India, China Energy War Heats Up

ANI via Rig Zone ^ | July 01, 2013 | Pradeep Kumar

[thackney]

While the 16th round two-day India-China border talks concluded in Beijing Saturday seeking to resolve the vexed boundary disputes, some of which dates back prior to the establishment of either an independent India or the establishment of the People's Republic of China, but both the Asian giants have pitched themselves in the deep waters of Mozambique - home to the world's biggest gas discovery in a decade - for a higher stake in global energy assets.

India made a difference with the Oil and natural Gas Corp. Ltd (ONGC) and Oil India Ltd. (OIL) clinching a deal, an entry into an offshore gas basin with substantial potential.

The OIL company announced that its subsidiary, ONGC Videsh Ltd (OVL) and OIL have signed agreements to acquire 10 percent participating interest in Rovuma Area 1 offshore block in Mozambique for USD 2.475 billion, live Mint reported a day later on 26.06.13. The deal gives OVL and OIL an entry into an offshore gas basin with substantial potential.

Just hours before the deadline for non-binding bids for Videocon's 10 per cent stake in Rovuma offshore block in Mozambique were to be submitted, China's largest oil producer, China National Petroleum Corporation (CNPC), picked up a strategic 20 per cent stake in ENI SpA's Mozambique asset for USD 4.2 billion on Thursday. With this acquisition, CNPC will get access to 75 trillion cubic feet of in-place resources, or more than Norway's existing reserves, ET Bureau reported on 15.03.13.

Incidentally, the block in question - Rovuma Offshore Area 4 - is adjoining to Rovuma Area 1, where Videocon and consortium partner Anadarko are both selling 10 per cent each.

With the Chinese stepping in, a bidding war for the adjoining acreage is therefore also anticipated by most. With expected recoverable gas reserves of close to 60 trillion cubic feet (tcf), Rovuma-1 is among the most sought after global gas asset today. Even at a 50 per probability of recovery success - "P2 or proven plus probable reserves" in industry parlance - the expectation is of 42 tcf of natural gas. To put it in context, this is twenty times India's current annual gas consumption.

Mozambique may have 250 tcf of reserves, according to Empresa Nacional de Hidrocarbonetos, the country's state-backed energy company.

"If things go well in Mozambique, it may well end up being the second largest LNG exporter in the world after Qatar and overtaking Australia. Large consumers of gas are already present there - like India - or seeking a toehold like the Thais and now even the Chinese. Shell, the largest LNG player globally is keen to step in. From an energy security point of view, Indian companies like ONGC Videsh Limited (OVL) and Oil India Limited (OIL) will look at the opportunity but at the end of the day, it will be an economic decision," said Niraj Mansingka, an oil and gas analyst at Edelweiss.

"The Chinese have been very aggressive in their pursuit of assets for their long term energy security. Indian oil companies who are sitting on cash should also up their ante. I see competitive bids from them in Mozambique now," said an industry official, aware of the ongoing developments.

State owned OVL and OIL are expected to compete with Asian peers like Sinopec along with some of the biggest global names Shell, BP, for a strategic toehold in Mozambique as the bids for Rovuma 1 are due this week. Thailand's PTT Exploration and Production Public Company Limited (PTTEP) which already owns 8.5% stake in the field is also expected to put in an aggressive bid for upping its economic interest. Last year, PTTEP trumped Shell and 20 other suitors like BP, Exxon Mobile and Chinese operators in a $1.91 billion deal with Cove Energy, a small UK explorer.

The Cove transaction has already set a benchamark for Videocon. On a comparative valuation with Cove, Videocon's 10 percent interest should have a USD 2.15 billion - USD 2.25 billion valuation, but according to an investment banker directly involved in the transaction, Venugopal Dhoot, Videocon's promoter is expecting a significant premium of $2.7 billion for his stake.

"The floor price is already being set. With the Chinese coming in, it builds the competitive tension," said another company official directly involved on condition of anonymity as the discussions are still underway.

However, this proves me correct about China's economy hegemony, as I wrote in "Did witty Li score more brownie points over India", released by ANI globally on 16.05.13.

After India inked eight accords, including one to protect its energy interest with China during the recent visit of Chinese Premier Li Kequiang, the latest proof comes from Vladimir Radyhuhim from Moscow as reported by The Hindu, 23.06.13, "Upstaging India, China to get stake in Russian project".

