China in Africa

7. China's Energy Footprint in Africa

In the space of just a few short years, China has quickly entrenched itself as one of themost active foreign energy players on the African continent. This has to do with the searchfor more secure oil supplies in the face of static if not declining domestic oil production.While Chinese companies lack technical capacity to tackle ultra-deep oil explorationprojects, strategic alliances with companies such as Chevron-Texaco, Petrobras and TotalSA in places like West Africa, will assist in accessing new drilling techniques.

Until 2000, China’s presence in Africa’s oil industry was confined to just Sudan where thestate owned China National Petroleum Corporation (CNPC) has been a major stake-holderin the Greater Nile Oil Project Company (GNOPC) alongside Sudan’s Sudapet, Malaysia’sPetronas and the Indian Oil and Natural Gas Corporation (ONGC) Videsh since 1997.Today Chinese oil companies are operating in nearly 20 African countries in both theupstream and downstream sectors, and pose a significant strategic and economicchallenge to both established majors and smaller independents, which for many yearsenjoyed unparalleled ascendancy in the continent’s energy sector.

China’s Energy Footprint in Africa – 2000

7.1. The 9/11 Crisis

China’s burgeoning oil demand and the 2001 9/11 Trade Centre catastrophe triggered thecountry’s energy policy-makers to decrease its reliance on Middle-Eastern supplies, at thetime the source of nearly 60 percent of its oil imports. Security of energy supplies isuppermost in the strategic planning of China’s policy-makers, according to ManouchehrTakin, a senior analyst at the London-based Centre for Global Energy Studies (CGES). [AFP, Paris, 2 February 2004.]

Consequently, China moved quickly to develop “secure” overseas oil resources(sometimes called “reserve transitional markets”), in such diverse places as Peru, Canada,Venezuela, Thailand, Kuwait, Central Asia, Russia, Sudan, Angola, Niger, Nigeria, SaoTome Principe and Equatorial Guinea. Some of the “brains” behind this drive was visionaryoil engineer Qin Anmin, president of the CNPC subsidiary China Petroleum EngineeringConstruction Enterprise Group (CPECEG), and Tan Zhuzhou, head of the ChinaPetroleum Commerce and Industry Association (CPCIA) and honorary Chairman ofKunshan Dikun Fine Chemicals Ltd, among others.

In April 2004, many deputies and members of China’s National People's Congress (NPC) and in sessions held by the Chinese People's Political Consultative Conference (CPPCC), called for the early enactment of new legislation to secure reliable oil supplies and the more effective exploitation of the country's oil resources. In a sense this was echoing and rubber-stamping the earlier sentiments expressed by the CPC`s strategic policy making organs.

According to Yang Qing from the Energy Research Institute of the Chinese State Development Planning Commission, the country’s oil industry is being reformed: "The issue of oil security is related to both the market for oil and the stability of oil supplies.Overall, it's a matter of structural reform." [Peoples Daily, “Oil Security: A top Priority for China”, 1 May 2004.]

Consequently, Chinese firms have not only been tapping more domestic oil sources buthave also been energetically pursuing a "go-out" strategy, looking for new and stablesources of oil in the international market. Importantly, there is a calculated move tosegment out oil supplies from the open market – a development lost on free tradeproponents

7.2. The Rush for Africa

A reprioritization of its energy supply sources, has seen China aggressively enter theoffshore oil industry in heavyweight oil producing African countries such as Angola andNigeria, venture into high risk areas such as Chad, Sudan, Mauritania, Niger andEquatorial Guinea, and looking for new exploration opportunities in Ethiopia, Kenya,Madagascar and Uganda. Establishing joint ventures with local state owned oil companiesis another facet of Chinese engagement to remain strategically close to political decisionmakersin the energy arena. This has been evident with joint ventures established withSudapet (Sudan), Sonatrach (Algeria), Sonangol (Angola) and the Nigerian NationalPetroleum Corporation (Nigeria).

