The article below suggests that China may not be as active an acquirer of new oil supplies in foreign countries as has been the case in recent years.  This may reflect criticism it has been getting for its role in Sudan and elsewhere.  Or it may be some PR feint to keep acquisition prices from rising. 

By Chen Aizhu and Tom Miles Reuters

Published: January 28, 2008

BEIJING: After a scramble by China’s big oil companies to secure energy reserves overseas, they seem to have found their best prospects in the most unexpected place: under their own feet.

China is turning inward for energy resources to feed its economy as it faces increasingly nationalist governments from Venezuela to Russia that want bigger oil profits and competition for remote deep-water fields or unconventional resources, like Canada’s oil sands.

Until oil prices fall, nationalism evaporates or an opportunity to buy a major company emerges, China will largely avoid major investments, industry insiders say.

"The Chinese won’t be like hungry wolves, as some in the West are expecting," said Zeng Xingqiu, an industry veteran who recently retired as vice president at the overseas investment arm of the oil trader Sinochem.

Despite a total market capitalization of almost $1 trillion, China’s big oil companies - PetroChina, Sinopec and Cnooc - did not clinch major deals in 2007, other than a $2 billion investment in the Yadavaran field in Iran that was sealed after three years of tough negotiations.

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"We’ve increasingly realized it’s very dangerous to be overly dependent on foreign assets," said Zeng, who previously headed exploration and production at China National Petroleum.

As China has boomed, that dependence on foreign assets has stoked competition for resources among Asia’s energy-hungry economies. Unlike Japan and South Korea, however, China does not depend entirely on the outside world for energy, and it is trying to make the most of its own resources.

Already the world’s sixth-largest producer, China is accelerating oil exploration at home, using advanced technologies to squeeze more out of existing fields and hurrying development of its huge but under-explored reserves of natural gas.

Last year it unveiled the shallow-water Jidong Nanpu oil field near Beijing, with three billion barrels, and the Puguang natural gas field, its second-largest, in the southwest, with 356 billion cubic meters, or 12.6 trillion cubic feet.

In December, China National Petroleum signed a 30-year deal with Chevron to develop another major field in the southwest that will produce the equivalent of 140,000 barrels of oil per day, and both Sinopec and China National Petroleum have hinted that more big natural gas finds are coming soon.

The feverish activity at home contrasts with quiet caution on the international scene. China’s last big takeover, China National Petroleum’s $4.2 billion purchase of PetroKazakhstan, was in 2005, the same year that Cnooc failed in an $18.5 billion bid for a U.S. rival, Unocal.

Bankers say Chinese buyers examine every asset that appears on the market, but they are in no rush to open their wallets.

In one sign of caution, the head of the fledgling sovereign wealth fund, China Investment, which has invested in Blackstone Group and Morgan Stanley, said he was not planning to back overseas deals by Sinopec.

But China still has huge leverage as the world’s second-largest market. That has helped it win access to resources in Central Asia, an area traditionally dominated by Russia. China has struck a natural gas supply deal with Turkmenistan and a major oil pipeline from Kazakhstan is being expanded.

"China has refocused and re-highlighted Central Asia, where we have the card of market access to play," said an industry official familiar with China National Petroleum’s overseas investment, who declined to be identified.

Another willing partner is Myanmar, whose energy minister met China National Petroleum’s chairman, Jiang Jiemin, last month, the second time in the past year, to push for a huge natural gas supply deal by pipeline.

Many investors are unperturbed by the prospect that China’s oil companies may stay in the home market.

"PetroChina - their home assets are so good," said one fund manager investing in Asian resources who was not authorized to speak publicly. "As a company like Exxon, if you want to increase production, you’ve got to go to Siberia or some God-forsaken place."

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This entry was posted on Monday, January 28th, 2008 at 1:47 pm and is filed under China, India and the Pacific Rim, oil supply. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.