CNPC on 21.06.13 signed an agreement with Russia's biggest private gas producer Novatek to acquire a 20% stake in latter's LNG project in Yamal Peninsular in the Arctic region of northeast Siberai, and to secure long-term LNG supplies from the plant to be built 2018.

The same day, another Chinese company, Sinopee, signed a contract with Russia's state-owned Roseneft for the supply of 365 million tonnes of crude over the next 25 years at a cost of USD 270 billion.

OVL had bid for up to 20% stake in the Yamal project in a tie-up with Petronet LNG and Indian Oil Corporation.

India has made inroads in the Russian energy market after OVL acquired a 20% stake in the Sakhalin-1 hydrocarbon block for $1.7 billion in 2001. Imperial Energy, which OCL bought in 2009, has proved a liability, after production keeps falling, with a further 17 percent decline to 5,12,900 tonnes planned for this year.

Two years ago, Indian energy companies signed four preliminary deals with Russia's Gazprom for annual supplies up to 10 million tonnes of LNG for up to 25 years. But so far only one deal has been firmed up, with GAIL India signing a 20-year contract with Gazprom last October for the supply of 2.5 million tonnes of LNG.

India also seeks a stake in Sakhalin-3 oil and gas project and in an LNG project Gazprom plans to build in Vladivostok.

The Yamal field has proven and probable reserves of 907 billion cubic metres of natural gas as of 31.12. 12.

However, Novtek's deal with China leaves only a nine percent stake up for grabs, as France's Total has another 20 percent in the project and Novtek wants to keep 51 percent for itself.

Why Indian companies including OVL failed to outwit their Chinese counterparts is a matter needs to be probed thoroughly to find the reasons and take steps to avoid such humiliation in future.

India is behaving like "Once bitten twice shy", with Chinese companies outwitting Indian counterparts in many global competitions.

Myanmar in October 2011 had suspended the construction of the Chinese-aided Irrawaddy Myitsone hydroelectric dam project in Kachin State.

China's immediate reaction to the announcement by the Myanmar President Thein Sein was tinged with irritability in the midst of polite bureaucratic wordings. China has invested in Myanmar politically and economically for both strategic security reasons as well as energy and mineral resources. And Myanmar needs China not only for economic support but also to hold its hands to survive any internal and international forays that could destabilize its cosy set up and upset its nascent experiment with democracy.

However, hundreds of people holding candles had gathered in Mandalay city to protest over power cuts, in the largest demonstration since Myanmar's army crushed the monk-led "Saffron Revolution" nearly five years ago, Thin Lei Win reported on 24.07.12 (AlertNet).

"The protests spread quickly to Yangon as six-hour daily blackouts hit Myanmar's commercial centre, even though it is better served than the rest of the country.

"China, give back our electricity," appealed one demonstrator's placard, while another warned in English, "Thailand, India, especially China. Don't steal our electrical source."

"The protestors questioned why Myanmar, among Asia's poorest nations, is selling natural gas to Thailand and exporting hydroelectric power to China while its own people live in darkness.

"Myanmar has abundant energy resources, yet 7% of its 60 million people have no access to electricity, giving it one of the lowest domestic energy consumption rates in the region, according to a recent report by the Asian Development Bank.

"By the end of August 2011, China had imported almost 5 billion KW-hours of electricity from two hydropower stations in Mynamar", according to a Chinese government report".

Before India could encash the situation, came the shocker - Myanmar in June 2013 scrapped two hydro projects at Tamanthi and Shwezaye on the Chindwin river to be executed by the NHPC with assistance by India. This could dampen New Delhi's diplomatic move to engage Myanmar in economic activities, especially after Prime Minister Manmohan Singh's visit to Myanmar last year that marked the first visit by an Indian prime minister to the previously isolated state in a quarter of a century. India has also extended a $500 million credit line to Myanmar.

Myanmar has hydroelectric power potential of around 100,000 MW, of which around 39,720 MW has been identified for development. The country has an installed power generation capacity of 6,300 MW, of which hydro power generation capacity is 2,500 MW. It also has a low per capita electricity consumption of 100 units.

It is time for introspecting as to where strategy of Indian Cos were going wrong in all these failed deals to help India prove its caliber. With highest brilliant and young human resources there was no reason why India can't prove its supremacy globally!