From China to Tanzania, more open energy markets emerge

HOUSTON – Big players in the Eastern Hemisphere are attracting more foreign investment, but powerful government interests often are at odds with the energy industry’s drive to maximize profits, a panel of energy experts said Monday.

Africa, for example, was regarded as an economically hopeless continent only a decade ago, but a slew of new oil and natural gas discoveries have drawn international dollars to offshore drilling and refining projects, IHS Senior Manager Stanislas Drochon said during the first day of the IHS CERAWeek energy conference in Houston.

The good news for western energy companies, he said, is that most sub-Saharan countries have been “very open” to foreign energy development projects. But some governments expect those oil and gas resources to stay in their respective countries to benefit their communities and spur them on to re-elections — at the price they want.

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One government shut down two refineries because officials believed the price of its petroleum products was too high. But to western companies, the deal was to build economically viable refineries.

“They’re not very interested in selling at a loss in the domestic market,” Drochan said. “How much of the gas produced in Mozambique and Tanzania will have to stay in the country for power production? It’s a very big question mark.”

Opening China

But the panelists — a group of IHS energy and geopolitical experts — said big energy consumers like Russia and China are coming closer to pipeline and refinery deals, diversifying where they get energy resources and creating policies that give the global market a greater role.

China’s communist government, for example, has decided to loosen its grip and allow for greater foreign involvement in energy markets. Some new policies have enabled “more open and fair access” to the development of midstream and liquefied natural gas infrastructure, said Xizhou Zhou, a director of IHS CERA’s China energy practice.

There’s a lot of desire for non-state companies to come into the sector,” he said. “We’ve already seen some of those (recent legal) concepts translated into concrete regulations.”

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Even as its economy is rapidly reshaped by new governmental policies, slowing growth in China has cooled demand for power-generation sources. But that may not matter much to foreign companies: By making the region more open, the Chinese government has allowed western investors to seize on demand that is still growing and still massive compared to most markets.

If we just take 10 provinces along coastal China, power demand is about the same as the 10 largest European countries today,” Zhou said. “Before 2020, we expect demand to increase by another 50 percent, which means we’re adding about another four European countries in about six years time. That’s still a lot of opportunities for companies looking to invest in the sector.”

In another sign that new investment is having an easier time crossing international borders, China and Russia appear to be much closer to striking a deal to supply natural gas to China through a pipeline — a badly needed resource for coal and smog-laden China. Zhou said he expects a deal to be announced this year.

Middle East pipeline

In the Middle East, Raad Alkadiri, a managing director for IHS Energy Insights, said he is increasingly optimistic that the Iraqi government, Kurdish factions and Turkey will agree to a mutually beneficial pipeline deal that will unleash a bottleneck of oil in the region.

There is the basis for something that would be good for all three, but whether that’s going to be good for the energy companies that have invested there, that’s a different matter,” Alkadiri said.

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