EMBA 2014-2015

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Candidate Number(s): Candidate Number: 945847

Title of Course: Business in Emerging Markets

Submission Date: August 9th

Title of Work: NOC-IOC Partnerships

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Can NOCs and IOCs create enduring Win-Win Partnerships?

An analysis of the prospects for Chinese NOC-IOC partnerships and benefits and obstacles for successful long-term strategic cooperation

Table of Contents Table of Contents 3

1. Summary & conclusions 4

2. Trends & developments in the Chinese gas market 5

2.1. China is focussing on gas as a ‘cleaner’ alternative 5

2.2. Institutional reforms are opening up the market for IOCs 6

2.3. Favourable investment climate for IOCs, NOCs are looking to expand overseas 7

3. NOC-IOC partnerships provide new opportunities 9

3.1.Reforms are creating a more attractive landscape 9

3.2.LNG looks promising for IOC involvement 9

3.3. NOCs and IOCs can form ‘win-win’ partnerships 10

4. Key challenges for NOC-IOC partnerships 12

4.1.PSCs look attractive, yet resource nationalism may still be waiting in the wings 12

4.2.NOCs show improvements in CSR, but there is still a long way to go 13

4.3.China should focus on creating stable demand for gas at competitive price levels 14

5. Strategic recommendations for NOC-IOC partnerships 15

5.1.Standardisation will help achieve supply chain advantages 19

5.2. Partnerships will support expansion abroad and face industry challenges 19

5.3. Solid non-market strategy is essential 20

APPENDICES 21

I. Key players in Chinese O&G market (information partly from publicly available materials) 21

I.A. Chinese National Oil Companies 21

I.B.Non-Chinese private and state owned oil companies 22

II. LNG infrastructure in China (information partly from publicly available materials) 25

III.Non-market strategy: 4 i’s Framework (Baron, 1995) 26

⼋八仙过海,各显神通

The eight Immortals crossing sea all have their own special skills

(Chinese proverb, which describes the ‘spirit of cooperation where individual members contribute their own strength and skill set, all to achieve a common goal’) 1

1. Summary & conclusions

‘Is China’s system of state capitalism better than the Western model of market capitalism?’

The above question is often brought to the table when China’s incredible economic rise is discussed. China is hungry for energy, and the need to develop domestic resources is prominent on the country’s long-term agenda to secure energy supply.

China’s National Oil Companies (NOCs) engage International Oil Companies (IOCs) for their technical expertise to develop China’s geologically complex reservoirs, and NOCs and IOCs cooperate to optimise supply chain advantages and give NOCs access to overseas resources. ‘Win-win partnerships’ between IOCs and NOCs provide an example of where state and market capitalism meet, and the benefits of market forces operating under the umbrella of China’s long term agenda of securing energy supplies.

Based on industry examples and views of industry experts, this paper explores the strategic advantages of these ‘win-win’ partnerships and the challenges that both IOCs and NOCs are facing to achieve successful business outcomes, focussing on the Chinese gas and LNG market. Whilst the paper primarily focusses on the perspective of major Western IOCs operating in China, forming mutual beneficial IOC-NOC relationships is essential for IOCs’ success in China. Therefore, in addition to the benefits of such partnerships for IOCs, the strategic analysis includes advantages for NOCs.

It is recommended that NOCs and IOCs pursue a strategy focussed on leveraging arbitrage opportunities that exist due to geographical differences in manpower and skills, and aggregation of the supply chain to achieve benefits of scope and scale and reduce cost where possible. As partnerships help accelerate transformation of NOCs, this may reduce the need for adaptation, allowing NOCs and IOCs to focus on arbitrage and aggregation.

A long-term non-market strategy will benefit IOCs and NOCs in influencing the state and other key stakeholders in driving reforms to balance supply and demand, reduce overcapacity and support China’s environmental agenda.

http://bystander.homestead.com/eight_immortals.html accessed 9/8/20151

2. Trends & developments in the Chinese gas market

2.1. China is focussing on gas as a ‘cleaner’ alternative

Over the past few decades, China has become the world’s largest manufacturer and exporter and the world’s second largest economy after the United States. As a result of China’s growth 2

trajectory, its energy consumption has seen an explosive rise. BP predicts that by 2035 China’s energy production will have risen by 47% while consumption will have grown by 60%.

China’s energy mix continues to progress as its dominance of coal is declining and natural gas is more than doubling with oil’s share remaining stable. As per its 12th 5-year plan, China pursues 3

an ambitious environmental agenda, aiming to reduce GHG emission by 40-45% by 2020. China 4

is investing heavily in alternative energy and nuclear to step away from its dependence on coal.

Globally, natural gas is the fastest growing fossil fuel (1.9% p.a.). China holds major gas reserves, and natural gas is the most promising candidate as a ‘cleaner’ alternative for oil and coal. Partly as a result of investments by Chinese and foreign companies, gas production should be able to exceed demand towards 2020 (see Figure 1), mainly through a combination of imported gas via pipelines, domestic shale gas resources and LNG.

It is expected that over the coming years, China will embark upon a shale gas revolution similar to the United States. According to the U.S. Energy Information Administration’s 2013 estimate, the country possesses 32 trillion cubic meters of recoverable shale gas resources, almost as much as the US and Canada combined. China has already invested heavily (>$1 bln) in shale gas development.

Prof. Eric Thun, lecture notes Business in Emerging Markets, Oxford SBS EMBA 20152

http://www.bp.com/en/global/corporate/about-bp/energy-economics/energy-outlook/country-and-regional-insights/china-insights.html Accessed 20/7/20153

KPMG report April 2011 China 12th Five Year Plan Sustainability https://www.kpmg.com/CN/en/IssuesAndInsights/ArticlesPublications/Documents/4China-12th-Five-Year-Plan-Sustainability-201104-v2.pdf

Figure 1: China’s Natural Gas Balance.

Due to a lack of investment and pipeline constraints, gas production has not kept up with demand though. Under its 12th Five-Year Plan, China has set itself ambitious targets to increase the use of natural gas in primary energy consumption. There are a number of significant obstacles that stand 5

in the way of large-scale development of its shale gas reserves: the availability of water, insufficient pipeline infrastructure and lack of fracking technology. 6

LNG (liquified natural gas) imports are a key strategic focus for China, as liquified gas is seen as a potential cleaner transport fuel (see Appendix 2 for an overview of China’s gas and LNG infrastructure).

2.2.Institutional reforms are opening up the market for IOCs

Historically the oil and gas sector in China has been dominated by its National Oil Companies (see Appendix 1 for an overview of oil companies operating in China). As a net importer, cooperation with IOCs has mainly been focussed on securing supplies for NOCs, with just a few examples of IOCs entering China in downstream businesses (Shell, BP and Qatar Petroleum, the Fujian refinery- JV with Exxon, Aramco and Sinopec).

