FAN TINGTING (China)

Post-graduate student of Lomonosov Moscow State University

China Keywords:, oil and gas sector, foreign energy investment, energy cooperation, national oil companies

Today, China is one of the fastest growing economies in the world. Another doubling of the economic potential is planned for 2020. However, the further growth of the country's economy will largely depend on the state of the country's fuel and energy complex.

The rate of production of refined products remains low, noticeably lagging behind the needs. The gap between the needs of the rapidly developing national economy of the People's Republic of China for petroleum products and their production capabilities increases every year (see Table 1).

According to British Petroleum (BP), China consumed more than 10% of the world's oil in 2010, ranking second only to the United States1. Since 2009, the country has moved to the 2nd place in the world (also after the United States) and in terms of oil imports, ahead of Japan. According to the National Energy Bureau of the People's Republic of China, in 2010, China's oil production reached 200 million tons, and its imports - 239 million tons. In other words, the country imported more than half of the total oil consumption. According to the forecast of Chinese scientists, in 2015 the degree of dependence of the PRC on oil imports will reach 60%, and by 2020 it will approach 65%².

The high dynamics of energy consumption forces the Chinese leadership to step up efforts to develop an effective energy strategy for the country's stable supply of energy resources and maintaining energy security.

Over the past decades, China has implemented a number of reforms to this end, which have led to a radical restructuring of the country's energy complex in general, and the oil and gas sector in particular.

DIFFICULT FORMATION OF OIL AND GAS COMPANIES

Until the 1980s, China had a hierarchically rigid centralized administrative system, represented by three line ministries subordinate to the State Council of China-oil, coal, and chemical industries. Then, after a fairly long period of division and consolidation of the administrative apparatus, control over the energy sector was concentrated first in the hands of the State Planning Committee, and even later the situation got out of control altogether.³

China's national oil and gas companies are relatively young: they have been operating since the early 1980s.

Since the start of reform and opening-up in 1979, important and significant steps have been taken in the energy sector of the Chinese economy, namely, the creation of three energy companies.

Table 1

Supply-consumption of oil in China (1990-2008), mln. tons of reference fuel

Source: Zhongguo tongji nianjian (Chinese Statistical Yearbook), 2008, p. 245; 2010, p. 264.

the largest state-owned companies.

In 1982, the China National Offshore Oil Company was established to implement projects related to offshore oil production. The Chinese Petrochemical Company was established in 1983 and acquired refining facilities and a distribution network. And in 1988, the State Council dissolved the Ministry of Petroleum Industry of China and transformed it into the China National Petroleum Company to conduct geological exploration, as well as oil and gas production on the mainland.⁴

Since 1998, the Chinese Government has begun to make new attempts to reorganize the energy industry. The essence of the reform was to convert part of the company's debts into shares, which are transferred to the management of holding companies specially established for this purpose by the three largest oil and gas enterprises with the allocation of specialized areas of activity.

Currently, China's oil and gas sector is based on three state-owned vertically integrated companies: China National Petroleum Corporation (CNPC), China Petrochemical Corporation (Sinopec), and China National Offshore Oil Production Corporation (CNPC). All three are state-owned unitary corporations.

In order to reform and expand the oil and gas sector, as well as improve the efficiency of state-owned enterprises, China followed the path of corporatization. Since 2000, the most attractive assets of Chinese energy multinational corporations (TNCs) for foreign investors have been allocated to subsidiaries, and their shares are placed on the stock markets of Hong Kong (Hong Kong) and New York.

A good example is the PetroChina Fuel Oil Company Limited. In 1999, Petrochaina was spun off as part of CNPC to operate in the domestic market. This subsidiary held an initial public offering on the New York and Hong Kong stock markets in April 2000, and entered the Shanghai Securities Exchange in November 2007. By the end of 2010, KNNK owned 86.29% of its subsidiary Petrochain5.

In August 1999, the China Offshore Oil Company was registered in Hong Kong. And in February 2001, this subsidiary of KNOC entered the stock market in New York and Hong Kong. By the end of 2009, KNOC owned 64.41% of the company's shares.⁶

In February 2000, Sinopec's best assets were spun off to the China Petroleum and Chemical Corporation (Sinopec Corp.) in order to borrow on the public market. In October 2000, Sinopec Corp. held an initial public offering of $ 16.78 billion. H series shares in Hong Kong, New York and London. In July 2001, the company made an additional issue of 2.8 billion rubles. series A shares in Shanghai. By the end of 2009, Sinopek owned 75.84% of the company's shares.⁷

Potential investors were offered only the role of a financial donor without the possibility of management: the state retained a controlling stake.