Leading the charge into Africa has been the China national petroleum Corporation(CNPC), China National Offshore Oil Corporation (CNOOC) and Sinopec, backed by anarray of affiliated groupings including China National Oil and Gas Exploration andDevelopment Corp (CNODC), PetroChina, BGP International, and the China PetroleumEngineering & Construction Group (CPECC). They have gone head to head with theworld’s largest oil majors in securing oil reserves in offshore deepwater blocks in countrieslike Angola and Nigeria. On 9 January 2006, the Chinese oil company, CNOOC Ltd,announced a US$2,3 billion purchase of a 45 percent stake in Nigeria's OML 130deepwater oilfield. This was CNOOC's first venture into Africa and the single largestChinese investment made on the continent at the time. A few months later, Sinopec beatoff global competitors to lay claim to oil rich offshore deepwater prospecting blocks inAngola in deals worth US$2,4 billion.

A turning point for China’s oil acquisition programme in Africa came in 2000, when overthe period from January to May 2000, China's oil imports from Africa rocketed to 307 000bpd, an increase of 174 percent over the previous year's figures of 132 000 bpd. Thelargest country exporter of crude to China was Angola with 174 000 bpd up from a mere43 000 bpd the year before. Next was Sudan at 43 000 bpd from zero the previous year,followed by Congo Brazzaville at 19 000 bpd, also from zero the previous year.

In 2001/2002 Chinese oil companies aggressively branched out across Africa with its sitesfirmly set on north-west Africa/Maghreb region and the Gulf of Guinea. CNPC along withits partially privatized affiliate PetroChina and its engineering arm CPECC moved intoAlgeria, Libya, Niger, Morocco and Chad despite the latter’s diplomatic relations withTaiwan. Later it moved into Mauritania and Mali while its sister rival, Sinopec, moved intoAlgeria, Angola, Egypt, Gabon and Nigeria.

In both instances vital strategic considerations were at stake. China’s move into NorthAfrica was linked to security concerns related to tracking the movements and activities ofUighur Islamic extremists from its Xinjiang Province. Security cooperation agreementswere put in place with countries like Algeria and Niger to fight global terrorism, or morespecifically Salafist elements operating in the region, and thought to be collaborating withUighur elements in China. Securing the use of ports for the use by Chinese naval warshipshas been another component of China’s economic and diplomatic thrust into the region.These include the use of ports in Algeria, Egypt and Tunisia.

Like the US, China also saw the Gulf of Guinea as an important source of crude as well asother natural resources such as bauxite and timber, from countries whose oil output is setto increase for the next decade at least. This in turn has heightened Chinese militaryconcerns in securing Sea Lanes of Communications (SLOCs) in the region to protecttankers plying the oil routes to feed the Chinese economy. Consequently, militaryagreements have been reached with a number of countries in the region related mainly tonaval defence cooperation including Sierre-Leone, Nigeria (coastal defence), Cameroon,Equatorial Guinea and Angola.

China’s Energy Footprint in Africa - 2009

Nigeria was seen as an important prize in securing a foothold in the Gulf of Guinea,although perhaps not the most important given the established position of existing Westernoil majors. So China shifted its focus to Angola, not considered so firmly set inWashington’s orbit, and emerging potential areas such as Chad, Equatorial Guinea, Nigerand Sao Tome and Principe (STP). Leading the charge here has been Sinopec - China’ssecond largest oil company and largest refiner of petroleum products – and more recentlythe China National Offshore Oil Corporation (CNOOC) specializing in deep sea oilextraction activities. However, recent setbacks in Angola have seen China re-engagemore strongly with Nigeria.

In Equatorial Guinea, where US groups dominate a surging oil business, China provided apackage of military training and specialists as the precursor to getting entrenched in thecountry’s oil industry. After a visit to Beijing in October 2005, President Teodoro ObiangNguema, described China as its main developmental partner.

By 2004, China imported 28,7 percent of its oil requirements from Africa – some 35 milliontons. Today this figure is nearer 31 percent.