Due to the ownership and control by the central government, NOCs were technically and financially inefficient, and were able to hold a large number of non-performing assets in their portfolios. Inward investment in the oil and gas sector is restricted through guidelines set by the NRDC (National Development and Reform Commission) which restricts investment in the exploration and development of petroleum and natural gas, whilst petroleum processing and manufacturing of petrochemicals are allowed. In 2010, a big step has been taken towards more competition in the sector as the NDRC classified shale gas as an ‘independent mineral resource’ opening up bids for private (Chinese) companies, cognisant that SOEs lack the expertise to explore and develop shale gas resources effectively. Recently, the NDRC has demanded that CNPC and Sinopec spin off their oil and gas pipeline assets to reduce their dominance over the Chinese oil & gas pipeline infrastructure. 7

What sets Chinese NOCs apart from most other NOCs is that they can operate with a relatively high level of autonomy due to their ties with the state and influence over government agencies. Their 8

shareholder is the Chinese government, which enables them to use retained cash to pursue a strategic agenda of M&A and joint Exploration & Production projects with IOCs (International Oil Companies) for commercial purposes. Competition amongst NOCs has lead to the development of 9

overlapping operations, especially downstream, and streamlining processes may lead to an improvement in efficiency.

http://nationalinterest.org/feature/china-the-next-shale-gas-superpower-11432 Accessed 20/7/20155

http://www.forbes.com/sites/jackperkowski/2013/06/13/shale-gas-chinas-untapped-resource/ Accessed 23/7/20156

http://www.bloomberg.com/news/articles/2015-05-13/china-said-to-plan-spinning-off-sinopec-petrochina-pipelines accessed 27/7/20157

Draga Claudia MARIN. (2012) Strategies of BRICs National Oil Companies for Energy Security. Thesis PhD student, Paris-Dauphine University. 8

Ellenor, G.M. (2013) Petroleum Politics: China and Its National Oil Companies, San Francisco, 26 June 2013, Thesis MSC in Advanced European and 9International Studies.

The Shanghai Oil and Gas Trade Center started trial operations in June of this year, marking a significant step towards an open market for oil and gas, free trade and transparency. Transparent 10

pricing mechanisms are essential for the success of investments in gas and LNG which generally require a long term focus and securing revenue streams through long term commercial commitments. Monopolistic power can drive up prices as has been shown with CNPC and Sinopec's large gas pipeline positions. The NDRC, which regulates pricing, reformed pricing in 2013 when it 11

partially linked domestic gas prices to those of petroleum products. A new trading platform for oil and gas that was recently launched by the NDRC is a significant step towards a more open and competitive pricing environment and development of a regional gas hub index. 12

2.3. Favourable investment climate for IOCs, NOCs are looking to expand overseas

China is unique in that it combines a vast domestic market with a high level of inward FDI. Because of its favourable investment opportunities and large domestic market, China has attracted large amounts of investment. The key challenge for China is to attract the right kind of investments as it strives to reduce overcapacity (e.g. in manpower, equipment), improve the environment, and move towards higher value-add production and services. Inbound investment in Chinese oil & gas was steady over the period 2005-2012 (see Figure 2).

Deng Xiaoping’s economic reform agenda started in the 1970s has been a great success: post-1978 China saw average real growth of more than 9 % a year. Economic reforms lead to the following 13

notable developments (Prof. Thun, 2015) : 14

• China 0pened up to trade and investments

• Decentralisation through local and regional fiscal incentives.

• Reform of (state-owned) enterprises.

As The Economist argues (Rise of State Capitalism, 2012), China’s State champions are now looking outwards, acquiring skills, and buying foreign assets. Backed by cash reserves and driven by the China’s goals of ensuring security of supply, Chinese NOCs are following an ambitious agenda of overseas expansion. At the same time, China is opening up the market for IOCs as government has allowed Chinese-foreign JV’s to bid for shale gas, and deepwater projects. Advantages of cooperation with IOCs are access to technology (deepwater and unconventionals- shale and tight oil), and that they enable NOCs to upgrade their technical capabilities and access IOCs’ project management expertise.

http://www.wantchinatimes.com/news-subclass-cnt.aspx?id=20140204000024&cid=1502 accessed 27/7/201510

http://www.ogj.com/articles/print/volume-111/issue-4c/regular-features/journally-speaking/chinese-nocs--expansion.html accessed 28/7/201511

http://uk.reuters.com/article/2015/07/01/china-commodities-exchange-idUKL3N0ZH3IT20150701 accessed 25/7/201512

IMF report June 2007 Why Is China Growing So Fast? http://www.imf.org/EXTERNAL/PUBS/FT/ISSUES8/INDEX.HTM 13

Prof. Eric Thun, Business in Emerging Markets, SBS EMBA Lecture Notes 2015. 14

The expectation is that resource nationalism within China will decrease in the short to medium term, as China is seeking to attract IOC’s that can develop more technically complex resources. As resource development will progress though and NOCs develop their own capabilities, it can be expected that China’s resource nationalism will increase. 15

Deloitte, Greater China Oil & Gas M&A and greenfield FDI investment spotlight 2013 edition.15

Figure 2: Greater China oil & gas M&A and FDI by deal volume. Source: Deloitte research,

3. NOC-IOC partnerships provide new opportunities

3.1.Reforms are creating a more attractive landscape

As discussed in the previous section, encouraging developments have taken place throughout the past few years as NOCs are opening up for cooperation with IOCs. Reforms are under way as lobbying efforts continue to allow transit of natural gas through the pipelines owned by NOCs, or even allowing equal access to all parties. According to an industry expert with a vast experience 16

working in China for IOCs and private O&G firms, the recent government strategy to encourage hybrid ownership (Chinese private and State NOCs) is a good move to liberalise the market and give private parties and IOCs access and participation rights to NOC assets.

