Like everything else, the balance of power in the global energy market is shifting toward China, where a little-known province is perfectly situated to become a global oil-and-gas market powerhouse.
Nestled in the far northwest of China, Xinjiang is the country's largest province and the primary domestic source for oil and gas. It is sparsely populated and as big as Western Europe. The name, Xinjiang, literally means "New Frontier." And recent decisions in Beijing are going to give that translation even more meaning - transforming this province into a "new frontier" for the global energy sector.
Location, Location, Location
Production of oil and gas has gone on there for some time, a key reason why it accounts for more than 60% of the regional economy. Xinjiang is China's dominant domestic source of natural gas, and the now-completed West-East Gas Pipeline brings fuel directly into Shanghai and China's energy-hungry Pacific coast.
However, as important as the production is to the Chinese economy, there is another aspect to the province that is even more significant - its location.
Xinjiang borders eight countries - including Russia, Kazakhstan, India and Pakistan. It has an operational oil pipeline coming from Kazakhstan and another now bringing gas from Turkmenistan. These two Central Asian former Soviet republics are currently targets of much international interest. Kazakhstan is one of the world's new major oil producers, while Turkmenistan has enormous gas reserves.
Both countries would prefer to be moving volume to the European market, but trade in that direction is determined by throughput across Russia. So moving volume east - to China - also serves a political purpose.
But Beijing is also playing Moscow, because Russia figures prominently in developments. Xinjiang has under construction a new pipeline carrying Russian oil, and a Russian gas line is likely to follow shortly.
All of this, of course, is required by internal needs. That Chinese industrial development requires increasing consignments of oil and gas is hardly news. During the worldwide financial crisis, it was the demand spike from that country that largely sustained global oil demand base levels.
Now the Chinese Northwest is about to become an oil, gas, and petrochemical giant.
A 10-Year Energy Development Program
China National Petroleum Corp. (CNPC, available only through thinly traded CNPC Hong Kong Ltd.; PINK: CNPXF) plans to embark on a 10-year development program to elevate Xinjiang into the world's leading energy center.
Xinjiang is in line to become China's most significant base in oil-and-gas production, refining, petrochemical and other chemical manufacturing, oil storage, and engineering and technology services.
By combining its leading position in domestic oil-and-gas production with its newly acquired strategic role in deliveries from Central Asia and Russia, the province will have an impact on pricing for both raw materials and finished products throughout Asia and internationally, via Singapore trading (where the Chinese have a rising influence).
CNPC estimates that Xinjiang oil-and-gas production will reach 370 million barrels of oil equivalent annually by 2015, with an increase to 440 million by 2020 - a level it expects will be maintained for 20 years. Refining, oil storage, and petrochemical production are expected to increase at similar same rates.
The local drilling alone will allow China to develop a national oil reserve and additional strategic stockpiles. But the foreign oil and gas flowing into the province by pipeline will expand all of these categories.
CNPC and its bosses in Beijing are serious about all of this.
The company has spent more than $45 billion - though that's considered little more than a down-payment on what is to come - and has established 11 subsidiaries in the province, covering everything from upstream drilling and through transport, to downstream refining and processing. The expanding petrochemical production will augment a wide range of other industries, producing everything from automobiles and electronics to heavy machinery. That translates into the energy center fueling wider industrial expansion.
There also is a spillover effect under way in other forms of energy that U.S. investors should watch for.
New Players to Watch
A number of domestic state-run behemoths, such as China HuaNeng Group and China Guodian Group (two of the top electricity generators in the country), are rapidly expanding in the province. And new-technology and alternative-energy providers are following suit. That includes providers with technologies that are likely to be trendsetters, such as China Xinjiang SunOasis Co. (solar energy applications and research) and wind energy leaders China Longyuan Power Group Corp. and Xinjiang Goldwind Science & Technology Co. These companies are listed on the Hang Seng Exchange in Hong Kong, though they are not currently available abroad. But this will soon change.
As expansion becomes necessary, American depositary receipts (NYSE: ADRs) to become available for these companies, with possible initial public offerings (IPOs) following close behind.
Yet the Xinjiang revolution is not limited to spin-off companies or niche plays.
Developing such an oil-and-gas center will provide a broad-based range of investment opportunities. As it determines the pricing of oil and gas flows, it also will drive developments elsewhere in the global energy market.
China National Petroleum Corp.(CNPC, available only through thinly traded CNPC Hong Kong Ltd.; PINK: CNPXF) plans to embark on a 10-year development program to elevate Xinjiang into the world's leading energy center.
This development will have a major spillover benefit, nurturing fledgling alternative energy companies and spawning new ones.
A number of domestic state-run behemoths, such as China HuaNeng Group and China Guodian Group (two of the top electricity generators in the country), are rapidly expanding in the province. Following suit are such new-technology and alternative-energy providers as:
- China Xinjiang SunOasis Co.: Solar energy applications and research.
- China Longyuan Power Group Corp. and Xinjiang Goldwind Science & Technology Co.: Leaders in wind energy.
These companies are listed on the Hang Seng Exchange in Hong Kong, though they are not currently available abroad. Many promising companies that are publicly listed in Asia are not easily accessed by U.S. retail investors. But that will change.
As expansion becomes necessary, American depositary receipts (NYSE: ADRs) to become available for these companies, with possible initial public offerings (IPOs) following close behind.
U.S. investors need to be vigilant, and be ready to move when they do become available.
[Editor's Note: Dr. Kent Moors, a regular contributor to Money Morning, is the editor of "The Oil & Energy Investor," a newsletter for individual investors. In a career that spans 31 years, Dr. Moors has been consulting the energy industry's biggest players, including six of the world's Top 10 oil companies and the leading natural gas producers throughout Russia, the Caspian Basin, the Persian Gulf and North Africa.
As the preceding interview so clearly illustrates, Dr. Moors' experiences - as well as the unrivaled industry access, contacts and insights he possesses - are the backbone of the Energy Advantage, an energy-sector advisory service that enables investors to capitalize on his contacts and his global-energy-sector insights. For more information on that service, please click here.]
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About the Author
Dr. Kent Moors is an internationally recognized expert in oil and natural gas policy, risk assessment, and emerging market economic development. He serves as an advisor to many U.S. governors and foreign governments. Kent details his latest global travels in his free Oil & Energy Investor e-letter. He makes specific investment recommendations in his newsletter, the Energy Advantage. For more active investors, he issues shorter-term trades in his Energy Inner Circle.