Sources of China's Oil Imports [1999-2004] (10 000 TONS)

Source: Paper presented by Wu Lei, professor of International Relations at YunnanUniversity, Kunmig, China, at the China-Arab Cooperation Forum (CACF) in Beijing onDecember 12-13, 2005.
Chinese state owned energy companies are therefore in effect becoming the new torchbearersof Chinese foreign policy in places like Africa, where the delineation betweenbusiness and political considerations are kept deliberately blurred to keep competitor’ssecond guessing Beijing’s plans for a more assertive pursuit of new energy sources andpolitical influence. Regions such as West and North Africa are likely to see growingtensions between global powers such as China, France and the US which have bothidentified the continent as a potentially viable, more stable source of critically neededenergy sources. Importantly, however, China’s oil trade with Africa has taken place off a very low base.China’s oil companies are relative latecomers to petroleum exploration and production inAfrica. Thus, the US$10,6 billion of Chinese oil sector investments recorded above arebarely a tenth of the US$168 billion that other international oil companies have alreadyinvested in the region. Yet China’s current wave of investment in Africa’s oil sector include some of the largestprojects on the continent, this despite the crippling world recession. While the collapse inthe equity value of corporate shareholdings on the world’s bourses has postponed orhalted new investment projects by Western companies, it has heightened China’spredatory instinct to buy-out vulnerable resource rich foreign companies at bargainbasement prices to increase its lock on global resources. The most well known attemptwas Chinalco’s recent US$19,5 billion pitch to double its shareholding in Rio Tinto – theworld’s second largest mining company – from 9,5 to 18 percent. Though this failed,there will be other attempts. According to a recent report in the China Daily, CNPC Chairman Jiang Jiemin said thecompany was studying the feasibility of acquiring overseas resource companies badlyaffected by the global financial crisis: "The present low share prices of some globalresources companies offer good opportunities for us". For example, on 17 April 2009,CNPC signed a deal to lend US$5 billon to Kazakhstan’s KazMunaiGaz EP for the jointpurchase of MangistauMunaiGaz, one of the largest among the Kazakh oil producingassociations. Not be outdone, Sinopec made a US$7,2 pitch for the Swiss oil company Addex whichenjoys oil holdings in West Africa and the Kurdistan region of Iraq. PetroChina, haspledged to increase investments in oil and gas from 60 to 70 percent in 2009 – thoughinformation has not yet been released on the share for Africa. CNPC, Sinopec, CNOOC and Petro-China are all in the process of gearing up thereinvestment profile in Africa. For example, in early June 2009, CNPC signed another US$5billion contract with Niger’s government to develop the large Agadem field said to holdmore than 300 million barrels of oil. This excludes mooted plans to build a 2500kmpipeline at an additional cost of US$5 –US$ 7 billion to pipe the oil to southern Benin. [AEI,No 607, 24 June 2009]. Very recently, reports have been received that CNOOC is in discussions with the Nigeriangovernment to purchase nearly 30 percent of Nigeria’s known reserves for oil or 6 billionbarrels. This will be done via the purchase and development of oil fields in the countrywhere Nigeria is current in the process of putting 14 oil blocks out for tender. Nigerianauthorities have refused to comment on these rumours.

7.3. The New Challenge

The problem for Western oil majors - now reeling from falling oil prices, inventory stocksand depleted capital stocks to pursue new investment opportunities – is that their statebacked Chinese oil counterparts are reaping the benefits of an aggressive global outreachagenda by a political leadership, determined to challenge Western hegemony in thedeveloping world.

They are being assisted by a newly emerging assertive neo-nationalism in the developingworld that wants greater control over their energy production and supplies. First casualtyof this are Western IOCs i.e. in places like Venezuela and more recently Brazil,determined to monopolise total production from its massive new offshore oil find in theSouth Atlantic Ocean.

Additionally, transparency and corporate governance issues undermine the West’s abilityto compete effectively with Chinese corporations.

Consequently, traditional Western oil and gas interests are set to come under increasingthreat from China as global markets expand.

7.4. Some Country Case Studies

Over just a few years, China has become Angola’s most important economic partner in theworld, shunting aside its more traditional partners with long-standing energy interests suchas France, Brazil, Portugal, United Kingdom and the US.

