior writer, China.

"Additionally, Chinese state-controlled companies imported more diesel in November to meet demand, although the volume was less than most industry sources had expected," said Lee.

In November, China's diesel imports rose 50.1% year-on-year to 150,000 mt. Diesel imports in November were also 275% more than imports of 40,000 mt in October.

The imported volume in November was significantly lower than earlier indicative volumes provided by state-owned companies.

Sinopec had announced in November that it would import 200,000 mt of diesel during the month, while PetroChina said that it planned to import 200,000 mt of diesel last month.

Meanwhile, total refined product imports reached 3.52 million mt, which was a gain of 34.3% from the volume imported in November 2009. ...

(*Platts calculates China's apparent or implied oil demand on the basis of crude throughput volumes at the domestic refineries and net oil product imports, as reported by the National Bureau of Statistics and Chinese customs.
China is the world's second largest oil consuming country. U.S. is the number one, while Japan ranks third. - D.R.)

Platts Top 250 Global Energy Company Rankings 2010

Platts, November 2, 2010
2010 marks the ninth year Platts has produced the Top 250 Energy Companies list. The report measures financial performance by examining each company’s assets, revenue, profits and return on invested capital. The Rankings call attention to the continued leadership of the international oil companies, the rapid advance of the BRICs (Brazil, Russia, India, China) and the resurgence of the global power sector. Here are some of the highlights [my order of selected issues, D.R.] of the Platts report:

• Top Ten - Reigning supreme at the top of the rankings for the sixth consecutive year is US major ExxonMobil. ... While ExxonMobil’s European gas production declined, the coming on stream of its giant LNG production facilities in Qatar have helped it retain a strong grip on European markets. Second in the running is the now troubled UK major BP, which improved its position from fourth in the rankings in 2008. ... Chevron Corporation and Royal Dutch Shell plc each saw their profits decline more than 50 percent which resulted in a drop in the rankings to ninth and tenth place from second and third, respectively. France's Total SA remained at fifth place. While the top ten rankings remain the preserve of the integrated oil and gas (IOG) companies, one intruder is evident: German electric utility E.ON AG moved from 45th in last year’s rankings to 6th this year, the only non-IOG company in the top ten, although it is a sizeable gas producer. ... 

• Asia on the Ascendant - It is clear that Asia as a whole has substantially improved its position in the global energy firmament over the course of 2009. Of the top ten Asian companies regionally, nine improved their global ranking; of the top 20, 15 improved their global position; while if new entrants are included, out of the top 50 Asian companies, as many as 40 of the top 50 gained a higher global ranking this year to the detriment of other regions. There are now 68 Asian companies in the Platts top 250, compared with 55 last year. The Asian top ten remains dominated by Chinese and Indian companies. PetroChina Co Ltd retains the top spot, while the China Petroleum & Chemical Corp comes in second, ousting CNOOC Ltd, which falls to sixth place. India’s Reliance Industries Ltd moved from fourth to third, while India’s Oil and Natural Gas Corp Ltd [ONGC] rises from fifth to fourth. ... ONGC has been ranked 18th in the top 250 rankings. This ranking of ONGC has taken it to eight steps higher as against its 26th rank in the same list last year in 2009. This is the highest ever ranking of ONGC in the list of Platts Top 250 Global Energy Companies, ahead of global leaders like Conoco Phillips, Statoil, CNOOC, BG and others. ...  

• BRICs to the Fore - Within the global top 20, eleven companies are from the BRICs -- Brazil, Russia, India and China -- compared with just six the year before. Moreover, while BRICs still account for four of the top ten, all are rising; Russia’s Gazprom jumped to third place from eighth the year before and was also ranked as the world’s most profitable listed energy company. Brazil’s Petrobras claimed fourth place from sixth in the previous year’s global ranking. [My emphasis -- D.R., and please read below 2009 rankings]. PetroChina rose to seventh from ninth place and the China Petroleum and Chemical Corp jumped from 23rd place to eighth in the global rankings this year. [Read full report] 

(Platts 2010 rankings recognize the 2009 financial performance of publicly-held energy companies. For Platts 2009 rankings, which are based on financial reports from 2008, please see Platts Insight, November 2009, pp. 50-54---2009 Platts Top 250 Global Energy Companies or, alternatively, here -- D.R.)

Japan Sees Russia as 500,000 b/d Oil Supplier by 2015

by Takeo Kumagai, Platts, December 13, 2010
The startup this year of East Siberia-Pacific Ocean (ESPO) shipments from Siberia has positioned Russia to add to its established role of LNG provider and become an increasingly important supplier of crude oil to Japan, which has traditionally depended on the Middle East for most of its imports... .

Japan's total crude imports from Russia could rise to 500,000 b/d by 2015, after the commissioning of the second stage of the 30 million mt/year (600,000 b/d) ESPO pipeline, which will extend the line from Skovorodino in Russia's Far Eastern Amur region to the Pacific port of Kozmino. [See map in this blog, here - D.R.] ...

Over the April-October period of this year, an 85% year-on-year increase in Japan's Russian crude import volumes to 271,000 b/d was recorded, due mainly to the startup in supplies of ESPO... . Read more

WoodMac: Third-Quarter Oil Demand Sets All-Time Record

Oil & Gas Journal Online, December 8, 2010
Worldwide oil demand for this year’s third quarter will set a record at 88.3 million barrels per day (b/d), said Wood Mackenzie Ltd., Edinburgh, in its latest analysis...Leading the recovery in oil demand are China and the rest of Asia. WoodMac’s provisional data through September shows that gasoline, diesel, and gas oil demand in China are growing at a rate of about 8%/year. In India, diesel and gas oil are growing at 7%/year and gasoline at 11%/year. As a comparison, this year the Asian market will be 3 million b/d larger than the North American market; in 2008 it was 1.4 million b/d larger. More

Oil Production in Russia to Hit Record High

Moscow, December 8, 2010 (Xinhua) via Xinhuanet
Russia currently produces 1.4 million tons of oil per day, which is the highest daily production in the past 20 years. By the end of 2010, its total oil output for the year is expected to reach 504.8 million tons (some 10.1 million barrels per day). More