China’s State Council’s Energy Development Strategy Action Plan sets out China’s energy strategy from 2014 to 2020 with the aim of producing 85% of total energy used domestically by 2020. Coal will be replaced by nuclear power and domestic resources. NOCs are investing heavily in unconventional resources to secure domestic supplies. Expertise of IOCs will be crucial for the 17

development of unconventional resources that are technically more complex to develop than the historical oil & gas reserves in Northern China. Recognising the need to bring in foreign expertise, the NDRC has opened up bidding for licences by non-Chinese companies, e.g. China’s recent offering of six onshore blocks. 18

3.2.LNG looks promising for IOC involvement

Opportunities are also emerging in LNG. China historically aimed to control the entire LNG supply chain, and has formed long-term supply contracts and JV stakes in foreign gas projects (e.g. Australia North West Shelf, Tangguh). China is one of the global leaders in small and medium 19

sized LNG, which opens up opportunities to access domestic markets. The NDRC has issued guidelines to encourage the private sector to invest in the LNG and gas infrastructure. Nearly 30 foreign petroleum companies participated in the first LNG terminal bidding in 2000. In 2013, BP 20

announced a 20 billion dollar deal to supply CNOOC with LNG mainly sourced from the US. Whereas independent or private parties were before not allowed to access LNG terminals, China's first privately owned LNG import terminal in Zhousan (Zheijang province, by Chinese private oil company ENN) is a significant step in the right direction.

http://www.ft.com/cms/s/0/99eca2b6-9988-11e3-91cd-00144feab7de.html#ixzz3hNYKfDAV Accessed 27/7/201516

http://thediplomat.com/2014/11/in-new-plan-china-eyes-2020-energy-cap/ accessed 27/7/201517

Bloomberg, January 29, 2015 China Offers Private Companies Rights to Explore Six Oil-and-Gas Blocks18

http://www.scmp.com/business/china-business/article/1771510/opportunities-emerge-private-firms-enter-chinas-lng-market 25/7/201519

http://en.people.cn/english/200103/19/eng20010319_65405.html accessed 25/7/201520

Of all major IOC’s, Shell is arguably best placed to compete in China on gas and LNG. The company focusses on its competitive advantages in technology to develop shale and deep water resources and has successfully bid for a large shale gas venture in 2012 (Sichuan) which however was scaled back in light of lower crude prices. More importantly, following the merger with BG the company is now focussing on gas and LNG, and one of the key players in the small-scale LNG market which is large and growing in China. in 2013 Shell has signed a letter of intent with a private Chinese 21

company to build a 600.000 tons per year LNG import terminal in east China (Oidong). 22

3.3. NOCs and IOCs can form ‘win-win’ partnerships

Collaboration of NOCs and IOCs can create a mutually beneficial strategic partnership, enabling China to diversify its supply base and shift its focus to gas in line with the country's long term environmental agenda. Chinese NOCs will gain access to improve technology to develop vast tight & shale gas resources or LNG from IOCs, and in return an IOC awards a Chinese NOC an overseas project.

http://www.shell.com.cn/en/aboutshell/our-business-tpkg/china.html accessed 27/7/201521

http://www.reuters.com/article/2013/06/13/shell-guanghui-lng-idUSL3N0EP2H620130613 accessed 27/7/201522

Benefits for NOCs

• Upgrade capabilities to develop technologically complex resources and LNG technology

• Expand overseas upstream portfolio

• Forming research consortia to optimise R&D investments

• Stimulate subsidiaries to expand overseas through contracting with IOCs.  

Benefits for IOCs

• Grow and diversify portfolio in China’s vast resource base (shale/ deep water).

• Access to Chinese infrastructure (pipelines/ LNG terminals).

• Collaborate with NOCs to address issues that O&G companies operating in China are facing

• Access to capital

NOC-IOC partnerships

Figure 3: NOC-IOC partnerships: benefits from IOC’s and NOC’s perspective

Recent examples of such ‘win-win’ partnerships include:

• Shell contract with Petrochina for shale gas in the Sichuan basin, Shell co-operated with PetroChina on the Groundbirch shale resources in British Columbia, where PetroChina became a minority equity investor in 2012. 23

• ConocoPhilips and PetroChina deals in both Australia (Petrochina buys stakes in two Western Australia exploration assets) and CoconoPhilips who signed an agreement for a research project to develop the Sichuan Basin in China.

• ENI and CNPC deal in East Africa signed in 2013, as ENI sold 20 % of its share to CNPC, and a shale gas co-operation project was signed in the the Sichuan Basin. 24 25

Ample examples exist though of partnerships that have been less successful, e.g. the Arrow Shell-CNPC LNG project that has recently been cancelled. It can be argued that partnerships between two NOCs have been more successful, because of political reasons guiding them to match demand and supply. An example is the partnership of Sinopec and Aramco: Sinopec invested in the Yanbu Aramco Sinopec Refining Company whereas Aramco is investing in the Fujian deal, and Shandong refinery. 26

An additional benefit for IOCs of such partnerships is that China’s capital markets are attractive and still growing. China’s long term strategy to improve infrastructure e.g. Silk Road may offer opportunities for state and private investments in energy infrastructure. 

It is often argued that Chinese state companies would be primarily good at copying others, as when they would have to produce ideas of their own they will become less competitive. The tide seems 27

to be changing for NOCs though, as they are focussing on R&D in line with the national Chinese long term plan (2006-2020), that encourages the development of technology. Testimonial to this is that in 2009 PetroChina spent more than Petrobras and Shell which are frontrunners in R&D investments. Petrochina has significantly increased its spending on R&D over the past few years with the large majority of the company’s patents filed within China. Through innovation, PetroChina aspires to promote green technologies and achieve higher efficiency in utilisation of fossil energy. Partnerships of NOCs and IOCs can provide opportunities to collaborate on R&D. 28

To date, such partnerships have not been very successful. (an example is the Shell-CNPC JV to manufacture rigs to exploit shale resources with mixed outcome).

http://www.ogj.com/articles/2012/03/cnpc-shell-sign-shale-gas-contract-in-chinas-sichuan-basin.html accessed 27/7/201523

Chen, Y. (2013) Clingendael international energy policy, DEVELOPMENT STRATEGIES OF THE CHINESE NATURAL GAS MARKET. July 2013. 24

http://venturesafrica.com/eni-sells-mozambique-oil-block-to-chinese-firm/ accessed 27/7/201525

http://files.bakerbotts.com/file_upload/documents/ChinasNewEnergy.pdf26

http://www.economist.com/node/21543160#KDMIaK1ohQWdKvr6.99NOCs accessed 8/8/201527

(http://www.chinese-champions.com/petrochina/ accessed 27/7/201528

4. Key challenges for NOC-IOC partnerships

4.1.PSCs look attractive, yet resource nationalism may still be waiting in the wings

Oil & gas contracts in China generally take the form of the PSC (Production Sharing Contracts) that are subject to a number of reductions and taxes. Chinese PSCs remain one of the most fiscally attractive in the world for both conventionals and unconventionals (which are subsidised). It can be argued though that China keeps the best blocks for its NOCs and high risk/high cost blocks are opened to IOCs. An example is the recent shale gas development of CNOOC and Shell in the Anhui province that has been scaled back due to technological complexity and CoconoPhilips who just 29

halted talks to develop the Sichuan Basin.