After the decision was made to target West Africa as both a strategic and energy node inthe developing world, China aggressively sought to woo the Angolan leadership. Animportant turning point was the May 2000 trip to Beijing by Angolan Defence MinisterKundy Payhama. He heard from a Chinese general that his country viewed Angola as astrategic imperative to secure “Sea Lanes of Communications (SLOCs)". SLOCs concernChina’s strategic focus on protecting its ability to access oil from oil producing regions likethe Persian Gulf and West Africa, via access to a string of naval berthing points straddlingthe oil routes for use by its expanding deepwater fleet.

The next step was to secure a foothold in the Angolan oil industry. The Chineseleadership viewed Angola as a "truly independent provider", more so than Nigeria, and onewhose leadership is not beholden to Western interests as closely as was the case ofLagos. Not surprisingly, China has aggressively engaged Angola on a wide range ofenergy cooperation projects.

Enter Sinopec

Sinopec led the way, first in purchasing ever larger amounts of oil and then becominginvolved in various upstream and downstream projects. In 1999, Angolan oil exports toChina were a mere 43,000 bpd. Coinciding with Kundy Payhama visit the following year,Angola’s exports surged to 174,000 bpd in 2000. In the first six months of 2006, exportshad risen to over 500,000 bpd, accounting for over 18 percent of China’s total oil imports.

A turning point in Angolan-Chinese oil relations took place with the visit of Sonangol’sManuel Vicente to Beijing in early 2004 which was focused on steps to enlarge theChinese stake in Angola’s upstream and downstream sectors. Discussions includedSinopec’s possible participation in the proposed Lobito oil refinery set to produce 240 000bpd of refined petroleum products.

Importantly, these talks were held at the time negotiations were underway on China’s US$2 billion concession loan to Angola – the largest raised to date by Luanda, and by thefact that in 2003, Angola had become the third largest source of China’s oil imports. Theextension of the loan in March 2004 from the China Exim-Bank intended for mainlyinfrastructure projects in Angola, entrenched China’s oil interests in the country further.This was topped up by another US$1 billion disbursement in March 2006 and a furtherUS$2 billion in June 2006 – signed off in September 2007.

Sinopec’s entry into Angola was further assisted by growing tensions with the US and theIMF on good governance issues and the French over the Pierre Falcone affair which hadrevealed embarrassing revelations of financial improprieties involving Luanda’s politicalelite. The ousting of Total SA from a portion of Block 3 (Block3/80) in late 2004 inretaliation for French intransigence on the Falcone affair made way for Sinopec to enterthe Angolan offshore industry in February 2005. A new entity was formed known asChina-Angola Petroleum, (now known as Sonangol-Sinopec International) whichcomprises Sonangol, Sinopec and United Petroleum & Chemicals Co Ltd. (Unipec),Sinopec’s multi-purpose petroleum and trading arm.

2004 saw China’s engagement with the Angolan oil sector quicken:

  • Sinopec eased out India’s ONGC-Vindesh to acquire Shell Oil’s 50 percent stake inBlock 18, operated by BP-Amoco. Sinopec’s successful buy-out was linked to tworeasons:
     a) negotiations at the time around the US$2 billion Chinese loan  b) thecompany positioning itself to take up a stake in the proposed Lobito oil refinery.
  • In March 2004 – the delivery of 10 000 bpd of crude oil was tied to a US$2 billion Chinese loan to Angola to be repaid over 17 years at 1, 5 percent interest.
  • In late 2004, via the intervention of the Portuguese/Angolan Escom International, ajoint venture was established between the Chinese Hong Kong based group BeiyaInternational Development Company and Sonangol in the form of the China-SonangolInternational Holdings (CSIH) based in Hong-Kong. Part of its work will be to assist intraining up Sonangol oil technicians in return for paving China’s entry into Sao TomePrincipe’s potentially lucrative oil market.

The Visit by Premier Zeng Peiyan

However, the visit to Angola by the Chinese Vice Premier Zeng Peiyan in February 2005concretised the China-Angola relationship. He met with President Joao Dos Santos andAngolan Prime Minister Fernando da Piedade Dias dos Santos "Nando". Other rankingChinese officials who accompanied the Vice Premier were the influential Wang Yang,Departmental Secretary, State Council; Deputy Minister of Trade Wei Jianguo; ZhangGuobao, Minister in the National Development Commission (who dealt with the strategicangle of Gulf of Guinea oil exploration); Cai Xiyou, Vice-President of Sinopec and anumber of ranking officials from the Defence and Foreign ministries.

