China and Africa Cooperate in Petroleum Industry

By+WANG+WEI

AFRICA is rich in oil resources. In 2014， Africas proven reserves were estimated at 132.1 billion barrels， more than North America and the Asia-Pacific combined. The three most oil-abundant countries on the continent are Libya（46.4 billion barrels， 3.4 percent of world total）， Nigeria （37.2 billion barrels， 2.7 percent of world total） and Angola （13.5 billion barrels， one percent of world total）. Africas oil output is rising due to new technology and exploration. It is estimated that proven oil reserves will grow by 15 billion barrels in the next five years， eventually accounting for one quarter of all oil outside the Gulf area.

Cooperation Between Africa and China

African oil production is heavily dependent on international companies for technology and capital. In recent years， African oil producers have been fighting for a fair share of petrol profits. In keeping with principles of a fair and just international order， China insists on mutual benefits with Africa. This contrasts starkly with Western countries， especially with regards to oil profits. Over the past 30 years， China National Petroleum Corporation （CNPC）， Sinopec and China National Offshore Oil Corp. （CNOOC） have signed nearly 40 agreements with more than 20 African countries. They have invested more than US $10 billion in Africas oil sector， covering explora- tion， production and international trade.

In Northeastern Africa， Chinese oil companies have launched a series of programs to help local partners explore and drill for oil. These inputs significantly boost the capacity of local oil industry. Sudan， for instance， has turned from a net importer into an exporter since cooperating with CNPC about 10 years ago.

At the same time， in order to promote socio-economic development in Sudan， CNPC has built hospitals， schools， roads， bridges and airports. In the first decade of the century， CNPC invested US $32.28 million in Sudanese utilities with benefits for more than 1.5 million locals. Now， there are more than 100 Chinese companies working in Sudan with a total public welfare investment of US $100 million.

The Sahara Desert is one of the most geologically complex areas for pretroleum projects. CNPC faced a lot of difficulties when working on the NDjamena project in Chad， where security is poor and natural conditions are harsh. Most of the oil in Chad is highly coagulated and difficult to explore. However， following CNPCs technical innovations， the Chinese team overcame the difficulties in exploration.endprint

On June 29， 2011， the first refinery in Chad came on stream， signifying completion of CNPCs project in Chad. The operation includes an oilfield and a refinery with a one million ton annual output， and a 311-kilometer pipeline. The NDjamena refinery is now the biggest joint venture and biggest industrial company in Chad. The project is also the second largest of CNPCs oversea refineries， producing LPG， diesel and fuel oil， and supplying locals with domestic oil products. It also contributes to the modernization of Chads industrial sector.

Expanding Oil Market in Africa

Competition is sharp in the African petroleum market. Western oil giants like Exxon Mobil and Total enjoy technological supremacy in offshore oil production， while Chinese companies have established footholds in some emerging oil producers such as Sudan. Many of them also have advantages in capital and human resources. With its 30，000 technicians and RMB 140.8 billion net profits in 2013， CNPC， for instance， is highly competent in Africa.

To further cooperation between Africa and China in the petroleum industry， Chinese companies should make medium- and long-term plan for developing an oil and gas market in Africa， and outline explicit goals and guidelines for market development. They must attach equal importance to cooperation with the five major oil producing countries– Egypt， Algeria， Libya， Nigeria and Angola. New markets in emerging oil producers， such as Chad and Equatorial Guinea， should not be neglected. There is much a more potential to find big reserves in these emerging countries. For risk control， Chinese companies may choose oil producing countries with a more stable political situation， such as Gabon and Niger.

Cluster bidding should be applied in some African countries， which means oil companies have to make both upstream exploration and downstream petrochemical industry investment. These will enable Chinese companies to increase their investment in petroleum downstream industry in Africa.

As prices of WTI （West Texas In- termediate） and Brent crude fluctuate more than African oil prices， African petroleum market， an important supplier， is helpful to maintain a stable oil price. The cooperation between African oil companies and their international peers and among international oil companies in Africa can contribute to this goal.endprint

Chinese companies could get a larger share in African petroleum market through merger and acquisition. It is a good choice for Chinese companies to develop an African market by cooperating with African private companies. Chinese companies have had long relationships with many African countries. Rich service experience， strong technical support and high reputations enable Chinese companies to bid for power in the African petroleum market. Meanwhile， China has promising partnerships with Russian and Indian enterprises in the continent.

Loan-for-oil is a good way to secure oil supply and reduce political risk. China has signed a loan-for-oil agreement with Angola. Such deals help adjust and diversify foreign exchange reserves， as well as reducing financial risk. Loanfor-oil is acceptable to oil producing countries in Africa since it is deemed a solution to deficient cash flow， which plagues many such countries.

Following Chinese Premier Li Keqiangs African visit in May 2014， cooperation between China and Africa has entered a “golden period” thanks to cooperative agreements signed during his trip which will benefit both sides. Some of the most promising opportunities for continued Sino-African cooperation will flow from the continents rich oil reserves.endprint