Introduction to China and theoil & gas industry in China

Jes ChristensenMonday 23rd of October 2006

AGENDA

1. Introduction to China

2. Oil & gas in China

3. Oil & gas investments in China

4. Questions

INTRODUCTION TO CHINA

CHINA AND EUROPECHINA AND EUROPE

Denmark China

1.313 mill.5,4 mill.

Area:

Population:

43.000 km2

9.597.000 km21:223

45.055US$ 1.695 US$

2225 bill. US$243 bill. US$

27:1

1:9,2BNP US$:

BNP capita:

1:243

Hu JintaoPræsident

Formand for KommunistpartietFormand for Millitærkommissionen

Zeng QinghongVicepremierminister

Ansvarlig for udnævnelser og forfremmelser

Wen JiabaoPremierminister

Wu BangguoFormand for

Folkekongressen

THE CHINESE TOP

CHINA – DOMESTIC POLICY

• One-party system

• Political stability is the overall main goal

• Economic growth is the most important tool• From now on the economic growth may not be at the

expense of the environment.• This has been introduced as ”The Harmonious Society”

• Continued high growth rates• High savings• Increasing domestic demand• Large FDI • High exports and trade surplus• Large pool of workers• Limited inflation• WTO membership

CHINA – THE SPEED IS HIGH

… BUT THE ROAD IS BUMPY

• Overheating • Restructuring or closure of state-owned enterprises• Bank system in crisis (”bad loans”)• Currency still not fully convertible• Inequality: Countryside/cities, east/west, rich/poor• Unemployment/underemployment (officially 4%, in fact 10-20%)

• ”The floating population” (200 Mio.?)• Corruption• Environment• Lack of energy resources• Depletion of other resources as well

0

2000400060008000

10000

12000140001600018000

20000

2000 2005 2010 2015 2020

bio

USD

Based upon growth estimates: USA: 3%, China: 7%

China’s GNP over 20 years according to purchasing power parity

GROWTH EXPECTATIONSGROWTH EXPECTATIONS

OIL & GAS IN CHINA

THE ENERGY SITUATION IN CHINA

• 70 mill. households are still without access to energy

• Coal is the main energy source and provides 67% of the energy in China. Oil provides about 22% of the energy and 3% comes from gas.

• For every 1% increase in GDP, the energy demand grew by 1.5% in 2005

FACTS ON OIL IN CHINA

• The daily consumption of oil in China is 6,5 mill. barrels, which is 8% of the total consumption in the world.

• Second most important energy source in China• 2.42 barrels a day came from import (= 40%) in 2004, which

equals the most expensive import alone (33 bill. USD)

• 39 privately owned companies are licensed to deal with oil.

• One of the most important players is China National Petroleum Corp. (CNPC):

• It controls all oil- and gas fields, oil refineries and petrochemical enterprises in 12 provinces, autonomous regions and municipalities mainly in north and west China

• Other strong Chinese and international presences in China:• Sinopec, PetroChina, CNOOC, Husky Energy, Statoil, Shell, BP

etc.

FACTS ON OIL IN CHINA

FACTS ON OIL IN CHINA

• 85% of the oil production in China comes from onshore and 15% from offshore

• Offshore oil in the South Chinese Sea• Ministry of Land and Resources estimates that the South

Chinese Sea is responsible for 1/3 of Chinas total oil and gas resources

• The main fields in north China are: • Daqing oil field, Liaohe oil field, Changqing oil field, Dagang oil

field, Shengli oil field, Qinghai oil field, Tu-ha oil field.

FACTS ON GAS IN CHINA

• Gas accounts for only 3% of the energy consumption

• The main onshore gas fields are located in the Sichuan- and Chongqing region in south-west China and in Changqing, Qinghai and Xinjiang in west China.

• The Sichuan- and Chongqing gas fields account for 15 % of China’s total natural gas reserves.

• Major domestic gas producers such as PetroChina, Sinopecand CNOOC produced in the first half of 2005 a total of 23.9 billion cubic meters natural gas.

• China’s first deep water natural gas discovery 150 miles from Hong Kong. JV between Husky and CNOOC.

”GOING-OUT”-STRATEGY

• China has been working on spreading the energy sources to secure the energy supply and minimize the dependency of coal

• The country has also spread the dependency of the single suppliers as much as possible

• China has started a ”going-out” strategy in the attempt of securing oil and gas sources:

• Kazakhstan, Sudan, Iran, Yemen, Azerbaijan, Russia, Venezuela and Australia ect.

• This is expected to continue in the future and much construction work is needed.

TOP SOURCES

OIL & GAS INVESTMENTS IN CHINA

MARKET OPPORTUNITIES WITHIN THE OIL INDUSTRY IN CHINA

• The consumption of oil is expected to double before 2020 to a daily consumption of 13 mill. Barrels

• It is expected that 75% of the oil will come from import in 2030

• Asia will accounts for 45% of the worlds oil demand in 2020

• China is building oil reserves enough for 30 days and within a decade enough for 90 days (630 mill. bpd)

• Large investments in LNG, storage and refinery facilities are needed

• SINOPEC signed a deal in 2004 to invest 70 bill. USD over the next 25 years in oil from Iran

• CNPC alone expects to invest 18 bill. USD in overseas oil between now and 2020.

• Mostly investments in Sudan, Kazakhstan and Indonesia

MARKET OPPORTUNITIES WITHIN THE GAS INDUSTRY IN CHINA

• Increasing focus on gas• The government wants to raise the natural gas share from the

current 2.2% to 5% by 2010 and 10% by 2020

• China will entirely open its natural gas industry. • The exploitation, pipeline construction, and the downstream

market will all be open and foreign investment is welcome.

• CNPC and Sinopec all have big plans to expand its oil and gas pipeline network.

• CNPC alone, planned to expand its oil and gas pipelines by 15,000 kilometres by 2010.

MARKET OPPORTUNITIES WITHIN THE GAS INDUSTRY IN CHINA II

• Guangzhou will become a hub for refinery and petrochemical industry in Asia

• Large investments in LNG, storage and refinery facilities are needed

• The “Burma to Kunming”-connection (900 km long)• 2 gas pipe from Russia (price pr. Pipe is 10 bill. USD)

• Large potential for further deep water discoveries

QUESTIONS ?