The world's leading energy companies agree to these conditions, trying to book seats in the Chinese energy market in advance of its opening. 2000-2001 10% of PetroChina's shares, 20% of Sinopek's shares and 27.5% of KNOC's shares were sold at the auction.

Among the largest TNCs, British Petroleum (BP) and Shell are the most active in China. They are closely followed by Exxon, some Hong Kong firms, and others.

At the same time, due to direct administrative and legislative restrictions and structural features of the Chinese economy, foreign companies are effectively deprived of the opportunity to work independently in the country's energy market and can only act within the framework of joint projects with the Chinese side, providing financial resources, knowledge and guarantees for obtaining new technologies for oil production and refining.

"MULTIPLICATION" OF OIL AND GAS COMPANIES

Currently, KNNK, Sinopek and KNNK own many separate companies created for specialized purposes.

Among these companies, three groups can be distinguished: domestic oil companies (for example, PetroChina Ltd. - the largest division of CNPC), international oil companies (Sinopec International (China Petrochemical International Co. Ltd) - a wholly owned subsidiary of Sinopec Corporation, which manages centralized procurement and foreign economic activities) and oilfield service companies (China Oilfield Service Ltd. (COSL), a subsidiary of KNOC).

Domestic oil companies are mainly engaged in the exploration, processing and production of oil and gas, production and sale of chemical and petrochemical products. Oilfield service companies provide geological exploration and drilling and transportation services for oil and gas.

The group's parent companies (CNPC, Sinopec, and KNOC) become the holding's management companies, controlling subsidiaries ' production, processing, and sales divisions in the Chinese energy markets.

After the restructuring of the national oil and gas corporations in the late 1990s, the functional division of the business areas of the Russian Federation has changed.-

Figure 1. Map of the geographical areas of activity of CNPC, Sinopec and CNPC.

Source: compiled by the author based on official materials.

It was replaced by a geographical location. CNPC has taken over production and processing facilities in the north-east, north-west and west of the country, as well as parts of South-West and North China. Sinopec has taken over the oil and gas sector in southern, eastern, most of Southwestern and parts of Northern China. KNOC, as its name implies, was tasked with the exploration and production of oil and natural gas in offshore fields (see Fig. 1)⁸.

Almost all of the country's oil and gas production is concentrated in the hands of these three state-owned integrated oil and gas companies. Table 2 shows the volumes and shares of oil and natural gas produced by CNPC, Sinopec and CNPC in 2009. CNPC plays a very important role in the production and supply of oil and gas in China, becoming the flagship of all Chinese energy companies.

In addition to these three companies, there is another national oil company in China that is engaged in the exploration and production of oil and gas - Yanchang Petroleum Corporation (Yanchang Petroleum Group Co., Ltd.).

It was established in 1998 on the basis of the Yanchang Oil Plant. Unlike CNPC, Sinopec and CNPC, this corporation is controlled by the Shanxi provincial government and is engaged in the exploration, development and production of oil and gas only in the Yanchang field. In 2009 Yanchang ranked fifth among China's ¹⁰ largest oil fields in terms of oil production9.

International oil companies operate in the field of oil trade and foreign energy investment. Currently, in China, the main companies involved in the export and import of crude oil and petroleum products are a wholly owned subsidiary of Sinopec-China International United Petrochemical Company (United International Petroleum&Chemical Co., Unipec), a subsidiary of CNPC - China National United Oil Corp. (Chinaoil) and Sinohim (China National Chemicals Import and Export Corporation, Sinochem)¹⁰.

The Chinese energy strategy provides not only for the import of raw materials from foreign countries, but also for the active participation of national capital in the exploration and development of oil fields abroad, the so-called "go outside"strategy. In addition to CNPC, Sinopec, CNPC and Sinohim, the Chinese Zhenhua Oil Co. Ltd.¹¹ and CITIC Resources Holding Co. Ltd., a subsidiary of the International Chinese Trade and Investment Corporation, play an important role in this energy strategy. China International Trust Investment Company (CITIC).

From 1992 to 2009, Chinese oil companies invested $44.4 billion in their development, with the lion's share being $25.4 billion. - CNPC accounted for $ 12.6 billion; Sinopek spent another $3.4 billion. - KNONK ¹². At the same time, Chinese oil companies made large purchases abroad in 2009-2010.

