India, South Korea, China and Thailand depend heavily on oil and gas imports, as domestic production levels in these countries fall short of consumption. As a result, their national oil companies (NOCs) have invested heavily in overseas oil and gas exploration and production assets to amass strong reserves and ensure the supply of oil and gas.
India’s domestic production of oil and gas meets only about 40% of the country’s oil and gas consumption, while in South Korea the figure is only in single digits. China and Thailand also register a disparity of about 50% between their domestic production of oil and gas, and consumption.
India, South Korea, China and Thailand each have a reserve life in the range of seven to 26 years. Amid increasing domestic demand for oil and gas, and limited scope to expand production domestically, the NOCs of India, South Korea, China and Thailand are expanding internationally by acquiring exploration and production assets. Through investments abroad, the companies expect to expand their reserves and production base, and support domestic energy security.
Key Asian NOCs expand overseas operations through M&As
To ensure domestic energy security, the various NOCs of India, South Korea, China and Thailand are focusing on acquiring assets overseas. Korea National Oil Corporation (KNOC) of South Korea has the largest number of overseas acquisitions and asset transaction deals (including planned deals) for energy security during the specified period. Oil and Natural Gas Corporation Limited (ONGC) is an Indian NOC and has the second-largest number of overseas acquisitions and asset transactions from 2010 to March 2012. The company entered into ten overseas deals (including planned deals) during the period. CNOOC Limited (CNOOC), a Chinese NOC, entered into seven overseas investment deals (including planned deals).
China: key overseas acquisitions since 2010
China, through its three major NOCs, has invested more in overseas acquisitions, including planned deals, than any other Asian country from 2010 to March 2012. CNOOC, PetroChina Company Limited (PetroChina), and China Petroleum and Chemical Corporation (Sinopec) collectively entered into 14 overseas investment deals during this period. For the three NOCs, overseas acquisition values totalled $17.31 billion (for the deals where the values are disclosed). Chinese companies have been on an acquisition spree to ensure energy supply security for their country.
Key Asian NOCs contribute to energy security of their native countries
Oil and gas production plans outlined by the NOCs of India, South Korea, China and Thailand will provide support to ensure energy security for their respective countries. In India, ONGC Videsh Limited (OVL) plans to produce 20 million tons of oil equivalent (MMtoe) of equity oil and gas in 2017-18. The company’s output will contribute approximately 7.06% of the country’s annual oil and gas consumption for 2018, compared with 4.01% in 2007.
Oil India Limited also intends to produce 3.76 million metric tons (MMt) of oil and 2.6 billion standard cubic metres (MMscm) of gas in 2012.
In South Korea, KNOC is planning to produce 300,000 barrels per day (bpd) in 2012, which will contribute roughly 11.17% to the country’s annual oil and gas consumption for 2012.
CNOOC aims to produce 330-340 million barrels of oil equivalent (MMboe) of oil and gas in 2012. As part of its effort to support China and ensure domestic energy security, CNOOC’s production contribution to the country’s oil and gas consumption for 2012 will increase from 5.06% in 2007 to between 7.70% and 7.94% in 2012.
Additionally, PetroChina announced in March 2012 that it plans to buy oil and gas assets on a large scale. In 2010, the company announced its intention to invest at least $60 billion in global oil and natural gas assets during the coming decade, thus increasing the proportion of overseas output to half of its total.
Furthermore, another China NOC Sinopec expects to increase its oil and gas production by 3.8% from 2011 levels to around 423.6MMboe in 2012. This plan is also likely to provide increased energy security for China.
Thailand’s NOC PTT Exploration and Production PCL (PTTEP) plans a sales volume of 290,000 barrels of oil equivalent a day (boe/d) for 2012. The company’s share of sales volumes of oil and gas will contribute about 17.6% to the country’s annual oil and gas consumption for 2012.
Asian countries increase overseas investments through NOCs to mitigate energy supply risk
Asian NOCs of India, South Korea, China and Thailand play an active role in ensuring these nations’ domestic energy security. Driven by growing domestic consumption and limited domestic supplies, the Asian NOCs have been aggressively increasing their international operations.
In order to expand their operations internationally, NOCs of India, South Korea, China and Thailand are pursuing opportunities to increase their overseas investments. International operations of the Asian NOCs have started to play a major role in the overall operations of these companies. The increasing reserves and production base provided by overseas properties will allow these companies to further support domestic energy security.
Increasing oil and natural gas demand and limited domestic production have prompted several Asian countries to strategically plan for their energy security. Asia-Pacific has witnessed a huge increase in demand for crude oil and natural gas over the past few years.
During 2005-10, oil and natural gas consumption in the region increased at an AAGR of 7.0% to 3,350.45MMboe in 2010, while production only increased at an AAGR of 6.1% to 2,905.73MMboe in 2010.
As the growth in regional oil and gas production lags behind the growth in their consumption, there is an increasing oil and gas supply deficit in the region. Some of the major economies – including China, India, South Korea and Thailand – have been heavily dependent on oil and gas imports. To mitigate the widening gap between their domestic oil and gas production and consumption, these countries have been acquiring oil and gas assets overseas.
India’s dependence on oil and gas imports prompts overseas acquisitions by country’s NOCs
India is one of the world’s largest consumers of primary energy. Oil and natural gas accounts for about 40% of the country’s primary energy mix and it is heavily dependent on imports to fulfil its oil and gas requirements. In 2010, the country imported about 58.8% of its oil and gas needs.
Coal, oil and natural gas are the major elements of India’s primary energy mix. Coal, accounting for 52.9% of the country’s primary energy mix, is the largest contributor. Oil and natural gas account for 29.7% and 10.6% of the country’s primary energy needs, respectively. In 2010, India consumed about 1,137.42 million barrels of oil reserves (MMbbl) and 2,277.46 billion cubic feet of gas.
South Korea relies on imports for majority of oil and gas needs
South Korea is currently one of the major global consumers of primary energy. Oil and natural gas account for about 56.5% of the country’s primary energy requirements. South Korea’s energy demand is mainly fulfilled by coal and oil, which together account for more than 70% of its primary energy consumption. The country heavily depends on imports of oil and gas to meet its energy requirements.
Widening gap between domestic production and consumption of oil and gas in China
China is the world’s largest consumer of primary energy. Coal and petroleum products are the main sources of energy in China, while hydropower, natural gas, nuclear power and renewable sources accounted for a little more than a tenth of the country’s energy mix in 2010.
Coal is the most abundant domestic resource in China, while oil reserves are limited. The Chinese Government is trying to develop alternatives such as natural gas and renewables to enhance its energy security. Natural gas, hydropower and renewables are expected to account for a growing proportion of the nation’s energy mix.
Coal contributes approximately 70.5% of the total primary energy consumption in China, with oil the second major source, accounting for about 17.6%. The rest comes from natural gas, hydro-electricity and other sources. However, in its 12th five-year plan for 2011-15, China’s agenda included plans to increase the proportion of natural gas use in the energy mix to 8.3% by 2015.
Thailand depends on imports for two fifths of crude oil and natural gas consumption
According to the ‘BP Statistical Review of World Energy’ published in June 2011, Thailand is currently among the largest 25 consumers of primary energy in the world. Thailand’s energy sector depends mainly on natural gas and crude oil, which account for 37.6% and 46.5%, respectively, of the country’s primary energy consumption.
This is followed by coal, which accounts for 13.8%; hydro-electricity at 1.1%; and renewables, which account for 1.0% of the nation’s total energy consumption. Thailand is a net importer of oil and gas.
This article was first published in our sister publication World Expro.