China to ramp up overseas M&A as it overtakes US as top crude importer

SINGAPORE/BEIJING (REUTERS) - China is set to ramp up acquisitions of overseas oil-and-gas companies to feed its soaring growth in energy demand as the country overtakes the United States as the world's top net oil importer.

Decades of breakneck economic growth pushed China to the top ranking in September, the US Energy Information Administration (EIA) said in a report this week, a position it is set to keep through 2014.

The Asian powerhouse, already the world's top importer in a number of commodities, has led worldwide oil demand growth for a good part of the past decade, keeping oil prices elevated even as weak Western economies and rising shale output in the United States pare global consumption.

The long-expected shift may further strengthen China's position in oil markets as East Asia exerts an increasing influence in global trade.

"Growing imports is going to be a driver for acquisitions," said Mr Alex Yap, an energy consultant at FGE in Singapore. "From a nation's point of view, they have a supply security agenda but from the view of Chinese companies, they are interested to grow themselves into empires."

Difficulties in boosting domestic output have led Chinese companies, including China National Offshore Oil Co. (CNOOC) and Sinopec, to spend more than US$100 billion (S$1.25 billion) since 2009 on oil-and-gas assets to boost imports, Thomson Reuters data shows.

CNOOC aims to double its annual oil and gas output of about 60 million tonnes to 120 million tonnes of oil equivalent, or 2.6 million barrels per day, by 2020 and to 180 million tonnes by 2030.

Beijing has also spent billions via subsidised lending and aid to secure oil and gas in Africa and South America.

While China does not bring all the oil from its overseas assets back home, access to the fields gives Beijing security of supplies and allows it to plan its import targets better.

"State traders Unipec and Chinaoil are trading more in the global market than the amount they purchase for domestic refining needs," said a trading official familiar with China's crude oil procurement strategies.

"When making overseas acquisitions, they sometimes build refineries as a back-up to secure oil and gas blocks, allowing them flexibility to take either crude oil or refined fuel, or engage in a series of swap deals."

The EIA figures show that China's oil consumption outstripped its output by 6.3 million barrels per day (bpd) in September, implying the difference is import demand. The equivalent US gap was 6.13 million bpd.

The swing was partly the result of a surge in US exports of refined oil products, so the United States might return to the number one spot briefly. But the trend suggests China will soon open a significant gap.

China has achieved double-digit economic growth for three decades, resulting in increasing demand for fuel, such as from surging car ownership. Its energy self-sufficiency ended in 1993.

Since then, its oil import dependency has leapt to 58 per cent in 2012 and is forecast to reach 70 per cent by 2020, consultancy Wood Mackenzie says.

"The centre of gravity of the oil market is shifting east as China's importance in global oil trade continues to increase,"said a London-based oil trader who sells to China.

"Chinese trading houses are setting up offices all over and they aren't willing to be a regional player, but want to have a global footprint. They are very ambitious, very aggressive."

China's domestic oil production growth peaked at about 2 per cent a year in 2001, against consumption growth of 6.3 per cent the same year and 4.5 per cent in 2012.

An increased dependency on overseas supplies has already led to a more than 30 per cent jump in crude oil imports from some countries in the Middle East so far this year.

Higher dependence would mean China may have to take on a larger role in international security, including in the Middle East.

China's Assistant Foreign Minister Zheng Zeguang said he has been "paying a lot of attention to this situation".

"On Middle East issues, China has played a consistent and proactive role to promote the appropriate resolution of hot spot issues," he told Reuters on the sidelines of a forum. "China will continue to play a role which accords with our national strength."

China is already the world's top buyer of copper, iron ore, soybeans and coal. The US is still the world's largest oil consumer although imports have fallen as domestic output from shale oil and gas has reached its highest level in decades.

China is due to release September oil import data on Saturday.

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