Other Angolan officials involved in the discussions with the Chinese included KundyPaihama (Defence), Aguinaldo Jaime (then Deputy Prime Minister), José Pedro Morais(Finance), Chairman for Reconstruction General Helder Viera “Kopelipa”, Manuel Vicenteof Sonangol, the Minister of Mines, etc.

A total of nine cooperation accords were signed in Luanda at the end of the talks. Fivewere inter-governmental ones and four at business level. Oil was the main theme ofagreements reached and covered the following:
  • Energy, mining and infrastructure
  • The establishment of a cooperation commission
  • Technical cooperation that included a new loan from the Chinese Government to Angola, of US$ 6,3 million
  • Cooperation between the ministries of Oil, Geology and Mining of Angola and China National Commission on Development and Reform
  • Angola’s Sonangol to supply oil to its Chinese Counterpart, Sinopec
  • Two memorandums of understanding linked to a joint study on the oil exploration of Angola's Block 3/05 (formerly Block 3/80), between Sonangol and Sinopec and another one on the joint exploration of the country's new oil refinery
  • A new telephone network cooperation contract between the Chinese group ZTE Corporation International and the Angolan firm Mundostartel, estimated at US$69 million

Other significant Chinese developments in this sector have included the following:

February 2006: Angola became China’s main oil supplier, beating Saudi Arabia to cover13 percent of its total imports. According to Swiss-based Petromatrix gmbh(PG), Chinaimported 2,12 million tons of crude from Angola that month compared to 1,98 million tonsfrom the Arab country.

March 2006: China and Angola announced the establishment of a joint venture betweenSonangref and Sinopec to build the much discussed US$3,4 billion oil refinery in Lobitowith a capacity of upwards to 240 000 barrels per day. After years of disinterest bypotential foreign investors who felt that it was a marginal project, rising oil prices and thesudden shortage of refined oil products saw China step into the breach.

April 2006: Angola overtakes Saudi Arabia in becoming the largest single supplier of crudeoil to China – some 456 000 bpd.

June 2006: SSI acquired massive stakes in offshore Blocks 15, 17 and 18 at a total cost ofUS$2,2 billion. The three blocks have total proven reserves of 3,2 billion barrels of oil andwere expected to boost oil production for Sinopec by 100 000 bpd after they come onstream in 2007. Beating off industry heavyweights such as BP-Amoco and Total SA, SSIacquired stakes of 27,5 percent, 40 percent and 20 percent in the off-shore blocksrespectively. Sinopec holds a 55 percent stake in the SSI joint venture. This acquisition islinked to the supply of oil to the planned Lobito refinery.

March 2007: China suffers a major setback when Sonangol announced in March 2007that the Lobito deal with Sinopec was no longer on. According to Angolan sources, theChinese wanted to set up the plant to produce fuels and products that were solely adaptedfor the Chinese market. Sonangol refused to accept this condition and rather pulled out ofnegotiations than accept the construction of a Chinese' refinery. Vicente summed it upwhen he stated that: “We can not make an oil refinery solely to produce for China”.

    Some Sinopec state that US pressure was behind Sonangol’s decision. However, thereal truth is that Sonangol took a “business decision” based on the fact that it wantedmaximum flexibility to sell its products to markets of its choice. The collapse of the Sonaref deal constituted China’s first major set-back in the Africaenergy market, in terms of time, money and diplomatic effort spent and in terms of itscentral strategy to diversify and control its energy requirements at source. However, itwill not affect China-Angola relations unduly.

2008: rumours circulate that Sinopec is putting up its share-holding in Blocks 15, 17 and18 for sale linked to the aborted Lobito refinery deal. However, to date, no sale has takenplace.
A key facet of the visit to Gabon by President Hu Jintao in early 2004 was securing an oilimport contract worth 1 million tons per year of Total Gabon produced Gabonese oil. Thisdespite Gabon’s declining oil production. The deal signed on 31 January 2004 involvedUnipec’s Tang Suxin and the head of Total Gabon, Jacques des Grottes, with provisionsbuilt into the contract to increase oil supplies subject to bilateral agreed to revisions.Unipec is the import and export "arm" of China's Sinopec.

