China to ramp up overseas M&A as overtakes U.S. as top crude importer

Reuters

By Florence Tan and Chen Aizhu

SINGAPORE/BEIJING, Oct 11 (Reuters) - China is set to rampup acquisitions of overseas oil-and-gas companies to feed itssoaring growth in energy demand as the country overtakes theUnited States as the world's top net oil importer.

Decades of breakneck economic growth pushed China to the topranking in September, the U.S. Energy Information Administration(EIA) said in a report this week, a position it is set to keepthrough 2014.

The Asian powerhouse, already the world's top importer in anumber of commodities, has led worldwide oil demand growth for agood part of the past decade, keeping oil prices elevated evenas weak Western economies and rising shale output in the UnitedStates pare global consumption.

The long-expected shift may further strengthen China'sposition in oil markets as East Asia exerts an increasinginfluence in global trade.

"Growing imports is going to be a driver for acquisitions,"said Alex Yap, an energy consultant at FGE in Singapore. "From anation's point of view, they have a supply security agenda butfrom the view of Chinese companies, they are interested to growthemselves into empires."

Difficulties in boosting domestic output have led Chinesecompanies, including China National Offshore Oil Co. (CNOOC) andSinopec, to spend more than $100 billion since 2009 onoil-and-gas assets to boost imports, Thomson Reuters data shows.

CNOOC aims to double its annual oil and gas output of about60 million tonnes to 120 million tonnes of oil equivalent, or2.6 million barrels per day, by 2020 and to 180 million tonnesby 2030.

Beijing has also spent billions via subsidised lending andaid to secure oil and gas in Africa and South America.

While China does not bring all the oil from its overseasassets back home, access to the fields gives Beijing security ofsupplies and allows it to plan its import targets better.

"State traders Unipec and Chinaoil are trading more in theglobal market than the amount they purchase for domesticrefining needs," said a trading official familiar with China'scrude oil procurement strategies.

"When making overseas acquisitions, they sometimes buildrefineries as a back-up to secure oil and gas blocks, allowingthem flexibility to take either crude oil or refined fuel, orengage in a series of swap deals."

AMBITIOUS AND AGGRESSIVE

The EIA figures show that China's oil consumptionoutstripped its output by 6.3 million barrels per day (bpd) inSeptember, implying the difference is import demand. Theequivalent U.S. gap was 6.13 million bpd.

The swing was partly the result of a surge in U.S. exportsof refined oil products, so the United States might return tothe number one spot briefly. But the trend suggests China willsoon open a significant gap.

China has achieved double-digit economic growth for threedecades, resulting in increasing demand for fuel, such as fromsurging car ownership. Its energy self-sufficiency ended in1993.

Since then, its oil import dependency has leapt to 58percent in 2012 and is forecast to reach 70 percent by 2020,consultancy Wood Mackenzie says.

"The centre of gravity of the oil market is shifting east asChina's importance in global oil trade continues to increase,"said a London-based oil trader who sells to China.

"Chinese trading houses are setting up offices all over andthey aren't willing to be a regional player, but want to have aglobal footprint. They are very ambitious, very aggressive."

China's domestic oil production growth peaked at about 2percent a year in 2001, against consumption growth of 6.3percent the same year and 4.5 percent in 2012.

An increased dependency on overseas supplies has already ledto a more than 30 percent jump in crude oil imports from somecountries in the Middle East so far this year.

Higher dependence would mean China may have to take on alarger role in international security, including in the MiddleEast.

China's Assistant Foreign Minister Zheng Zeguang said he hasbeen "paying a lot of attention to this situation."

"On Middle East issues, China has played a consistent andproactive role to promote the appropriate resolution of hot spotissues," he told Reuters on the sidelines of a forum. "Chinawill continue to play a role which accords with our nationalstrength."

China is already the world's top buyer of copper, iron ore,soybeans and coal. The U.S. is still the world's largest oilconsumer although imports have fallen as domestic output fromshale oil and gas has reached its highest level in decades.

China is due to release September oil import data onSaturday.

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