Thus, by the beginning of 2011, CNPC had already signed more than 80 contracts in 29 countries on four continents for the exploration and development of fields, construction of pipelines, oil refineries and petrochemical enterprises ¹³. Foreign oil production of CNPC in 2010 reached 75.8 million tons, gas-13.7 billion cubic meters ¹⁴. By the end of 2009, Sinopek It has already received foreign projects in 33 countries for the exploration and development of deposits. According to Sinopec, in 2009, foreign oil production under the production sharing agreements of this state-owned company reached more than 10 million tons.¹⁵

Over the past decade, these companies have acquired stakes in oil and gas projects in the Middle and Middle East (Iran and Oman), Africa (Sudan and Angola), Latin America (Ecuador and Venezuela), and post-Soviet Central Asia (Central Asia).

Table 2

Volume and share of companies in production and refining in 2009

Source: Annual Reports of CNPC, Sinopec and CNPC for 2009.

Figure 2. China's system of vertical Energy institutions.

first of all, in Kazakhstan) and Russia.

In other regions, China still faces serious obstacles when trying to acquire oil assets.

On the one hand, it is difficult for Chinese companies to compete with Western monopolistic capital, supported by their respective governments, in the global oil and gas markets that they have already mastered.¹⁶ On the other hand, Chinese investors have traditionally been denied access to local commodity assets because of national security concerns and the strategic importance of oil. For example, in 2005, the US authorities blocked the acquisition of the US Unocal by the Chinese corporation KNOC.

OIL AND GAS COMPANIES AND THE GOVERNMENT

After the formation of the three above-mentioned state-owned companies, the National Bureau of Petroleum and Chemical Industry was established in China, which took over the activities of these energy companies.

Corporate board members have held prominent positions in the executive committee of the Chinese Communist Party, expert communities, and research institutes. The corporations themselves had a sufficient degree of autonomy, and were also endowed with such broad powers that they could not only influence the state energy policy, but also, to a certain extent, independently shape it.

For several decades, the problem in China has been complicated by the lack of a single body responsible for coordinating their activities and developing national energy policies. Until 2008, the only vertical institution responsible for strategic planning and regulatory functions was the National Reform and Development Commission (NDRC), which reports directly to the State Council of the People's Republic of China. However, the effectiveness of the Commission's work was rather low, as it was responsible for a wide range of responsibilities, from formulating to monitoring the implementation of energy policy, while the amount of its resources - both monetary and human - was very limited.¹⁷

To address this issue, the National Energy Bureau (NEB) was established in China in 2008, reporting directly to the NDRC. NEB was entrusted with the functions of developing production plans, negotiating with international energy agencies, and controlling foreign investment in the energy sector. The creation of the NEB was aimed at strengthening state control over oil corporations, as well as speeding up the decision-making process of energy institutions. However, due to the lack of sufficient political weight, authority, levers of influence on the energy market, as well as a sufficient number of personnel, the new bureau could not effectively cope with the task assigned to it.¹⁸

In this regard, in January 2010, the Government of the People's Republic of China officially announced the creation of the National Energy Commission (NEC). The Commission, which first met in April 2010, is headed by Premier Wen Jiabao and consists of 22 high-ranking officials (ministers, leaders of the NDRC, Vice Premier). It is responsible for shaping energy policy, developing an energy security strategy, and coordinating international cooperation (see Figure 2).

The key factor is government regulation in this industry.

Thus, the state - owned management parent companies of the country's oil and gas complex holdings-KNNK, Sinopek and KNONK. On the national and international stock markets, investors are offered only a part of the shares of subsidiaries of these groups ' production companies. At the same time, in order to ensure energy security, controlling stakes in the capital of these subsidiaries are necessarily in the hands of the state.

The state regulates prices and tariffs in all three segments of the oil and gas sector (production, processing and marketing), and also acquires ownership of mineral resources, including mineral deposits. This enables the State, represented by central government agencies, to regulate the right of access to investment activities.

Although foreign companies have the opportunity to participate in the development of Chinese oil fields, they continue to face a number of restrictions. Thus, oil production areas suitable for foreign investment are determined and approved by the State Council of the People's Republic of China, CNPC, Sinopec and CNPC, which manage all projects involving foreign capital.

China also does not allow the construction of oil refineries with purely foreign capital. Creation of oil product marketing systems by foreign capital is not encouraged. Construction of enterprises with mixed capital is possible only if the Chinese side retains a controlling stake.