One of the key movers behind the oil deal at the time was Total Gabon’s Jacques Marrauddes Grottes, a French economist and lawyer in his late fifties considered a "no nonsense"technocrat in oil matters, who helped break months of indecision on finalising the deal. Inthe past, Des Grottes worked as Elf Aquitane’s oil’s strongman in Nigeria, Angola, Trinidadand Colombia. He was promoted to Director General of Total Gabon in 2001, and currentlyheads Total Upstream-Nigeria

The significant aspect of this deal was that Gabon would guarantee China 1 million tons ofoil per annum, irrespective of the threat of declining oil production faced by Gabon over thenext few years, in the absence of new discoveries.

More important, and not noticed in the general media, was a second deal signed betweenSinopec and the Gabonese Minister of Energy and Oil, in a ceremony presided over byGabon’s Oil Minister Richard Onouviet and Chen Tonghai, another rising star in theChinese oil business and one of the powerful heads of Sinopec.

The deal, covering several areas, was signed as a "private matter of the corporate world ofChina", just hours after the departure of Hu Jintao on 1 February 2004.

It was essentially a "technical evaluation agreement" that allows the PRC to conductfeasibility studies and technical surveys in three blocks south east and north east of PortGentil, named LT2000, DT 2000 and GT 2000. It opens the door for PRC exploration indeep and very deep offshore waters, and also in unexplored onshore densely forestedareas. It also deals with PRC's participation in refinery and technical training of Gaboneseofficials and employees and in a way "completes" the Total-Unipec deal, as it also includesprovisions for joint actions and projects, including engineering and survey operations.While, there are doubts on China’s capacity to engage in ultra-deepwater survey andexploration work, these technical constraints are being overcome.

Total SA has around 58 to 60 percent of direct company shares of Total Gabon, and islooking for new parties willing to take risks to further open up new oil fields. China is apotentially useful partner given broader shared global outlooks on dealing with theWashington factor. This is evident in joint venture agreements signed between Total anChinese companies in places like Venezuela.

At the time, assessments made by local analysts were that the Chinese push into Gabonhad a lot to due with the expansion of oil exploration underway in neighbouring São Tomé,and Equatorial Guinea’s emergence as potentially the new Kuwait of Africa.
Nigeria remains one of China’s most important strategic partners in Africa and the mostimportant in West Africa. Nigeria’s attractiveness to Beijing hinges on several issues:
  • Its location in the strategic Gulf of Guinea region.
  • Its potentially massive domestic consumer market of 130 million people.
  • Its continental and regional influence in institutions such as the African Union (AU),Nepad, Ecowas and Ecomog.
  • Most importantly, its massive oil reserves.

China’s interest in Nigeria coincided with President Olusegun Obasanjo’s “look Eastpolicy” which emerged at the beginning of the new millennium in reaction to growingWestern influence and intrusion into Nigerian domestic affairs. This decision was theresult of complaints that Nigeria was being treated unfairly by Western companies; the‘interventionist’ nature of some Western governments; and, an assessment that the globaleconomic and political balance of power was shifting towards the East. At the same time,China's relations with Africa were shifting, from holding a strong ideological bias in supportof communist regimes and Marxist insurgencies to being led by market and resourceacquisition considerations.

To give substance to his “look East” policy, Obasanjo personally pushed for the purchaseof 15 Chinese F-7 aircraft at an estimated cost of US$251 million in September 2005.China in return made noises about Nigeria obtaining a seat on the UN Security Council(UNSC).

According to government sources close to the presidency, President Obasanjo pushed forthe arms deal with China because he wanted Nigeria to ‘diversify’ its relations, as well asto position the country in relation to mooted reforms being discussed for the UNSC. Chinaheld the key given its interest in Nigerian oil, and the influence it holds in global forumssuch as the UN, IMF and World Bank.

