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India, China flirt with oil deals

China and India may team up but are unlikely to form a perennial partnership.

india Updated: Dec 22, 2005 12:47 IST
Reuters
Reuters
PTI

The state oil firms of China and India may team up for more overseas bids following their successful debut in Syria, but are unlikely to form a perennial partnership that would mean more to Delhi than to Beijing.

China National Petroleum Corp (CNPC) and India's Oil and Natural Gas Corp (ONGC) have won an auction for PetroCanada's Syrian fields after a concerted diplomatic push from India -- the first such tie-up between what are normally arch-rivals in the race for overseas oilfields.

India is planning more joint bids with Chinese firms for foreign oil projects to avoid cut-throat competition, Petroleum Secretary SC Tripathi said on Tuesday.

Analysts said that may happen, but warned that a lasting union between the two countries -- uniting the world's second- and sixth-largest oil consumers, both desperate to gain access to foreign crude to fuel their booming economies -- was unlikely.

"I think we're going to see more deals (like this). It's like a cash-in on political will at the top levels," said Kang Wu, a research fellow at the East-West Centre in Hawaii. "There will be a mix of competition and co-operation, it will definitely not tilt fully towards co-operation."

Chinese and Indian oil companies have become ubiquitous bidders for assets around the world as their governments drive them to secure reserves, inflating asset prices.

Beyond the financial firepower and lower prices of a unified bid, the lure of investment from the fast-growing consumers could help them curry favour with host governments, posing another hurdle to oil majors also desperate for access.

So far they have limited their partnerships to places where Western rivals are few -- first Sudan, now Syria.

And CNPC and ONGC are already heading for their next clash.

Both companies are looking to bid -- separately -- for privately owned Kazakh oil producer Nations Energy, which has put itself up for sale in a deal that could fetch $2 billion, sources familiar with the process had said so earlier this month.


ONGC SUCCESS, FINALLY

A source close to the bidding process for PetroCanada's Syrian assets had told Reuters the partnership was partly aimed at assuaging the Indian party, who has lost out in a string of asset auctions to Chinese companies.

"To be frank, CNPC does not need ONGC in the Syria deal," the source said.

PetroCanada said on Tuesday it would sell its Syrian assets to CNPC -- parent of Hong Kong and New York-listed PetroChina - and ONGC for $578 million.

ONGC was beaten this year by China's oil giants in the $4.2 billion takeover of PetroKazakhstan and the $1.4 billion Ecuador oilfield sale by North American producer EnCana.

India and China have also run into fierce competition from companies of other countries.

CNPC and ONGC bid against each other for US energy producer Pogo's fields in Thailand this year, which was eventually won by a Thai-Japanese partnership. China offshore company CNOOC Ltd lost out in its $18.5 billion bid for Unocal this summer to US giant Chevron.

ONGC's losing streak got longer last week when its apparently winning bid for an up to $2 billion stake in a Nigerian oilfield -- its biggest deal in several years -- was rejected by the Indian cabinet at the last minute because of unspecified risks.

That has possibly opened the door for CNOOC, said to be one of the other bidders in the tender.

"India needs to cooperate with China more than China needs India, because it is difficult for India to win over China when they bid for assets," said Gideon Lo, an analyst at DBS Vickers.


CULTURAL GAP

There are also major corporate and cultural differences between Chinese and Indian firms that bar the formation of any strategic partnership, people familiar with the matter said.

The cabinet's scuppering of ONGC's Nigeria deal, which may cause Indian companies to lose credibility in the international market, highlighted the lack of clarity in its overseas energy strategy and potential bureaucratic entanglements, analysts say.

In contrast, Chinese companies are increasingly using their unlisted parents to pursue acquisitions quickly.

And while oil companies globally often form one-off or regional partnerships with competitors, Chinese companies may see more to gain from forming ventures with experienced majors like BP, Exxon Mobil Corp and Royal Dutch Shell than with their politically aligned Indian peers.

By partnering with CNPC, Sinopec or CNOOC Ltd in big upstream acquisitions, the foreign oil giants can gain wider access to China's 6.7 million-barrel-a-day market. The Indian market is one-third that size.

ONGC has formed partnerships with various companies for acquisitions, including the Mittal group, which runs the world's largest steel maker Mittal Steel, and Korea National Oil Corp.

First Published: Dec 21, 2005 19:13 IST