A concern is that in the longer term resource nationalism may increase. In 2010 CNOOC signed amendments to a PSC for three blocks in which Chevron would act as operator during the exploration period, yet giving CNOOC the right to gain a 51% interest in the event of a commercial discovery. NOCs seem to be looking to gain early transfer of operatorship after commercial 30

discovery and insist on more stringent use of Chinese supply chain during exploration, development and production. Exemplary of this trend is that large international NOCs like KUFPEC have taken on 80% of investments yet left operatorship to CNOOC not to loose their foothold in China. 31

Overall it can be concluded that China wants to retain control over resources and infrastructure but not discourage funding or knowhow transfer e.g. CBM, shale, deep water. The key challenge ahead for China and IOCs is how to break this monopoly…

http://www.ft.com/cms/s/0/fa536e1c-d47b-11e4-8be8-00144feab7de.html#ixzz3hYss7TD9 accessed 31/7/201529

http://www.prnewswire.com/news-releases/cnooc-signed-amendment-agreements-to-psc-for-three-deepwater-blocks-102326659.html accessed 3029/7/2015

http://www.cnoocltd.com/art/2014/12/10/art_8341_1702221.html accessed 31/7/201531

Summary: Key challenges for NOC-IOC partnership in China

• Tendency to award only high risk projects to IOCs. NOCs tend to retain control over resources post exploration.

• Different CSR standards NOCs could result in compromised CSR standards for IOCs working with Chinese supply chain.

• Complexity organisational structure NOCs complicates efficient partnerships.

• Overcapacity in downstream businesses and gas/ LNG infrastructure will reduce prices, challenging commercial viability of new developments.

• NOCs let go of ownership of gas infrastructure, yet still retain operatorship and hence control.

• China needs to grow gas demand to encourage domestic producers to commercialise domestic gas resources. Gas pricing still not representative for international market prices.

4.2.NOCs show improvements in CSR, but there is still a long way to go

Over the past decade, CSR has been prominent on the agenda for Chinese NOCs, which have formed special committees and implemented frequent reporting on CSR. Petrochina was seen as a model for sound corporate governance for China's SOEs. Its initial public offering (IPO) in 2007 was a step forward as capital markets have always had an important role in driving transparency and better corporate governance. However, firm evidence of improvements are lagging. CNPC has invested heavily in South-Sudan despite sanctions, and in 2014 the company admitted dealing with Iran which may trigger SEC investigations. Environmental standards are often perceived to be 32

insufficient to align with those of IOCs. The Shandong pipeline explosion in 2013 (Sinopec) and CNOOC’s/COP offshore spill in Penglai in Bohai Bay in 2013 are concerning and PetroChina has 33

been prohibited from expanding its refining and chemical production capacity over environmental concerns . Petrochina consistently adheres to the concept of “people orientation” yet does not 34 35

appear to impose equal standards on its subcontractors and subsidiaries. Anecdotally, conditions for Chinese subsidiaries in construction and on the rigs on one of the fields in Iraq were poor and health and safety severely compromised.

Since 2001, China has had a basic framework for corporate governance, What it lacks however, is efficient execution of the framework and regulations and policies are often not adhered to. Solid 36

governance is further complicated due to NOCs organisational structure. From the writers anecdotal experience working with Petrochina, nominations of executives are intransparent and dependent on ‘guanxi’: the individual’s web of relationships determine an employee’s place in the ranks rather than job titles. Often there is little communication between functional divisions and it takes a long time to get insight into the organisational structure and delegation of decision making authority. 37

A problem for IOCs in China is that China’s gas and LNG infrastructure are hit by overcapacity. This is a consequence of a combination of slowing demand, long term agendas and competition amongst NOCs, who have continued expansion despite excess current industry supply and low margins. As part of China’s 12 year plan the country continues on an ambitious expansion of gas 38

infrastructure, concerns are raised that supply will continue to outpace demand, dampening prices and commercial viability of projects. 39

It can be argued that the current overcapacity is a side effect of state capitalism, as the state often allocates capital inefficiently, and due to a lack of material incentives and divided ownership and control there is no incentive to optimise capacity and balance supply with demand. 40

http://www.scmp.com/business/commodities/article/1407527/sec-warns-it-may-act-against-petrochina-over-iran-dealings accessed 31/7/201532

http://www.offshore-technology.com/news/newscnooc-approval-penglai-oil-field-offshore-china accessed 31/7/201533

http://www.scmp.com/business/companies/article/1300306/china-environment-ministry-suspends-some-approvals-sinopec-cnpc accessed 31/7/201534

http://www.petrochina.com.cn/ptr/ygqy/201404/a9ccb18a3be84ce98cd19dc630d13bcc.shtml accessed 31/7/201535

FT June 2, 2005. Will China face up to its governance problem?36

http://www.ft.com/cms/s/2/f24da7ee-d37a-11d9-ad4b-00000e2511c8.html#ixzz3gnlhiTVg accessed 25/7/201537

Fueling profitability in the turbulent times ahead, de Sa, J. Bain & Company, 201238

http://www.trustedsources.co.uk/blogs/energy/how-slowdown-in-china-s-gas-demand-affects-infrastructure accessed 25/7/201539

Prof. Eric Thun, lecture notes Business in Emerging Markets, Oxford SBS EMBA 201540

4.3.China should focus on creating stable demand for gas at competitive price levels

The challenge for China is to create stable demand for gas, and securing cheap gas and LNG is important for the private companies working with the IOCs. However pipe gas movements remain challenging as key pipeline hubs are under control of the NOCs.

In 2001 BP, Exxon and Shell were among potential investors in China’s West-East pipeline. After passing pre-qualification they had to withdraw later when it became clear they were not allowed to enter China’s domestic gas market. The NDRC has ordered Sinopec and PetroChina to allow 41 42

equal pipeline access to third parties. However, the policy was difficult to implement because the companies could still decide on pipeline capacity utilisation and turn down usage requests, so 43

whereas the NOCs let go of ownership, they still retained operatorship and hence control.

As mentioned in the previous section, a number of reforms have been implemented by the NDRC to make gas pricing more competitive. In addition, Russian gas, LNG, conventional and unconventionals are creating more liquidity for gas, and as gas production and consumption will rise this trend is likely to continue. Mini-LNG is emerging which will create a way to bring stranded gas to the market. But capex for mini-LNG and mini-GTL remains very high and uneconomic unless volumes increase significantly. The challenge for China is to boost gas demand and substitute gas for fuel oil/coal by lower prices, at a price level that is sufficient to encourage domestic producers to commercialise domestic gas resources. Gas pricing should reflect international market prices instead of being based on a cost plus formula as is currently often the case.

