Thirsty Dragon- China’s Energy Security

In little more than a decade China has changed from being a net exporter of oil into the world's second-largest importer, trailing only the United States. Despite the current economic slowdown the country’s oil demand is still forecast to grow by 2.3% this year. With some of the world’s largest and fastest growing cities and an emerging middle-class, demand is coming from both consumer and industrial sectors, including rapidly expanding automobile ownership. This growth in demand cannot be met from domestic production - currently domestic crude oil production supplies only two-thirds of the country’s needs. China’s government estimates that it will need 12 million barrels/day of crude oil by 2020 from the current demand of 7.95 mb/day (IEA).


Securing stable access to oil and gas supplies has become central to China’s economic growth which in turn underpins political stability. So China has been looking outside, in different corners of the world, to find its energy supplies. Until recently the country focused primarily on the Middle East for oil supplies. It was one of the few countries trading with the former regime in Iraq and had large production sharing contracts which were cancelled with the US and allies invasion in 2003. China has also been doing deals in Iran; earlier this year a Chinese state-owned enterprise signed a $2 billion deal to develop the Azadegan field. Nevertheless China recognizes the geopolitical issues and the significance strategically of the Middle East for both the United States and Europe so has set its sights on other areas. China has been prospecting aggressively in the Caspian region and Africa.


Although Africa holds only about 9% of the world’s total proven oil reserves compared to more than 60% in the Middle East, it may hold significant untapped resources. From 2002 to 2003, trade between China and Africa doubled to $18.5 billion; by 2007, it had reached $73 billion – including substantial crude oil imports from Sudan and other African countries. Hydrocarbon rich African countries have decade long relationships with Western oil companies. Wood Mackenzie estimates Chinese companies hold under 2 percent of Africa's known oil reserves – many of these assets were previously held, explored and relinquished by the IOCs. And much of the potential resource growth is in technically challenging deepwater blocks in Angola and Nigeria.


China’s share of Africa’s oil is however growing. Two factors have been driving this. Firstly China’s foreign policy of non-interference in the domestic affairs of its trading partners. Sudan’s government resisted international pressure over its actions in Darfur. How significant was the combination of China’s veto in the UN Security Council and the export of 60% of Sudan’s oil production to China? China also uses aid to provide leverage, supplying easy credit and development knowhow in places as diverse as Gabon and Congo. The Council on Foreign Relations put out a very thoughtful paper last year detailing the growth of Sino-African relations. Oil is the common denominator and China is expected increasingly to use a combination of aid, trade and knowledge transfer to expand its influence in the region and increase its imports. Will the new Obama administration’s clearly stated preferences for reducing its oil import dependency and diversifying to alternative sources of energy give China an opening to construct more deals and expand its presence in Africa in the coming years?


We’ve also recently seen China adopt a model of more direct ownership, fully or partly, of foreign companies. The US congress shot down CNOOC’s attempt to buy into Unocal during the last phase of industry consolidation - but that was in a very different world and has not stopped China’s NOCs from evaluating other options. Will the announcement earlier this month of Chinalco’s proposed massive investment in Rio Tinto be a precursor of similar deals in the oil & gas industry ?



About the author:
Ian Rushby had a 30-year career in BP plc where he held various business leadership, commercial, planning and control positions in BP’s Head Office and Exploration, Finance, Coal and Gas divisions, working in London, the Netherlands, Indonesia, USA and Russia. His most recent assignment was Group General Auditor of BP plc, reporting to the Group Chief Executive, the Board Audit Committee and the Ethics and Environment Assurance Committee. He is also a non-executive Director, Ministry of Defence, UK and Chairman of the Defence Audit Committee.

Biofuels- quo vadis?

There has been a fair amount of hype in the biofuels arena over the last year or two. There were large project announcements on sugar/ corn based ethanol and cellulosic ethanol projects saw more activity beyond the blue print phase. Entrepreneurs also announced a slew of algae based culture for biofuel production. The hype was pretty thick until oil prices slid in late 2008, when a lot of projects started being shelved due to lower oil prices.

So where are we today? Are biofuels programs still going strong? Is the economic platform strong enough to weather the price deflation and volatility of these days? Has the credit crunch affected project financing?

These questions can be answered to a large part by the goverment policies and intervention. Regulatory & energy policies will affect much of the development of this field in the near future. The EU already has a strong set of incentives and program extensions for biofuels development and deployment at the retail end. The US has mandated that by 2022 7% of transportation gasoline come from cellulosic ethanol. The expectation is that the Obama administration will funnel more dollars on R&D in this area. Pure play biofuel companies such as Amyris are already moving along the path to commercialization in anticipation of these incentives.

