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China, India competing for oil supplies around the world

BEIJING—An intensifying rivalry for energy between oil-thirsty China and India is playing out in ever more distant oil fields around the globe, a sign that both countries view owning overseas fields as critical to sustaining their booming economies.

In the latest skirmish, China's major state oil company, CNPC, outbid India's leading exploration company to purchase oil and pipeline interests in Ecuador from EnCana, a Canadian natural gas giant based in Calgary, Alberta.

The $1.42 billion deal marked the second time in a month that a major Chinese oil company outbid India's leading explorer, Oil & Natural Gas Corp., in a quest to lock up oil assets abroad.

China and India are the fastest-growing major economies in the world, and governments in both nations seek to ensure stable oil supplies to sustain their growth.

Just last month, CNPC outbid the Indian company for PetroKazakhstan Inc. in a $4.18 billion deal that will provide China with further crude supplies from Central Asia.

"China has major concerns about oil security," said Kurt A. Barrow, a Singapore-based oil analyst for Purvin & Gertz, an energy consultancy headquartered in Houston. "They've got a multipronged approach to address that. One of those prongs is to go overseas and acquire as much oil as they can."

China's ambitions to speed up the acquisition of overseas oil assets became apparent in late June when CNOOC, China's third-largest oil group, launched a bidding war with Chevron for Unocal, the California-based oil company. Stiff opposition flared among U.S. legislators worried that the deal would harm U.S. national security.

Faced with a political firestorm, and prospects that the deal would face months of regulatory review, CNOOC dropped the $18.5 billion bid in early August.

Since then, though, China's state-run companies have continued their buying spree, and increasingly have competed with India's state-run ONGC in the process.

"Obviously, both countries are net importers of crude oil, and for strategic reasons they want to have access to foreign reserves," said Adrian Loh, a Singapore-based regional oil analyst for Merrill Lynch. "They certainly will be locking horns in terms of overseas mergers and acquisitions."

In the latest deal, CNPC leads a consortium of Chinese companies in an entity known as Andes Petroleum Co., EnCana said. Other members of the consortium were not identified. The deal, which is expected to close by the end of the year, is for production of about 75,000 barrels per day in several different blocks with proved reserves of 143 million barrels, EnCana said.

Also changing hands is EnCana's 36 percent interest in a new 450,000-barrel-per-day pipeline that carries Amazon crude 310 miles across the Andes to the Pacific Ocean terminal at Balao, Ecuador.

China's state oil companies are active in a number of nations in conflict with or of concern to the United States, including Myanmar, Bolivia, Sudan and Iran. The latest deal underscored that the Chinese companies are unafraid of entering countries considered pariah states or in political turmoil.

Last month in Ecuador, violent demonstrations briefly halted oil exports, leading President Alfredo Palacio to announce he would renegotiate contracts with foreign companies to boost the state share of revenues and invest more in local communities.

India's ONGC is also active in areas considered politically unstable or troubled, such as Libya, Myanmar, Ivory Coast, Iran, Sudan and Vietnam.

Loh said the state oil firms in India and China are battling it out in regions where the major global oil companies do not want to enter, even with the rise in oil prices above $60 a barrel, or are barred from entering by U.S. or international sanctions.

"They will invest in countries where the super majors can't, or are less willing to," Loh said.


(c) 2005, Knight Ridder/Tribune Information Services.

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