China has the supply resources and market size for large integrated gas plays, for example in industrial regions like Shanxi which holds large onshore gas reserves and is now to a large extent dependent on coal. Strategic alliances with IOCs to bring gas technology into China is essential for boosting demand. In addition, saving energy as part of the environmental agenda can help to make energy use more efficient.

The Geopolitics of Natural Gas Natural Gas in the People’s Republic of China41Harvard University’s Belfer Center and Rice University’s Baker Institute Center for Energy Studies October 2013

http://www.reuters.com/article/2014/05/16/fitch-cnpc-pipeline-sale-is-positive-sta-idUSFit70102820140516 Accessed 1/8/201542

http://www.bloomberg.com/news/articles/2015-05-13/china-said-to-plan-spinning-off-sinopec-petrochina-pipelines Accessed 1/8/201543

5. Strategic recommendations for NOC-IOC partnerships

Summary

Strategic Recommendations for IOCs operating in the Chinese O&G market

• Building solid long term relationships and partnerships with Chinese NOCs and creating strong local presence will help secure commercially attractive deals for development of China’s vast resource base.

• IOCs can adapt most successfully to the Chinese market by forming strategic partnerships with NOCs, contracting Chinese firms within NOCs highly vertically integrated oil & gas supply chain, or setting up joint companies.

• Externalisation strategy by transferring responsibility for specific parts of the value chain to partner companies will help IOCs to accommodate to local requirements and optimise revenues.

• IOCs can benefit from leveraging geographical differences in costs through contracting the Chinese O & G supply chain and focussing on supply clusters to make optimum use of supply chain management advantages of such clusters.

• Focus on achieving high level of standardisation and project management methodology to optimise supply chain. Long-term supply contracts will reduce need for vendors to differentiate in order to remain profitable.

Strategic recommendation for NOCs operating in the Chinese O&G market

• Partnerships with IOCs will enable NOCs to access technology to develop shale and deep water resources.

• A material acquisition of an oil services company would benefit NOCs as they will gain access to IOCs technology and talent.

• NOCs and subsidiaries can learn from IOC’s and upgrade their technological capabilities, and their CSR and environmental practices.

• Cooperation with IOCs can work as an incentive for NOCs to overcome cross-cultural integration challenges and accelerate organisational transformation required to expand overseas.

• Partnerships with IOCs will bring in additional revenues from the deployment of Chinese supply chain by IOCs, in and outside of China, and may support efforts of subsidiaries (e.g. CNPC Service & Engineering Co., HQCEC) to expand overseas through contracting with IOCs.  

5.1.NOC and IOCs need to focus on an arbitrage and aggregation strategy

To create most value out of their operations in China, IOC’s are recommended to adopt a balanced “Adoptation-Aggregation-Arbitrage Strategy” (Ghemawat,2007). To determine what areas to focus on, specific characteristics of the Chinese market and supply chain need to be taken into account.

To form effective partnerships and adapt to the local Chinese market environment, it is essential for IOCs to build enduring relationships with NOCs. In China, the most promising deals seem to be done bilaterally rather than via licensing rounds (e.g. recent Shell deal in Anhui). Such relationships will help to secure commercially attractive upstream opportunities. An important component of this is understanding the corporate organisational structure and culture of NOCs, and their subsidiaries and making effective use of highly vertically integrated NOCs value chain. Establishing a strong local presence in China such as Aramco (Appendix 2) has done in Beijing strengthens ties to the government and Chinese NOCs and may help to solidify IOCs’ position towards success in future bid rounds.

It is recommended that IOCs focus on externalisation strategies, through strategic alliances and ‘transfer responsibility for specific parts of a company’s business model to partner companies to accommodate local requirements, lower cost, and reduce risk’. IOCs could take benefit of 44

adopting an externalisation strategy through focussing on strategic partnerships within the oil supply chain. Local suppliers may not be able to upgrade their manufacturing levels to the appropriate standards, and as per the writer’s experience, the approval process by IOCs for local suppliers is costly and difficult and would require active follow-up through audits and joint training and knowledge sharing. IOCs often have to bring global suppliers to China.

In their study of industrial equipment manufacturers and the automotive industry, Brandt and Thun (2010) show that cost-cutting efforts of foreign firms have lead them to localise their operations more aggressively, and equally their localisation efforts provided upgrading opportunities for Chinese supply firms. They describe that in the automotive and construction 45

equipment industry, when the domestic market expanded in size and competition increased, domestic suppliers could not produce according to global standards but had the benefit of having local capabilities. As foreign firms were increasingly willing to work with domestic supply firms they would transfer technology and skills and as such lower costs for their projects (in and outside of China) whereas domestic firms would enable them to maintain high volume business.

2012booklandbucket.org 2012 Ghemawat 3 A’s 44

Brandt,L. Thun, E. (2010). World Development. The Fight for the Middle: Upgrading, Competition, and Industrial Development in China. Volume 38, 45Issue 11, November 2010, Pages 1555–1574

A similar opportunity exists as Chinese oil services companies can learn from IOC’s as IOC's are increasingly accessing upstream ventures in China and source from local Chinese companies across the value chain (well services, construction, equipment suppliers, drilling etc) in and outside of China, as part of the‘win-win partnerships’. Shell states that it aims to ‘take Chinese enterprises overseas ‘leveraging China's capability and growing business together’ and being the No.1 IOC in sourcing from Chinese suppliers.’ 46

Long-term strategic alliances across the value chain would enable IOCs to contract locally based suppliers as these would be able to deliver according to standards and design requirements. A material acquisition of an oil services company would benefit NOCs in bringing in technology and talent and should be more attractive as oil services firms are struggling as a consequence of low oil prices. When externalisation strategies become effective, this will in turn reduce the need for them to focus on adaptation to the local market.

Economic arbitrage opportunities exist for IOCs through exploitation of the Chinese supply chain, such as CNPC subsidiaries like CNPC Service & Engineering Co. and HQCEC, or Chinese drilling companies at lower cost than an international firm. NOCs in turn benefit from increased use of its supply chain by IOCs, as an important part of the value proposition for Chinese NOCs are the additional revenues from the deployment of their subsidiaries.

