China’s Europe tank deal latest step to build oil major

Sinopec and its powerful trading unit,Unipec,will use the tanks to optimise trade in gasoil (heating oil and diesel) and gasoline and position itself for future oil flows.

The Vesta purchase is one small piece of a giant jigsaw slowly being fitted together to allow Sinopec and fellow Chinese state oil company CNOOC to compete against Western traders and majors such as ExxonMobil and Royal Dutch Shell.

Chinese companies (are) seeking to build access to European trade as part of their attempt to replicate the global reach of IOCs (international oil companies),said Robert Turner,a director specialising in refining at consultancy PwC.

This is an example of traders and oil companies seeing value in owning physical assets as a way of securing market access to support their trading positions,he added.

The Chinese state oil companies are still some way from matching the worldwide reach of an Exxon or a Shell and are still acquiring oilfields and transport infrastructure,but little by little the picture is coming together.

GLOBAL FOOTPRINT

A senior oil industry consultant with knowledge of Sinopec’s acquisition strategy said Chinese companies,directed from Beijing,were methodically creating a global supply network.

China’s footprint is going global,said the consultant,who has advised Chinese state firms. It is building strategic assets worldwide and intends to form major oil companies.

With $3.3 trillion of foreign exchange reserves at hand to invest abroad,China has targeted natural resources and the oil industry as priorities,often in preference to stock holdings and low yielding bonds.

Sinopec’s $4.8 billion purchase of 30 percent of Petrogal Brazil from Portuguese oil company Galp was the single biggest Chinese overseas deal in the first quarter of this year.

It has also invested heavily in a $10 billion refinery in a joint venture with Saudi Aramco near the city of Yanbu on the Red Sea.

From the end of 2014,Yanbu Aramco Sinopec Refining Co’s (YASREF) plant will produce around 350,000 barrels per day of diesel and gasoline at one of the world’s strategic crossroads.

In the Atlantic basin,Sinopec has agreed to buy a 49 percent stake in the North Sea operations of Canadian exploration company Talisman for $1.5 billion,giving it a foothold in the key North Sea market.

The venture has interests in 46 oilfields,operates 12 platforms and gives Sinochem access to crude flows from a variety of fields including streams that are linked to the North Sea Brent benchmark.

ADDING VALUE

But the growing Chinese influence has met stiff opposition in some quarters,especially in North America.

Canada said last week it needed more time to review a $15.1 billion bid by CNOOC for oil and gas explorer Nexen,operator of the UK’s biggest oilfield,Buzzard,which also feeds into the Brent benchmark.

Analysts say Sinopec’s move into Vesta Terminals is astute.

The 128.6 million euro ($167 million) purchase,a long-term investment,comes at a time when many oil storage facilities are being underused due to the structure of the oil products market.

Vesta has 10 million barrels of storage across Europe,of which more than 6 million are in the ARA region,where they represent around 15 percent of the available gasoil tanks.

This storage will be increasingly valuable as Europe’s own oil production and refining capacity declines and the region imports more oil products,particularly gasoil,from refineries such as the Aramco Sinopec Yanbu plant in the Middle East.

Sinopec is making a similar move in Indonesia’s Batam,next to Singapore,spending $850 million to build Southeast Asia’s largest oil tank centre to support its trading.

China is buying key parts of the oil supply chain,said Olivier Jakob,an oil consultant at Switzerland’s Petromatrix.

Instead of playing in only one part of the market,Chinese companies are pushing further into new areas,adding value. The acquisition of assets such as these will lead eventually to vertically integrated oil companies.