State control over the development of the oil and gas sector allows companies to effectively coordinate their plans with the national, strategic interests of developing the country's economy. Although Chinese oil and gas companies have their own commercial interests in the country and various regions of the world (gaining access to oil and gas fields, ensuring their transportation to markets, obtaining guarantees for their investments, etc.), they are inextricably linked with the Chinese government. These companies are supported by the Chinese Government and indirectly promote the country's political and economic interests through their commercial activities.

Currently, the pricing mechanism in China's oil and gas sector, due to its strategic importance for the development of the country's economy, is not fully market-based, but there have already been significant shifts towards market pricing. Until the late 1990s, domestic prices for all oil and petroleum products were set by directive in the country, and only the surplus could be sold at market prices. But in recent years, China has taken more active steps to reform the oil and gas market. Thus, the NDRC has now moved from a policy setting of domestic prices to a more flexible regulation of prices for oil and petroleum products related to price fluctuations on the world market.

In the conditions of a highly monopolized market and state regulation, the creation of a competitive environment in the oil and petroleum products market seems to be a very remote prospect.

Major Chinese national oil and gas companies play an important role not only in China's oil and gas sector, but also in China's energy strategy and diplomacy.

Relying on state support, they are rapidly growing and developing dynamically. According to the American magazine Fortune, in 2010 Sinopek, KNNK and KNNK ranked 7th, 10th and 252nd among the 500 largest companies in ^the world19. In the same year, according to PFC, PetroChina, KNONK Ltd. and Sinopek Ltd. were ranked 2nd, 10th and 11th respectively in the list of the world's ²⁰ largest public energy companies.

Thus, in order to ensure further economic growth, China's most important task is to develop a long-term energy strategy and conduct consistent diplomacy that meets national interests in the energy sector.

¹ ВР Statistical Review of World Energy 2011. London, 2011, p. 12.

² Dongfang zaobao, 11.01.2011.

^{Chufrin G. I.} 3 China in the XXI Century: Globalization of Security Interests, Moscow, 2007, p. 104.

^{Guo Sizhi.} 4 The Business Development of China's National Oil Companies: the Government to Business Relationship in China. Houston Rice University. March 2007, p. 2.

⁵ http://www.cnpc.com.cn/ru/gsxx/fzlc/.

⁶ http://www.cnoocltd.com/cnoocltd/aboutus/default.shtml

⁷ http://www.sinopec.com/about_sinopec/ourcompany/company.shtml

^{Cristoffersen G.} 8 China's Intentions for Russian and Central Asian Oil and Gas // Analysis. The National Bureau of Asian Research. 1999, V. 9, p. 12 - 13.

⁹ Guoji shiyu jingji (International Petroleum Economics). Beijing, 2010, No. 10.

¹⁰ Sinohim (China National Import and Export Chemical Corporation) was established in 1950. She works in the fields of agriculture, energy, chemical products and finance. It is the fourth largest oil company in China. According to the American magazine Fortune, in 2010 Sinohim Corporation ranked 203rd among the 500 largest companies in the world.

¹¹ Zhenhua China Oil Company was established in 2003, is an international oil company engaged in foreign investment in the oil industry, oil and gas exploration and oil trading, and is a subsidiary of the China North Industries Corporation.

^{Deich T. L.} 12 Chinese companies in African commodity markets - http://www.inafran.ru/ru/content/view/198/70/

¹³ Zhongguo shiyu haiwai yuqi ye and hangai quanqiu 29 ge guojia (CNPC has already received foreign projects in 29 countries). 25.02.2011 - http://www.cpcia.org.cn/html/13/20112/860449176.shtml

¹⁴ 2010 nian zhongshiu haiwai yuanyu zoe chanliang da 7582 wan dun (CNPC's foreign oil production reached 75.8 million tons in 2010), 9.02.2011 - http://www.xinhuanet.com/2010/02/09/0012748390.shtml

¹⁵ Zhongguo shihua haiwai yuqi kantan xingshi (Sinopek's Oil and Gas Exploration abroad) / / Shiyu kantan jishu (Oil Exploration Technology), 2010, No. 5, pp. 3-9.

^{Xia Yishan.} 16 China-Russia Energy Cooperation: Impetuses, Prospects and Impacts, Rice University Press, 2000, p. 11.

^{Kong Bo.} 17 Institutional Insecurity. China security. 2007.

^{Downs Erica S.} 18 China's "New" Energy Administration. China Business Review, 2008.

¹⁹ Fortune Global 500 in 2010 - http://money.cnn.com/magazines/fortun/global500/201O/full_list/

²⁰ PFC Energy 50 in 2010 - http://www.pfcenergy.com/pfc50.aspx

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