China outpaces India in Middle East and Africa

China is spreading its wings in the Middle East and Africa, leaving India, the other emerging economy from Asia, far behind.
There have been several interesting developments in the recent past that suggest that an energy hungry Middle Kingdom is striving consistently to be the dominant trader in the oil rich Gulf. In June this year, Cnooc Ltd., China’s third-largest oil company, signed a 25-year agreement with Qatar Petroleum to search for gas offshore in its first exploration venture in the Middle East.
The agreement includes drilling three wells in five years. Qatar also plans to discuss providing additional liquefied-natural gas to the Chinese company. Qatar, which has the world’s third-largest natural gas reserves, is also the world’s largest producer of liquefied natural gas, or LNG. It plans to nearly double its LNG production to 77 million tons annually by next year. Cnooc plans to invest $100 million to implement the exploration agreement. China will import the first consignment of LNG in October, and it will need 40 million to 60 million tons of LNG a year by 2020.

Geographically, India is the closest importer of LNG from Qatar. It has been importing LNG from the emirate for a much longer period and currently imports 7.5 million tonnes of the fuel annually. It plans to increase this by around five million tonnes annually. But then, India was not among serious competitors for gas exploration bids in Qatar.

This is just one of the examples of the Chinese presence in the region and that of India’s absence. Iraq will more than double crude oil supplies to China next year to over 300,000 barrels per day. Chinese imports from Iraq have already increased nearly three fold in 2009. This saw average daily imports of Iraqi crude to China rise at about 144,000 bpd, according to Chinese customs data.

What’s interesting is that China is still not incurring any cost in re-building Iraq. Still, it has managed to be the leading player in the state’s oil business. A partnership of British Petroleum (BP) and the China National Petroleum Corporation, or C.N.P.C., won the first contract awarded by the country after the overthrow of Saddam Hussein. The project, worth more than 15 billion U.S. dollars, is a milestone in Iraq's efforts to renew its struggling oil sector. According to the 20-year contract, BP holds a 38 per cent stake in the venture, while CNPC has a 37 per cent share. Iraq's State Oil Marketing Organisation controls the rest.

In another sign of China’s interest in Iraqi oil, Sinopec, China’s refining giant agreed to pay $7.22 billion to buy Addax Petroleum, a Swiss-Canadian company with operations in the Kurdistan region of Iraq and in West Africa.

The strong and growing presence of China in Africa tells an even more intriguing story. The Chinese now have a presence across the Dark continent. The country's presence in the form of construction companies, financial and humanitarian aid providers spreads from Angola and Ethiopia to Sierra Leone and Zimbabwe.

And the strategy that the Chinese companies have employed in Africa needs a detailed discussion. The Chinese have built stadiums in Africa at places they were not required. They have built a luxury hotel in Sierra Leone. They have prevented security council resolutions against Sudan and abstained from even the resolution that asked the International Court of Justice to investigate the Darfur violations. And Zimbabwe is all but owned by China. Angola, the newest member of OPEC and the country that has highest amount of upstream investments planned for the next five years among all OPEC members was offered a $ 2 bn soft loan by China to develop an oil block.

The efforts of India, which has similar concerns as China to ensure a regular flow of hydrocarbons do not compare. India has had presence in Sudan. It is now trying for a presence in Ghana. State owned Oil and Natural Gas Corp. Ltd (ONGC) and GAIL (India) Ltd are in talks with Ghana National Petroleum Corp. (GNPC) for acquiring stakes in hydrocarbon blocks in the African country.

These steps fizzle out in front of the massive Chinese strategy. Indians are not playing as hard as their Chinese counterparts to gain a greater access in Africa and may in few years time find it difficult to deal with simultaneous rise in oil prices and demand.