China National Petroleum Corp. (CNPC) has secured a $30 billion loan from China Development Bank to fund overseas acquisitions. The five-year loan will be provided at a discount rate by the state-owned bank and help to fulfill a Beijing-authored mandate for Chinese companies to make strategic long-term acquisitions abroad.
China's demand for oil has doubled in the past ten years and the price of oil has more than tripled. In that time, the central government has accelerated its drive to acquire energy assets.
"This [loan] reflects China's intensifying desire to beef up long-term national energy security," Gordon Kwan, the head of regional energy research at Mirae Asset Securities Ltd. in Hong Kong, told Bloomberg News. The nation is "exploiting depressed oil prices while diversifying away from holding too much U.S. dollar bonds."
Oil prices have been cut in half since hitting record high $147.47 a barrel last year. Prices bottomed at close to $30 a barrel in February. They closed yesterday (Wednesday) at $71.35 a barrel on the New York Mercantile Exchange (NYMEX). Chinese companies have taken advantage of low valuations by spending $12 billion just this year on foreign oil fields and refining assets.
PetroChina Co. Ltd. (NYSE ADR: PTR), for instance, has agreed to pay $1.7 billion for a 60% stake in Athabasca Oil Sands Corp.'s MacKay river and Dover oil-sands projects. The company also paid $2.2 billion for Singapore Petroleum Co.
However, not all of China's foreign forays have been successful. CNPC on Tuesday dropped its $460 million buyout offer for Verenex Energy Inc., a Canada-based oil and gas company with extensive operations in Libya. The Libyan government refused to approve the deal, even though the Libyan National Oil Corporation (NOC) was offered a $43 million approval bonus. The NOC is reportedly attempting to purchase Verenex at a lower price.
Still, China plans to boost output from foreign oilfields to more than a 100 million metric tons – more than 25% of the nation's total – by the end of next year. And while energy consumption is on the decline in many parts of the world, demand for oil in China will grow by 2.8% this year, according to the International Energy Agency (IEA).
China imports of oil hit a record high in July, as the nation's $586 billion stimulus plan drove up demand for commodities. Crude imports jumped 18% from the month prior to 19.63 million metric tons, or about 4.64 million barrels a day, according to the China's General Administration of Customs.
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