Why China is taking a burning interest in North Sea oil and gas

 

China's decade-long acquisition spree has taken an unlikely turn as Britain's long-declining North Sea oil and gas industry finds itself at the centre of the Asian juggernaut's latest phase of expansion. China entered the North Sea last year when state-owned Cnooc bought into Britain's largest oilfield in the latest phase of its global asset takeover designed to secure energy for its rapidly growing electricity needs.

Cnooc acquired the 43 per cent stake in the Buzzard oilfield as part of its $15.1bn (£10.1bn) takeover of Canada's Nexen, which also owns oil and gas fields in Canada, the Gulf of Mexico and off the coast of Nigeria. At the same time, China's Sinopec paid $1.5bn for a 49 per cent stake in the UK unit of Canada's Talisman Energy. These acquisitions account for about 200,000 barrels of oil equivalent a day, about 12 per cent of the UK's entire oil and gas production last year of 1.55 million barrels.

"This deal helps Cnooc participate in the North Sea oil and gas business for the first time, which is in accordance with the company's long-term strategy," Cnooc president Yang Hua said last month. "Cnooc has attached a great importance to the North Sea region, an area that cannot be omitted by any major global oil company. We have been waiting for the right time and the right opportunity to make our move," he added.

Today, Cnooc stepped up its North Sea campaign, pledging to squeeze more out of its UK oil and gas fields.

"We fully expect to increase production from the UK North Sea assets. Detailed operational matters have not been finalised, but we are working on specific plans for the North Sea assets," a Cnooc spokesman said.

China's interest in the North Sea stems, in part, from a rapidly growing demand for energy as its rising and increasingly affluent population needs more electricity per head to satisfy its desire for a higher standard of living.

The increase in energy demand will be so vast that it will rewrite the world's geopolitical map, as China seeks to satisfy its needs. The growth in China's electricity demand between now and 2035 will be greater than that of the total current electricity demand in the United States and Japan.

China's daily oil consumption is set to nearly double to 17.5 million barrels a day by 2030, overtaking the US to become the largest consumer. Meanwhile, China's gas consumption is forecast to more than quadruple to about 545 billion cubic metres in 2035.

Not surprisingly, energy assets have been catapulted to the top of China's lengthy shopping list of assets and debts it is buying around the world with the huge foreign currency reserves it has accumulated by producing cheap goods the rest of the world wants to buy. The shopping spree began about a decade ago when China hiked its purchases of US Treasuries, but has since spread to everything from land, buildings and utilities and luxury cars, with Thames Water, Canary Wharf and MG Rover being among its UK investments.

It now wants to buy up as many energy-related assets as possible to glean intelligence from partners as well as to control the assets. China's reported interest in buying a stake in the proposed Hinkley Point C nuclear power plants and its investments in technologically sophisticated hydrocarbon producers like Nexen and Talisman are thought to be motivated by the gleaning factor.

"I expect the large Chinese oil companies to continue to acquire oil and gas reserves. They are going to need to import a growing quantity of oil and gas and buying now is hedging the cost of that," said Andrew Whittock, an analyst at Liberum Capital.

China's interest in the North Sea is related to the rebound in the region's oil and gas fortunes. Although last year's production figure of 1.55 million barrels is well down from peak output of 4.5 million barrels in 1999, the decline has slowed markedly of late, helped by government tax breaks in last year's budget.

The number of new exploration and appraisal wells increased by a third to 65 last year, raising hopes that the region may even see an increase in production in the coming years.

But there is another reason why China takes a keen interest in the North Sea. About 2 million barrels a day of the oil China imports is based upon Brent crude oil prices, which influences prices as far afield as Africa.

This means a rise in Brent prices by $1 a barrel pushes China's oil import bill up by $720m a year. The more oil China can squeeze out of the Buzzard field, a key determinant of the Brent crude oil price, the less the country has to pay for its oil, providing a clear incentive to boost production there. In every sense, China is clamping down on the energy world. In the longer term, Mr Whittock believes China's eyes will light up more at exploration opportunities in East Africa and parts of South America. But for now, the North Sea looks to be a beneficiary.