The market for transportation biofuels is likely to be pretty large. Sandia Labs just released a report this week that found plant and forestry waste and dedicated energy crops could sustainably replace nearly a third of gasoline use in the US by the year 2030.

With those kinds of forecasts, its no wonder there has a steady drip of new venture investments in biofuels. Last year VCs , including a lot of marquee names like Vinod Khosla, funded biofuels startups to the tune of $680 million. Now even the majors are expanding their role. The Wall Street Journal reported yesterday that BP will be developing the world's biggest cellulosic biofuels plant in Florida through its partner Verenium.

The coming months will give a better picture on the investment climate for biofuels projects. The overall trend though is looking positive for the bio fuels industry.

SPE Salary Survey

Society of Petroleum Engineer (SPE) recently released its annual salary survey for the Oil & Gas sector. I must say that I was delighted to find the result of the survey which is very promising and reassuring especially in this period of economic gloom! At a time when global giants are tumbling, people are being laid off in the thousands, the report findings are in stark contrast to the global economic slowdown. You can download the complete results here.

This survey was SPE’s second effort. Last year a similar survey was carried out among SPE members. This time around, the scale of respondents was higher and so was the diversity in their demography. Unlike last year, more than half of the respondents are working in countries other than the United States. In total, there were respondents representing 125 nations, working in 116 different countries around the world including a sizable number from North Sea/North Atlantic and Middle East regions.

A quick overview on the findings of the survey –

The average annual increase in base pay is reported as 8.1% overall. The work region with the highest increase is Australia/New Zealand, at 10.6%, while Canada is lowest with 7.3%.
This is great in comparison to other sectors where growth in the mid/high level is much less and in many cases, almost stagnant.

The United States, Australia/New Zealand, and North Sea/North Atlantic have the highest average pay in the industry while Southeast Asia being distinctly the lowest paid.

The average age of respondents is consistent around the globe – around 39 to 45 years.

If you’re looking to join this sector, here’s proof positive of the amount of money you can make. If you’re already in the business, you can do a quick benchmark against professionals in other geographies, disciplines and experience brackets.

Oil & Gas Careers: Things to consider

The Dallas Morning News has suggested in one of its article by Elizabeth Souder that “This is a great time to look for a job in the oil industry.” Her report is largely based the oil prices and an aging industry workforce – something we have been following & acting upon for some time. With the rise in oil prices over the last two years (and notwithstanding the recent gyrations the past few weeks), there is increased enrollment in petroleum engineering and geology programs worldwide.

However, it is advisable not to base one’s career decision based on the commodity market. Before you decide to join the petroleum industry, here are a few things to consider.

Basic Aptitude
Strengths in science and mathematics are the backbone of petroleum engineering and geology careers. You will be doing a fair bit of analysis & modeling in your future roles. If you don’t have the the aptitude in the basic physical sciences you may want to consider other options.

Global Mobility
This industry is one of the most global in nature. Hydrocarbons are found in more than 80 countries, but its likely that in the next two decades extractable oil may be developed in more inhospitable climes. You can look forward to a fair bit of travelling in the Exploration & Production aspect of this sector, particularly if you join a oil services organization. This may strike a chord with you if you’re adventurous in nature, If frequent traveling is not your cup of tea you may want to evaluate other aspects of this sector; particularly in refining or marketing of hydrocarbons.

Cyclicality
The 90s saw a decline in prices which depressed the number and types of jobs in the sector. The past few years on the other hand has been characterized by a steep price rise as well as volatility. During boom times it does seem that the tipping point is far away, however know that Oil & Gas, much like other commodities, is a fairly cyclical industry. A future slowdown in the industry will effect the job market too. However the skills that you will pick up in this industry, including the managing complex engineering projects, data intensive modeling or opening new markets for hydrocarbons will stand you in good stead in other industries.

In summary, the industry is growing and is exciting. However you may want to take a longer term view as you plan on venturing into this field.

Getting Started

Energy @ Work takes a fresh look at the energy ecosystem from a different point of view – the perspective of the people associated with the industry (Oil & Gas, Power, and Renewable) and of those who are likely to be a part of it in the future.

We live and play at the intersection of the vital stakeholders who fuel the energy sector – corporate, academic institutions, professionals and students. As a team of energy enthusiasts, we will be delving into the various facets & aspects of the industry – technology, economics, career, lifestyle, environment, politics as well as many off track news and events as and when they occur.

Most importantly we will be talking about issues surrounding working and growing in this sector. We encourage you to participate, share and engage with us in dialogues that can help in building these synergies.