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.

News
The surrealist comedian at the Q Awards in 2010
people
News
Russell Brand arriving for the book launch in East London
peopleRussell Brand cancels his book launch debate due to concerns about the make-up of the panel
Sport
Christiano Ronaldo enjoys his opening goal
champions leagueLiverpool 0 Real Madrid 3: Ronaldo and Benzema run Reds ragged to avenge thrashing from their last visit to Anfield
Arts and Entertainment
Awesome foursome: Sam Smith shows off his awards
music22-year-old confirms he is 2014’s breakout British music success
PROMOTED VIDEO
Life and Style
Six of the 76 Goats' cheese samples contained a significant amount of sheep's cheese
food + drink
Arts and Entertainment
Contestants during this summer's Celebrity Big Brother grand finale
tvBroadcaster attempts to change its image following sale to American media group
Extras
indybest
Arts and Entertainment
Sir Nicholas Serota has been a feature in the Power 100 top ten since its 2002 launch
art
Arts and Entertainment
Sarah Dales attempts to sell British Breeze in the luxury scent task
tvReview: 'Apprentice' candidate on the verge of tears as they were ejected from the boardroom
News
Call me Superman: one of many unusual names chosen by Chinese students
newsChinese state TV offers advice for citizens picking a Western moniker
News
ebooksAn unforgettable anthology of contemporary reportage
News
Wilko Johnson is currently on his farewell tour
people
Voices
New look: Zellweger at Elle's Women in Hollywood awards on Monday
voicesRenée Zellweger's real crime has been to age in an industry that prizes women's youth over humanity, says Amanda Hess
News
Let’s pretend: KidZania in Tokyo
educationKidZania lets children try their hands at being a firefighter, doctor or factory worker for the day
Life and Style
CHARGE BOOSTER: Aeroplane mode doesn't sound very exciting, but it can be a (phone) hacker's friend. Turning on the option while charging your mobile will increase the speed at which your phone battery charges
techNew book reveals how to rid your inbox of spam, protect your passwords and amplify your iPhone
Arts and Entertainment
Julianne Moore and Ellen Page are starring together in civil rights drama Freeheld
film
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

IT Systems Business Analyst - Watford - £28k + bonus + benefits

£24000 - £28000 per annum + bonus & benefits: Ashdown Group: IT Business Syste...

Trainee Recruitment Consultant - Birmingham - Real Staffing

£18000 - £23000 per annum + Commission: SThree: The SThree group is a world le...

Trainee Recruitment Consultant Birmingham

£18000 - £23000 per annum + Comission: SThree: The SThree group is a world lea...

Trainee Recruitment Consultants

£20000 - £25000 per annum + OTE £Competitive: SThree: SThree Group and have be...

Day In a Page

How could three tourists have been battered within an inch of their lives by a burglar in a plush London hotel?

A crime that reveals London's dark heart

How could three tourists have been battered within an inch of their lives by a burglar in a plush London hotel?
Meet 'Porridge' and 'Vampire': Chinese state TV is offering advice for citizens picking a Western moniker

Lost in translation: Western monikers

Chinese state TV is offering advice for citizens picking a Western moniker. Simon Usborne, who met a 'Porridge' and a 'Vampire' while in China, can see the problem
Handy hacks that make life easier: New book reveals how to rid your inbox of spam, protect your passwords and amplify your iPhone

Handy hacks that make life easier

New book reveals how to rid your email inbox of spam, protect your passwords and amplify your iPhone with a loo-roll
KidZania lets children try their hands at being a firefighter, doctor or factory worker for the day

KidZania: It's a small world

The new 'educational entertainment experience' in London's Shepherd's Bush will allow children to try out the jobs that are usually undertaken by adults, including firefighter, doctor or factory worker
Renée Zellweger's real crime has been to age in an industry that prizes women's youth over humanity

'Renée Zellweger's real crime was to age'

The actress's altered appearance raised eyebrows at Elle's Women in Hollywood awards on Monday
From Cinderella to The Jungle Book, Disney plans live-action remakes of animated classics

Disney plans live-action remakes of animated classics

From Cinderella to The Jungle Book, Patrick Grafton-Green wonders if they can ever recapture the old magic
Thousands of teenagers to visit battlefields of the First World War in new Government scheme

Pupils to visit First World War battlefields

A new Government scheme aims to bring the the horrors of the conflict to life over the next five years
The 10 best smartphone accessories

Make the most of your mobile: 10 best smartphone accessories

Try these add-ons for everything from secret charging to making sure you never lose your keys again
Mario Balotelli substituted at half-time against Real Madrid: Was this shirt swapping the real reason?

Liverpool v Real Madrid

Mario Balotelli substituted at half-time. Was shirt swapping the real reason?
West Indies tour of India: Hurricane set to sweep Windies into the shadows

Hurricane set to sweep Windies into the shadows

Decision to pull out of India tour leaves the WICB fighting for its existence with an off-field storm building
Indiana serial killer? Man arrested for murdering teenage prostitute confesses to six other murders - and police fear there could be many more

A new American serial killer?

Police fear man arrested for murder of teen prostitute could be responsible for killing spree dating back 20 years
Sweetie, the fake 10-year-old girl designed to catch online predators, claims her first scalp

Sting to trap paedophiles may not carry weight in UK courts

Computer image of ‘Sweetie’ represented entrapment, experts say
Fukushima nuclear crisis: Evacuees still stuck in cramped emergency housing three years on - and may never return home

Return to Fukushima – a land they will never call home again

Evacuees still stuck in cramped emergency housing three years on from nuclear disaster
Wildlife Photographer of the Year: Intimate image of resting lions claims top prize

Wildlife Photographer of the Year

Intimate image of resting lions claims top prize
Online petitions: Sign here to change the world

Want to change the world? Just sign here

The proliferation of online petitions allows us to register our protests at the touch of a button. But do they change anything?