Start your day with The Independent, sign up for daily news emails
PROMOTED VIDEO
ebooks
ebooksA special investigation by Andy McSmith
Arts and Entertainment
This weekend's 'Big Hero 6' by Disney Animation Studios
arts + ents
News
i100
News
Budapest, 1989. Sleepware and panties.
newsDavid Hlynsky's images of Soviet Union shop windows shine a light on our consumerist culture
Arts and Entertainment
Eleanor Catton has hit back after being accused of 'treachery' for criticising the government.
books
News
In humans, the ability to regulate the expression of genes through thoughts alone could open up an entirely new avenue for medicine.
science
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Software Development Manager

£40000 - £50000 per annum: Recruitment Genius: This is an exciting opportunity...

Ashdown Group: Product Manager - (Product Marketing, Financial Services)

£30000 - £35000 per annum + Benefits: Ashdown Group: Marketing Manager - Marke...

Recruitment Genius: Compliance Assistant

£13000 per annum: Recruitment Genius: This Pension Specialist was established ...

Ashdown Group: Market Research Executive

£23000 - £26000 per annum + Benefits: Ashdown Group: Market Research Executive...

Day In a Page

Isis hostage crisis: The prisoner swap has only one purpose for the militants - recognition its Islamic State exists and that foreign nations acknowledge its power

Isis hostage crisis

The prisoner swap has only one purpose for the militants - recognition its Islamic State exists and that foreign nations acknowledge its power, says Robert Fisk
Missing salvage expert who found $50m of sunken treasure before disappearing, tracked down at last

The runaway buccaneers and the ship full of gold

Salvage expert Tommy Thompson found sunken treasure worth millions. Then he vanished... until now
Homeless Veterans appeal: ‘If you’re hard on the world you are hard on yourself’

Homeless Veterans appeal: ‘If you’re hard on the world you are hard on yourself’

Maverick artist Grayson Perry backs our campaign
Assisted Dying Bill: I want to be able to decide about my own death - I want to have control of my life

Assisted Dying Bill: 'I want control of my life'

This week the Assisted Dying Bill is debated in the Lords. Virginia Ironside, who has already made plans for her own self-deliverance, argues that it's time we allowed people a humane, compassionate death
Move over, kale - cabbage is the new rising star

Cabbage is king again

Sophie Morris banishes thoughts of soggy school dinners and turns over a new leaf
11 best winter skin treats

Give your moisturiser a helping hand: 11 best winter skin treats

Get an extra boost of nourishment from one of these hard-working products
Paul Scholes column: The more Jose Mourinho attempts to influence match officials, the more they are likely to ignore him

Paul Scholes column

The more Jose Mourinho attempts to influence match officials, the more they are likely to ignore him
Frank Warren column: No cigar, but pots of money: here come the Cubans

Frank Warren's Ringside

No cigar, but pots of money: here come the Cubans
Isis hostage crisis: Militant group stands strong as its numerous enemies fail to find a common plan to defeat it

Isis stands strong as its numerous enemies fail to find a common plan to defeat it

The jihadis are being squeezed militarily and economically, but there is no sign of an implosion, says Patrick Cockburn
Virtual reality thrusts viewers into the frontline of global events - and puts film-goers at the heart of the action

Virtual reality: Seeing is believing

Virtual reality thrusts viewers into the frontline of global events - and puts film-goers at the heart of the action
Homeless Veterans appeal: MP says Coalition ‘not doing enough’

Homeless Veterans appeal

MP says Coalition ‘not doing enough’ to help
Larry David, Steve Coogan and other comedians share stories of depression in new documentary

Comedians share stories of depression

The director of the new documentary, Kevin Pollak, tells Jessica Barrett how he got them to talk
Has The Archers lost the plot with it's spicy storylines?

Has The Archers lost the plot?

A growing number of listeners are voicing their discontent over the rural soap's spicy storylines; so loudly that even the BBC's director-general seems worried, says Simon Kelner
English Heritage adds 14 post-war office buildings to its protected lists

14 office buildings added to protected lists

Christopher Beanland explores the underrated appeal of these palaces of pen-pushing
Human skull discovery in Israel proves humans lived side-by-side with Neanderthals

Human skull discovery in Israel proves humans lived side-by-side with Neanderthals

Scientists unearthed the cranial fragments from Manot Cave in West Galilee