Lower labour costs are only part of the reason for the cost advantage of Chinese firms. Another important factor is the existence of supply clusters: groups of interconnected companies located in the same area. Wu et al. (2007) state that benefits of supply clusters include effective 47

identification of systemwide costs, reducing demand uncertainty and sharing of information and technological know-how. IOCs would do well to focus on seeking benefits of supply clusters in the regions they operate in.

see 2746

Wu,L. Yue, X. and Sim, T. Supply Clusters: A Key to China’s Cost Advantage. Supply Chain Management Review, March 2006. 47

Arbitrage

Focus: Cost reduction, partnerships

Adaptation

Focus: Reduce need for adaptation Aggregation

Focus: Economies of scale

Figure 3: AAA- Triangle for IOCs and NOCs

Section 1.3. discussed that one of they key challenges for China is to attract the right kind of investments to reduce overcapacity, of which manpower is an important factor. According to an industry expert, it looks unlikely that IOCs operating in China will be able to create a lot of new jobs, and the tendency for NOCs is ‘not to fire people but cut pay instead’. Joint supply companies can address this tension by making use of arbitrage opportunities based on geographical differences in manpower supply and capabilities. Examples are the Aramco - Sinopec joint oil services company, bringing in Chinese labour to offset Saudi Arabia’s labour shortage, and the Shell-CNPC well manufacturing JV founded in 2012.

In an industry that is characterised by high capital intensity and R&D costs, an Aggregation strategy to achieve greater economies of scale & scope is important as exploration, development and production costs are rising, and downstream margins are under pressure. Economies of 48

scope can be achieved through further vertical integration by purchasing downstream assets or gaining access to development of Chinese upstream resources. Economies of scale can be achieved by forming strategic alliances of oil services companies.

Balancing aggregation and arbitrage can come with internal tension as each is related to a different organisational form ; aggregation requires further integration and arbitrage is said to be 49

associated with disintegration of the value chain. For IOC’s operating in China the benefits of aggregation and arbitrage may not necessarily conflict one another, since strategic partnerships enable companies to capture benefits from arbitrage whilst at the same time seeking opportunities through aggregation of supplies and services.

IOCs should follow a targeted strategic approach depending on the project and area of the business chain. In the Chinese market, IOC's can compete either on cost or on technology, but should avoid getting ‘stuck in the middle’ (Prof. Mc Kenna, 2014) . For example in refining, which is generally 50

characterised as a low margin, commodity industry with low barriers to entry, competing on cost will be difficult and IOCs should focus on higher or more environmental friendly fuels that Chinese refiners may not have the technology to produce. For upstream projects which are more high risk and capital intensive, an assessment can be made based on risk and profitability, and IOCs can differentiate themselves such as Shell does positioning itself as being a leader in LNG technology and innovation. NOCs should focus on cost advantages when competing on overseas projects.

http://www.bain.com/publications/articles/operational-excellence-the-imperative-for-oil-and-gas-companies.aspx accessed 27/7/201548

Professor Mari Sako Lecture notes, Global Strategy, Oxford SBS EMBA, 2015.49

Prof. Chris McKenna, Strategy lecture notes, Oxford SBS EMBA, 2014. 50

5.2.Standardisation will help achieve supply chain advantages

Standardisation enables IOCs to more efficiently capture arbitrage opportunities through sourcing from the vast Chinese supply chain. Consistent practices and standards for design requirements and project management methodologies will optimise efficiency and enable operating teams, subcontractors and owners to collaborate efficiently and reduce the time to final project delivery thereby optimising commercial revenues. BP is known to have a relatively low level of 51

standardisation and high level of complexity, whereas Exxon operates on the other end of the spectrum with its high level of standardisation and modularisation to optimise supply chain efficiencies. IOCs operating in China would do well to emulate an Exxon type of model as far as 52

possible.

An industry expert with vast experience working in China states that a complicating factor in achieving standardisation is that vendors may be focussed on differentiation as they feel the pressure of fierce competition on costs. A solution may be for IOCs to form long-term partnerships with suppliers, as they are secured of a minimum off-take this will reduce the need for them to differentiate in order to remain profitable. Both NOCs and IOCs will benefit from standardisation and leaner designs, long term collaborations with (Chinese) suppliers and consistency across vendors and better leadership and governance for large projects. 53

5.3. Partnerships will support expansion abroad and face industry challenges

As Chinese NOC’s are looking to expand abroad, they will need to pay more attention to their way of operating and transparency as is required to successfully operate outside of China and overcome cross-cultural integration challenges. NOCs should avoid future failures such as the takeover of Nexen by CNOOC, where numerous tensions followed from differences in opinion including on work-life balance. The previously discussed ‘win-win’ partnerships will help accelerate the 54

transformation of China’s NOC’s, and increase IOCs understanding of NOCs. This will reduce the need to focus on adaptation for IOCs and concentrate efforts on the other two A’s.

Long term strategic partnerships with IOCs may help influence Chinese NOC’s in moving away from longer term resource nationalism and will better equip NOCs to deal with long term challenges (technological, environmental and economic) that the industry is facing. NOCs and IOCs can jointly develop the capabilities to optimise investments through growing technological expertise, and develop human capital and project management capabilities to improve operational efficiency. Cross-investments throughout the value chain, in and outside of China, will help NOCs and foreign players join forces.

Economies of scale, How the oil and gas industry cuts costs through replication, Economist Intelligence Unit, 201151

http://www.ft.com/cms/s/0/7bd7e3e6-bc71-11df-a42b-00144feab49a.html#axzz3gcu9oNLu accessed 27/7/201552

http://dupress.com/articles/capital-investment-in-oil-and-gas-sector/53

http://business.financialpost.com/news/energy/two-years-in-nexen-deal-still-a-tough-swallow-for-state-owned-cnooc accessed 1/8/201554

5.4. Solid non-market strategy is essential

As China is publicly committing to an ambitious green agenda, it would be beneficial to carry out a ‘non-market analysis’ through David Baron’s 4 I’s framework. The 4i’s (issues, institutions, information and interests) will determine significant topics to consider in dealing with environmental challenges that are impacting the industry. Appendix 3 outlines the most important areas to inform the long term non-market strategy for IOCs and NOCs operating in China addressing environmental challenges as well as economic and technical challenges.

APPENDICES

I. Key players in Chinese O&G market (information partly from publicly available materials)

I.A.Chinese National Oil Companies

CNPC (China National Petroleum Corporation) and Sinopec were established in the late 1980s as fully state-owned enterprises, with CNPC operating upstream and Sinopec downstream. Due to the control by the central government, both NOCs were technically and financially inefficient, and were able to hold a large number of non-performing assets in their portfolios. Late 1990s a programme of reforms was launched. An asset swap created two vertically-integrated oil companies, CNPC in the north and west of China and Sinopec in the South and East. The government however took no significant steps to develop competition within the domestic oil and gas markets.

