The Brookings Institution, Washington, D.C. Chinese Oil Investments in Africa: Why, Where, How and to What Effect? Erica Downs World Bank China Panel 12 March 2008

The Brookings Institution, Washington, D.C. Why?

The Brookings Institution, Washington, D.C. Drivers of Foreign Oil Investments (1): Reserve replacement Attractive opportunities abroad

The Brookings Institution, Washington, D.C. Drivers of Foreign Oil Investments (2): Profits Historically, upstream most profitable segment of oil industry Especially true for China’s national oil companies (NOCs) Rising crude costs Domestic price controls

The Brookings Institution, Washington, D.C. Drivers of Foreign Oil Investments (3): Oil demand exceeds domestic supply Source: BP Statistical Review of World Energy

The Brookings Institution, Washington, D.C. Drivers of Foreign Oil Investments (4): Oil imports expected to grow Source: IEA, World Energy Outlook 2007

The Brookings Institution, Washington, D.C. Drivers of African Oil Investments (1): Growth in African oil reserves

The Brookings Institution, Washington, D.C. Drivers of African Oil Investments (2): Access to reserves NOC oil reserves (no equity access) Reserves held by Russian cos. Full IOC access NOC oil reserves (equity access) African countries Source: PFC Energy, 2005 Africa is open for business

The Brookings Institution, Washington, D.C. Drivers of African Oil Investments (3): Warm welcome from hosts

The Brookings Institution, Washington, D.C. Where?

The Brookings Institution, Washington, D.C. China’s NOCs are invested throughout Africa… African countries where China’s NOCs have contracts for equity participation AlgeriaGabonNigeria AngolaKenyaN/ST&P JDZ ChadLibyaSudan Cote D’IvoireMauritaniaTunisia Eq. GuineaNiger

The Brookings Institution, Washington, D.C. …but the value of Chinese oil assets in Africa lags behind that of other firms

The Brookings Institution, Washington, D.C. China’s NOCs: small producers in Africa Sources: Company reports, Wood Mackenzie

The Brookings Institution, Washington, D.C. Most of the African oil production of China’s NOCs is currently in Sudan… Source: Wood Mackenzie and industry press

The Brookings Institution, Washington, D.C. Why are China’s NOCs small players in Africa? (view from China) Stiff competition for assets Latecomers to the region IOCs have a historical advantage Technology hurdles No deepwater capacity Insufficient use of diplomatic tools to help secure assets

The Brookings Institution, Washington, D.C. How?

The Brookings Institution, Washington, D.C. China’s NOCs are able to finance most investments on balance sheet High profits from high oil prices Most deals not big enough to need big loans Source: Company annual reports and Form 20-Fs

The Brookings Institution, Washington, D.C. Direct state financial support: less than meets the eye Minimal reliance by China’s NOCs on Chinese bank loans One example: 2006: CNOOC Ltd. received a US$1.6 billion low-interest loan from China Eximbank for OML 130 (Nigeria) Expensive project (US$ 2.3 billion) Attractive interest rate

The Brookings Institution, Washington, D.C. Indirect state support: a mixed bag “Oil-for-infrastructure” deals have yielded mixed results for China Chinese loans to Luanda helped Sinopec gain some upstream assets in Angola…but not everything it wants Efforts to link Chinese oil and non-oil investments have not won China’s NOCs attractive blocks in Nigeria

The Brookings Institution, Washington, D.C. To What Effect?

The Brookings Institution, Washington, D.C. Impact on Development (1) Follow the oil: China Eximbank loans for large infrastructure projects in oil-rich states China Eximbank’s lending priorities shaped by Chinese foreign policy priorities Energy a top priority in China’s African diplomacy But there are other motivations Gaining support of recipients in multilateral orgs. Creating opportunities for other Chinese firms Preventing diplomatic recognition of Taiwan

The Brookings Institution, Washington, D.C. Impact on Development (2) China’s NOCs helping to develop host countries CNPC/Sudan: US$ hundreds of millions spent on roads, bridges, schools, hospitals, training and education Sonangol-Sinopec/Angola: US$ tens of millions pledged for social welfare projects China’s NOCs likely to continue good deeds to: Remain welcome guests Reduce investment risk Improve global images

The Brookings Institution, Washington, D.C. Impact on Governance: The Case of Angola Chinese loans probably have reduced IMF influence on oil revenue transparency But rising oil revenues more important factor

The Brookings Institution, Washington, D.C. Impact on Industry Competition State support for China’s NOCs has had minimal impact on IOCs because competing for different projects China’s NOCs have no deepwater capacity Many blocks offered in “package deals” of little interest to IOCs Larger impact on Asian NOCs Seoul and New Delhi competing to offer better “package deals” Competition encouraged by some host countries (Nigeria, Angola)

The Brookings Institution, Washington, D.C. Extra Slides

The Brookings Institution, Washington, D.C. Africa provides one-third of China’s crude oil imports Total = 3.3 million b/d Source: General Administration of Customs of China Total = 3.3 million b/d

The Brookings Institution, Washington, D.C. Angola supplied almost half of China’s crude oil imports from Africa in 2007 Source: General Administration of Customs of China Total = 1,065,209 b/d