Forging Oil Links

One of the earliest known contacts in forging energy links was made in January 2000,when China’s then foreign minister, Tang Jiaxuan, led a delegation of government officialsto Abuja. Central to the discussions were China’s involvement in the oil industry in Nigeriaand an increase in defence cooperation. According to reports received at the time, thePRC delegation was pushing for a multi-million dollar contract for their China GeologicalEngineering Company (CGEC) in Nigeria’s petroleum industry.

A year later, the Bureau of Geological Prospecting (BGP), an affiliate of the China NationalPetroleum Company International (CNPCI) Nigeria Ltd, won tenders for seismic surveywork in Igbomarotu (River Nun) and Nembe.

In late February 2003, Nigeria’s Vice-President, Atiku Abubakar, received Chen Haozhu,the influential head of the PRC Association for Friendship with Foreign Countries(CPAFFC). Haosu said that China considered Nigeria "a strategic vital partner", andcongratulated the Obasanjo dispensation for enlarging the avenues of bilateral ventures,that he expected would grow substantially in the very near future.

Nigeria’s growing strategic energy importance to Beijing was underlined during the visit toNigeria in November 2004 of influential CPC Politburo member, lawmaker, strategist andhead of the CPC’s National Peoples Congress (NPC), Wu Bangguo. During his stay, hesigned several economic agreements that included more oil deals with the Nigeriangovernment.
In his entourage were high-powered members of China’s oil industry who hadarrived to make a last minute assessment of the oil blocks put out for tenderin the Nigerian/Sao Tome and Principe (STP) Joint Development Zone (JDZ).The agreements with Nigerian President Olusegun Obasanjo, coveredvarious industrial areas including oil exploration, which looked at jointventures between PRC-Nigerian firms in seismic surveys, exploration and the marketing ofgas in African countries deemed interesting for both partners, which included STP andChad.

Support for Nigerian Oil Companies

Indications are that at that at the time, Chinese oil companies like Sinopec and insurancecompanies like Sinosure, had been given mandates by the Chinese government to supportNigerian oil companies as stalking horses to secure energy resources in sensitive areaslike the Nigeria/STP Joint Development Zone (JDZ). For example, Sinopec, reportedlyworked with Jagal Ventures, a group owned by Anwar Jarmakani, which controlsNigerDocks, the only local oil services yard. Jagal Ventures was one of the companies thatmade a pitch for oil blocks in the JDZ signature sales, although its name was not amongstthose officially made public by the Joint Development Authority (JDA) which administersthe JDZ.

Chinese oil companies like Sinopec have also forged good relations with local oilbusinessmen and government officials linked to the oil industry in the country. Oneexample is the former Nigerian Energy Minister and OPEC President Dr Edmund Daukoru,who was a key Sinopec ally in the Nigerian government. In 2005, CNOOC bought a 45percent share of South Atlantic Petroleum Inc. (Sapetro) owned by ex-Nigerian generalTheophilus Danjuma.

China also ensured aid and development packages went hand in hand with the pursuit ofoil concessions in Nigeria. For example, CNPC was awarded four blocks in Nigeria'slicensing round in July 2005, after it offered to build a hydropower plant in the Mambila,Plateau State and take a 51 percent stake (US$2 billion) in the 110 000 bpd Kadunarefinery. [See below.]

Since 2004, Chinese petroleum companies have acquired various interests in Nigerian oil production:

  • In September 2005, CNPC’s subsidiary PetroChina signed an US$800 millionagreement with the Nigerian National Petroleum Corporation (NNPC) to import 30 000barrels per day for five years;
  • On 9 January 2006, China National Offshore Oil Corp. (CNOOC) purchased 45percent of Block ML130 in the Niger Delta, with reserve estimates of 600 million barrelscovering about 500 square miles of Akpo Oilfield and other discoveries. The total dealoffered by CNOCC was worth US$2,7 billion. Today these fields produce 175 000 bpdfor CNOOC;
  • Just several months later, CNPC completed the acquisition of a 51 percent stake in theKaduna refinery for a total consideration of US$2 billion. The refinery was designed torefine 110 000 barrels of oil a day, yet due to lack of maintenance, its actual refinerycapacity was only 70 percent of that capacity. Together with this deal, CNPC receivedthe license for four oil blocks—OPL 471, 721, 732 and 298.
  • China’s aggressive energy purchasing policy was illustrated yet again when in earlySeptember 2009, China's largest listed offshore oil and gas producer CNOOC put in anoffer to buy six billion barrels of oil - equivalent to one in every six barrels of the provenreserves in Nigeria. While Nigeria’s oil authorities say this is unlikely to take place – ata price tag of US$30 billion, it remains a tempting offer. At the time of writing, talksbetween CNOOC and the Nigerian government were still ongoing.