CNPC is China's largest oil and gas producer and supplier, as well as one of the world's major oilfield service providers and reputable contractor in engineering construction. Crude output is 53%(114 million tons per year) of the total in China and 74% of Natural gas output (96 billion cubic meters per year). CNPC recently entered the LNG market and three terminals came online in 55

2011 and 2013. The company plans to invest 13 billion yuan for shale gas production in the southwestern province of Sichuan 56

CNOOC is the third largest energy company in China, and largest producer of offshore crude oil and natural gas, operating in exploration and development of oil and gas; technical services; logistic; chemical and fertilizer production; natural gas and power generation, and financial services and insurance. CNOOC is a key LNG player in China operating six existing plants. 57 58

Sinopec is a major oil and gas player and asset base from Sinopec Group, analysts have categorized it as a more downstream oil player than PetroChina. Sinopec is planning to produce 5bn cubic 59

meters of shale gas at the Fuling field by the end of 2015. Sinopec anticipates entering China's 60 61

LNG market with its Qingdao terminal becoming operational in 2014. The company has held a competitive advantage so far in China's LNG market compared to the other state oil companies and continues to expand aggressively.

http://www.cnpc.com.cn/en/cnpcataglance/cnpcataglance.shtml accessed 21/7/201555

http://english.caixin.com/2014-10-21/100741279.html accessed 21/7/201556

https://en.wikipedia.org/wiki/National_oil_company. accessed 21/7/201557

http://abarrelfull.wikidot.com/lng-terminals-and-trade-in-china accessed 21/7/201558

http://www.chinavestor.com/knowledge-base/38-the-adr-market/70972-quick-facts-petrochina-vs-snp-and-ceo.html accessed 21/7/201559

http://news.xinhuanet.com/english/china/2014-09/15/c_133644330.htm accessed 21/7/201560

FT August 8, 2014 PetroChina behind Sinopec in China’s shale gas race accessed 21/7/201561

Petrochina is the listed arm of CNPC. Petrochina has recently embarked on an ambitious expansion plan, aiming to spend at least $60 billion in the next decade on overseas acquisitions, “Ten years ago, PetroChina was a state-owned oil company, but now we have a goal of becoming an international, integrated energy company,” Jiang Jiemin, chairman of the world’s largest company by market value, said in a recent interview. In 2009 PetroChina has bought refineries and 62

reserves in Australia, Canada, Singapore and Central Asia. The company recently partnered with Shell to buy Australian gas producer Arrow Energy Ltd.

Spending by Chinese companies on mining and energy acquisitions reached a record $32 billion last year. In addition to the state companies, the number and size of private Chinese oil 63

companies is growing. Some of these companies have accumulated capital in other industries and are now turning to the oil & gas sector for higher returns. Others have bought overseas energy companies in order to access China’s monopolistic market. 64

Examples of successful investment of China in overseas downstream are limited, mainly done to facilitate access to overseas resources e.g. in Africa, and to create trading positions for its trading arms. Petrochina has invested in refineries and storage in Japan and Singapore but a deal with Ineos in Scotland and France has been a failure. The tide may be changing though as Sinopec announced on January 20 that Yanbu Aramco Sinopec Refining Company (YASREF), its first overseas refining and petrochemical project. 65

I.B.Non-Chinese private and state owned oil companies

BP has been operating in China since 1973. Its business activities include JVs in petrochemicals, air fuel supply, oil product and lubricant retailing and the sales of chemicals technologies. The company plays a big role in bringing LNG to Chinese customers in the Guangdong and Fujian provinces, and BP are the only foreign partner in China’s first LNG terminal in Shenzhen. 66

Shell has been in China since the 1970s. Today the company is operating in partnerships with all of the major national oil companies in China. The Changbei Project, jointly developed by  Shell and CNPC is the largest onshore gas development by an oil major in China. Shell is also active in retail, bitumen and lubricants. Shell is a leading LNG supplier to China. Shell has formed a JV with 67

CNOOC to produce and sell petrochemicals in Huizhou municipality.

ExxonMobil operates within the upstream, downstream and chemical businesses in China. Exxon is building 5 LNG ships to supply gas from its Papua New Guinea (PNG) and Gorgon Jansz LNG projects. The ships will be jointly owned by MOL and China Shipping (Group) Company (CS).

Other companies operating in China include Chevron, which has a large presence, and Total and Coconophilips.

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aNMM2T9VuCks&pos=5 accessed 23/7/201762

see 5763

http://blogs.wsj.com/chinarealtime/2015/05/21/why-chinas-big-oil-companies-have-stopped-big-spending/ accessed 3/8/201564

http://www.sinopecgroup.com/group/en/Sinopecnews/20150202/news_20150202_555627649932.shtml65

http://www.bp.com/en/global/corporate/about-bp/bp-worldwide/bp-in-mainland-china.html accessed 23/7/201766

http://www.shell.com.cn/en/aboutshell/our-business-tpkg/china.html accessed 23/7/201767

NOCs’ such as Saudi Aramco, the Kuwait Petroleum Company and the Abu Dhabi National Oil Company, are increasingly looking to extend their downstream portfolio, especially in Asia and China. They enjoy the benefits of a good cash position and access to capital. As these countries 68

are large net exporters of oil, integrating downstream assets into their supplies continues to be lucrative. Lower oil prices may restrict their budgets though.

Saudi Aramco is the worlds largest oil producer which is not surprising as Saudi Arabia possesses nearly 16 % of the world’s proven oil reserves. However, as former top executive at Aramco, said, “Aramco produces almost 9.5 million barrels a day, and if it needs to replace these reserves it needs to add almost 35 billion barrels of new reserves every 10 years. That's a very large challenge.” A separation from the Oil ministry to become a commercial driven organization is essential in order to increase productivity. As a consequence, the company may become even more aggressive in its oil exploration spending and expansion abroad. 69

The 2014 Saudi Aramco annual report described Asia and notably China as the company’s preferred investment destination. Public sources state that ‘Aramco plans to invest between $70- $80 billion in overseas markets in the next five years’ and that ‘Aramco is aiming to further collaborate with China in its refining and petrochemical sector along with consumer product markets’. The company is currently helping China build a 260000 bbls/ day processing plant as well as another plant in China’s Fujian province. 70

Aramco is one of the few non-Chinese oil companies with refining ventures in China, albeit at 240,000 barrels per day much smaller than the refining ventures in the US, South Korea and Japan. Aramco is also China's largest crude oil supplier but its market share and export volume in China reportedly declined in 2014. At the same time, imports from other suppliers including Russia, Colombia, Iran, Iraq and Oman increased, thereby stimulating Aramco to take steps to grow their activities in China.

