April 14 - China Petrochemical Corp. s purchase of a stake in a Canada oil venture brings the nation s spending on resources to $64 billion since 2005 and underlines its willingness to pay a premium for energy security.
The company known as Sinopec Group agreed to pay at least $650 million more for ConocoPhillips s 9 percent stake in Syncrude Canada Ltd. compared with an estimate by Macquarie Securities. The cost of the purchase could have been narrowed by a stronger yuan, currently constrained by a peg to the dollar.
The policy of energy security is fundamental to the overseas acquisitions by Chinese oil companies, said Shi Yan, an energy analyst at UOB-Kay Hian Ltd. in Shanghai who s covered China s oil and power companies for six years. China s oil demand is increasing and domestic supplies cannot meet demand.
Gains in the Chinese currency would cushion the rising costs of oil and natural gas supplies needed to sustain the expansion of the world s fastest-growing major economy. State- owned companies spent a record $32 billion on energy and mining acquisitions last year, paying an average premium of 20 percent, according to data compiled by Bloomberg.
Sinopec seems to be paying a higher premium, said Gordon Kwan, head of regional energy research at Mirae Asset Securities in Hong Kong. With talk of the yuan appreciating, this will increase China s purchasing power in M&A deals.
U.S. lawmakers say the yuan peg, fixed at about 6.83 to one dollar since July 2008, gives Chinese exporters an unfair advantage. Any currency revaluation by China must be based on its own economic and social-development needs, the official Xinhua news agency cited President Hu Jintao as saying in his meeting with Barack Obama in Washington on April 12.
Crude Oil Captive
The country s drive to own overseas energy assets is also spurred by price volatility in the oil futures market. Crude in New York rose to a record $147.27 a barrel on July 11, 2008, before plummeting to a four-year low of $32.40 on Dec. 19 that year as the worst recession since the Great Depression eroded fuel demand. Prices have since more than doubled to about $84.
Oil prices will probably exceed this year s peak of $87 a barrel and may rise as high as $94 in New York, according to technical analysis issued by Barclays Capital.
Chinese Demand
China s fear is that it will be held captive by the futures market, said Lee Boon Keng, the Singapore-based deputy chief investment officer at Bank Julius Baer & Co. As oil rises to $100 a barrel again they need to secure more supply. China needs oil and other resources to feed growth of about 8 percent a year, but will there be enough to feed this kind of growth over the next five years?
The International Energy Agency on March 12 raised its forecast for fuel demand in developing countries, led by China and India, to 41.2 million barrels a day and cut its prediction for Europe and the U.S.
China, the world s largest energy consumer behind the U.S., relied on imports to meet more than half of its oil needs last year. Chinese oil consumption reached 8 million barrels a day in 2008, according to the BP Statistical Review of World Energy.
Sinopec Group s $4.65 billion stake purchase in Syncrude is its biggest oil-sands acquisition since it spent C$105 million ($105 million) in 2005 for a share in the Northern Lights project in Alberta.
China Petroleum & Chemical Corp., the group s Hong Kong- listed unit, rose 1.7 percent to HK$6.70 yesterday, outpacing the 0.2 percent drop in the benchmark Hang Seng Index. ConocoPhillips fell 0.5 percent to $55.67 in New York trading.
Canadian Oil Sands
Canadian Prime Minister Stephen Harper said his government will review Sinopec Group s agreement to acquire the stake in Syncrude, operator of the world s largest oil-sands project.
The venture was formed to produce crude from the Athabasca oil-sands region in northeastern Alberta. The project involves extracting heavy oil from tar-like sand and turning it into synthetic crude for refining into fuels. Syncrude s production capacity is about 350,000 barrels a day.
Canadian Oil Sands Trust owns the biggest share in Syncrude with a 36.7 percent share. Other partners include Imperial Oil Ltd., Suncor Energy Inc., Murphy Oil Corp., Nexen Inc. and Nippon Oil Corp. s Mocal Energy Ltd.
The company known as Sinopec Group agreed to pay at least $650 million more for ConocoPhillips s 9 percent stake in Syncrude Canada Ltd. compared with an estimate by Macquarie Securities. The cost of the purchase could have been narrowed by a stronger yuan, currently constrained by a peg to the dollar.
The policy of energy security is fundamental to the overseas acquisitions by Chinese oil companies, said Shi Yan, an energy analyst at UOB-Kay Hian Ltd. in Shanghai who s covered China s oil and power companies for six years. China s oil demand is increasing and domestic supplies cannot meet demand.
Gains in the Chinese currency would cushion the rising costs of oil and natural gas supplies needed to sustain the expansion of the world s fastest-growing major economy. State- owned companies spent a record $32 billion on energy and mining acquisitions last year, paying an average premium of 20 percent, according to data compiled by Bloomberg.
Sinopec seems to be paying a higher premium, said Gordon Kwan, head of regional energy research at Mirae Asset Securities in Hong Kong. With talk of the yuan appreciating, this will increase China s purchasing power in M&A deals.
U.S. lawmakers say the yuan peg, fixed at about 6.83 to one dollar since July 2008, gives Chinese exporters an unfair advantage. Any currency revaluation by China must be based on its own economic and social-development needs, the official Xinhua news agency cited President Hu Jintao as saying in his meeting with Barack Obama in Washington on April 12.
Crude Oil Captive
The country s drive to own overseas energy assets is also spurred by price volatility in the oil futures market. Crude in New York rose to a record $147.27 a barrel on July 11, 2008, before plummeting to a four-year low of $32.40 on Dec. 19 that year as the worst recession since the Great Depression eroded fuel demand. Prices have since more than doubled to about $84.
Oil prices will probably exceed this year s peak of $87 a barrel and may rise as high as $94 in New York, according to technical analysis issued by Barclays Capital.
Chinese Demand
China s fear is that it will be held captive by the futures market, said Lee Boon Keng, the Singapore-based deputy chief investment officer at Bank Julius Baer & Co. As oil rises to $100 a barrel again they need to secure more supply. China needs oil and other resources to feed growth of about 8 percent a year, but will there be enough to feed this kind of growth over the next five years?
The International Energy Agency on March 12 raised its forecast for fuel demand in developing countries, led by China and India, to 41.2 million barrels a day and cut its prediction for Europe and the U.S.
China, the world s largest energy consumer behind the U.S., relied on imports to meet more than half of its oil needs last year. Chinese oil consumption reached 8 million barrels a day in 2008, according to the BP Statistical Review of World Energy.
Sinopec Group s $4.65 billion stake purchase in Syncrude is its biggest oil-sands acquisition since it spent C$105 million ($105 million) in 2005 for a share in the Northern Lights project in Alberta.
China Petroleum & Chemical Corp., the group s Hong Kong- listed unit, rose 1.7 percent to HK$6.70 yesterday, outpacing the 0.2 percent drop in the benchmark Hang Seng Index. ConocoPhillips fell 0.5 percent to $55.67 in New York trading.
Canadian Oil Sands
Canadian Prime Minister Stephen Harper said his government will review Sinopec Group s agreement to acquire the stake in Syncrude, operator of the world s largest oil-sands project.
The venture was formed to produce crude from the Athabasca oil-sands region in northeastern Alberta. The project involves extracting heavy oil from tar-like sand and turning it into synthetic crude for refining into fuels. Syncrude s production capacity is about 350,000 barrels a day.
Canadian Oil Sands Trust owns the biggest share in Syncrude with a 36.7 percent share. Other partners include Imperial Oil Ltd., Suncor Energy Inc., Murphy Oil Corp., Nexen Inc. and Nippon Oil Corp. s Mocal Energy Ltd.
