Ensuring reliable and stable flows from the Gulf region will be Asia’s biggest challenge, notes Harsh V. Pant in ‘The China Syndrome: Grappling with an uneasy relationship’ (Harper). He points out that America’s dependence on the Middle East is much less than that of other major global economies, as only 17 per cent of its oil imports flows from the region, while China is estimated to be importing almost 70 per cent of its oil from the region by 2015.
Deeper pockets
A section titled ‘India’s loss is China’s gain’ opens by acknowledging Indian concerns about Chinese influence across the globe, derived from the perceptions that it is losing out to China in the energy race. The Chinese have an upper hand over India in bidding, because they can clinch a deal at any cost, while Indian public sector companies need to ensure that the investment provides at least 12 per cent rate of return, explains Pant. The Chinese companies not only enjoy a head start over their Indian rivals but also have deeper pockets, he distinguishes.
“India is only a recent entrant in the global bidding process, because it was only in 2002 that the government deregulated the domestic oil sector. For China, buying foreign oil and gas fields for energy security has become a central mission, and the Chinese government has allowed its oil majors unprecedented freedom to achieve that goal.”
Bid race
For instance, the book mentions that Chinese oil companies have used all sorts of government aid, including non-oil commitments, transfer of missile technologies, the veto of UN sanctions against countries where China has oil interests, and even education and development aid, to lure energy-rich states.
Angola is an example of how India’s loss is China’s gain. Although the Indian government promised a $200 million rail line in Angola (over the $620 million for the oil blocks), the China National Petroleum Corporation (CNPC) managed to snatch it away, because the Chinese government offered a composite $2 billion in aid for a variety of projects in Angola, as a seventeen-year oil-backed loan, writes Pant, citing reports. Another example he gives is of China winning the bid for acquiring the assets of a Canadian oil firm, Encana Corporation, in Ecuador, after India decided to withdraw from the deal.
Need for cooperation
The author frets that even with regard to the much-touted China-India joint bid in Syria, the fact remains that the Syrian fields are not very desirable, with production falling from 3.9 lakh barrels a day in 1995 to about 1.77 lakh barrels per day in 2005. “There are enormous political risks in investing in a country such as Syria. China and India seem to have made a practical decision to work together so as to share the risk and to keep the cost of the acquisition down.”
It is India that needs to cooperate with China, rather than the other way around, because it is difficult for India to win over China when they bid for assets, advises Pant. He wonders, however, what advantages China could derive from such cooperation, given that the Chinese are much larger participants in the global oil market.
On how the Indian government’s energy strategy still lacks clarity, and how bureaucratic problems remain endemic, his example is of the last minute rejection by the government of ‘the ONGC’s apparently winning bid for an up to $2 billion stake in a Nigerian oilfield, thereby damaging the credibility of Indian companies in the international market.’
The author is, therefore, of the view that in the long term, Chinese companies may see more gain in forming ventures with experienced majors such as BP, Royal Dutch Shell, and Exxon Mobil Corporation as compared to teaming with their Indian counterparts.
Cautionary discussion with key insights.
**
BookPeek.blogspot.com