In 2007, Aramco partnered with Sinopec and ExxonMobil China Petroleum & Petrochemical Co. to set up Fujian Refining & Petrochemical Co. Ltd., a refining and petrochemical producer with 12 million tons of annual capacity, and Sinopec SenMei (Fujian) Petroleum Co. Ltd., a processed oil supplier with more than 1,000 gas stations in Fujian. Aramco also has a 25 % stake in Fujian Refining & Petrochemical and 22.5 % of Sinopec SenMei. In 2012 Armco announced that it would open an Asian regional HQ in Beijing, as well as offices in Shanghai and Xiamen, which testifies their commitment to China. Aramco recently split from the Oil ministry enabling the company to 71

become more commercially driven and have better access to capital markets. As a result of these developments, the aforementioned NOCs can be expected to gain more ground in China and improve the countries company’s competitive position towards IOC’s.

Mitchell, J. Marcel, V. and Mitchell,B. (2015). Chatham House Research Paper, Energy, Environment and Resources. July 2015, Oil and Gas 68Mismatches: Finance, Investment and Climate Policy

http://www.zerohedge.com/news/2015-05-20/what-future-saudi-aramco accessed 23/7/201769

http://oilprice.com/Energy/Energy-General/Saudi-And-Qatari-Energy-Companies-Look-Abroad-For-Growth.html accessed 23/7/201770

http://english.caixin.com/2015-04-23/100802861.html accessed 23/7/201771

Sinopec last year rejected Saudi Aramco's request to bid on a stake in 30,000 gas stations across China. Saudi Aramco though continues to cooperate with Sinopec. Saudi Aramco also plans to set up an oilfield services joint venture with Sinopec in Saudi Arabia. Saudi Aramco has partnered with Sinopec in the Yasref refinery in Yanbu in Saudi Arabia. Sinopec’s first overseas refining facility started operating at full capacity in 2015. 72

http://english.caixin.com/2015-04-23/100802861.html accessed 23/7/201772

II. LNG infrastructure in China (information partly from publicly available materials)

All of China’s existing LNG terminals are owned by the three national majors. Long-term supply contracts are complex, involving technical matters such as shipping and discharging cargo. LNG imports in China in 2014 totalled 20 million mt, up 10% from 2013, the growth was lower than the 20% and 23% registered in 2012 and 2013, as Platts' data showed. Declining demand has also kept import infrastructure under-utilised -- average utilisation rate at China's 12 import terminals was at 55% in 2014 -- and clouded the outlook of future import projects. China's slowdown has come at a time when new liquefaction capacity and additional contractual volumes are set to come on stream, with three Australian LNG projects due to be commissioned by year end. There are 12 LNG terminals along China's coast, with 8 being under construction. China’s only independently owned LNG terminal is owned by Jovo Energy. For an overview of LNG import terminals see Figure 4. 73

China used only half its available liquefied natural gas (LNG) import infrastructure in 2014, as slower economic growth, rising domestic gas prices and cheaper competing fuel reduced gas demand growth.

http://www.trustedsources.co.uk/blogs/china/lng-import-infrastructure-overbuilt-and-underused accessed 23/7/201773

Figure 4: China Gas Infrastructure. Source: www.powerengineeringint.com

III.Non-market strategy: 4 i’s Framework (Baron, 1995)

4 I’s Definition Example Proposed Strategy/ Action

Issues The focus of action

• PSCs (Oil levy) • Increase efforts to meet

environmental targets (Paris 2015) agreement with US to reduce carbon emissions.

• Poor safety and environmental standards of Chinese oil companies and oil services companies.

• Corporate governance. • Overcapacity in LNG and gas

chain.

• Take advantage of current low oil price , lower oil levy.

• To reduce carbon emissions, NOCs can work with IOCs on opportunitiess in gas and LNG as a ‘less bad’ alternative to coal and oil.

Institutions Major decision makers in the issue area and their process

• NDRC (project approval/ bidding)

• National Energy Administration sets industrial standards,Taking the lead in international energy cooperation, MOUs.

• Local and municipal tax authorities

• NOCs are main drivers for opportunities IOCs/ foreign players, as they operate with a high level of autonomy and are commercially and economically driven.

• Lobby with NOCs to influence Chinese government (NDRC, NEA) in long term strategy, to avoid excess capacity reducing margins.

Information Actors’ knowledge/beliefs about the issue

• Pursue investment options that will improve China’s energy independency.

• Gas and LNG ‘less bad’ option to meet environmental targets.

• Safety and Environmental standards set by NOCs

• IOC form long-term relationships with NOCs and identifying key decision makers and policy influencers.

• Influence NOCs in setting safety and environmental standards.

• Improve pricing transparency, NDRC to establish regional pricing hub,

Interests Major actor’s stakes (goals, preferences, fears) in this issue

• Growth opportunities for foreign oil companies.

• Technical expertise (NOCs) • China energy security • Environmental targets • China seeking overseas

expansion to deploy excess capacity in manufacturing labour and equipment

• IOCs/ foreign players seeking to access Chinese market

• China aims to rebalance economy, improve the environment (US agreement 2014 to reduce carbon output) and move up the value chain

• NOCs investing heavily in R&D, need expertise IOCs to develop shale resources, deep water, LNG.

• Foreign players operate in China as main area of growth,

• Chinese oil services companies have excess workers, labour deployed in overseas projects is benefit.

• IOCs strengthen partnerships with NOCs.

References

a. http://www.forbes.com/sites/gauravsharma/2014/09/16/chinas-refining-sector-gets-a-reality-check/ accessed 23/7/2017

b. http://www.platts.com/latest-news/oil/beijing/shell-exits-taizhou-jv-refinery-project-with-27505786) accessed 23/7/2017

c. http://www.ogj.com/articles/print/volume-111/issue-12/special-report-worldwide-report/western-europe-leads-global-refining-contraction.html accessed 23/7/2017

d. http://oilandmoney.net/interactive/agenda-topics/horizon-small-scale-lng-could-find-natural-home-in-asia/ accessed 23/7/2017

e. http://www.bloomberg.com/news/articles/2014-09-05/shell-trims-china-shale-venture-on-sichuan-population-challenges accessed 23/7/2017

Other Sources Consulted:

Interview with Oil & Gas Industry Leader with vast experience in China (IOCs as well as Chinese private co’s)

IOC-NOC cooperation: deepening interdependence, E&Y, June 2013

The Evolution of China’s Energy Institutions. Centralization versus Decentralization. Bao, Y. and Houlden, G. Vol. 1, Issue No. 1 February 2013 China Institute University of Alberta Edmonton, Alberta, Canada

MASTER IN ADVANCED EUROPEAN AND INTERNATIONAL STUDIES ANGLOPHONE BRANCH - Academic year 2012/2013 Master Thesis Petroleum Politics: China and Its National Oil Companies