7.5. Recent Oil Developments

Recent Chinese oil sector developments in Africa include the following:

  • Earlier this year it was announced that CNOOC, CNPC and Sinopec were competingto be chosen to lead a bid for an oilfield in Ghana. The sale of an oilfield off the coastof Ghana, the principal asset of unlisted US-based Kosmos Energy, could fetch morethan US$3 billion and is expected to attract bids from oil companies around the world.The field is believed to hold oil in excess of 1,2 billion barrels of already provenreserves. The Chinese government will choose one of China's state-owned oil firms topursue China's bid. However, Chinese authorities denied these rumours.
  • In early June 2009, CNPC reportedly signed another US$5 billion contract with Niger’sgovernment to develop the large Agadem field said to hold more than 300 millionbarrels of oil. This excludes mooted plans to build a 2500km pipeline at an additionalcost of US$5 –US$ 7 billion to pipe the oil to southern Benin.
  • Sinopec will be the first to kick off a drilling programme in the Nigeria-STP JointDevelopment Zone (JDZ) from the companies awarded blocks in the JDZ’s last biddinground a few years ago. The delay in exploration was caused by a shortage ofdeepwater rigs. Sinopec will spud its first well on Block 2 using Transocean’s SEDCO-702 deepwater rig which arrived on site in early July 2009.
  • On 16 June it was announced that China's state oil firm Sinopec InternationalPetroleum Exploration and Production Company Nigeria Limited (SIPEC) and theNigerian Petroleum Development Company (NPDC) have discovered crude oil inNigeria’s conflict ridden Niger Delta region. SIPEC, a subsidiary of Sinopec, andNPDC, the exploration and production arm of the state-run Nigerian NationalPetroleum Corporation (NNPC), jointly discovered crude in the Oil Mining Lease (OML)64, also known as Kakaku-1 well.
  • During the visit by a 16 person delegation to Uganda in mid-June by the Industrial andCommercial Bank of China (ICBC), President Yoweri Museveni invited the ICBC toparticipate in the construction of an oil refinery in the country and an oil pipeline toKenya to move refined oil to the coast. The ICBC owns 20 percent of Standard Bankwhich in turn owns 80 percent of Uganda's Stanbic Bank.
  • The most significant development in recent months is China Petroleum Corporation(Sinopec’s) bid to purchase Swiss-based Addax Petroleum for US$7,2 billion – the topindependent producer of Nigerian crude. The Addax board has already accepted theoffer and it just remains for the Swiss authorities to give its seal of approval to the deal.This acquisition confirms China’s commitment to challenge the well establishedWestern corporations in the Nigerian oil market

    Control of Addax Petroleum will give Sinopec a major foothold in West Africa and laythe foundation for a major expansion in the region. Addax has a daily estimatedproduction of over 136 000 bpd and presently controls oil fields in Nigeria, Gabon,Cameroon and northern Iraq. Sinopec’s ownership of Addax will allow China toexpand without the headache of bidding rounds and negotiations with the various oiland gas regimes in the continent.
  • In July this year, CNPC started work on the construction on an oil pipeline in Chad.The 300-km oil pipeline will carry crude from the Koudala field to the Djarmaya refinery.While the cost of the pipeline or its capacity was not disclosed, Deby’s office said thatthe region Koudala field is located in will eventually produce 60,000 bpd of crude.CNPC also began construction of a one million tons per annum capacity refinery inOctober 2008. The facility is expected to become operational in 2011. CNPC owns a60 percent stake in the refinery, which aims to supply both the domestic market andneighboring countries, while Chad’s state oil company SHT owns the remaining 40percent.