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Vol. 12, No. 49 Week of December 09, 2007
Providing coverage of Alaska and northern Canada's oil and gas industry

Chinese bidder faces political hurdles

Sinopec has pipeline expertise and financial muscle, but it does business in many politically unpopular places around the world

Allen Baker

For Petroleum News

The surprise pipeline bid from a subsidiary of Chinaís Sinopec could provide an interesting new link between Alaska and Asiaís mainland. But itís unlikely to get out of the starting gate due to an impressive load of political baggage.

The formal bid comes from Sinopecís oil services subsidiary, Sinopec Zhongyuan Petroleum Exploration Bureau, along with Little Susitna Construction Co. of Anchorage, founded by Hong Kong-born Dominic S.F. Lee, P.E., in 1980.

Little Susitna Construction has substantial credentials as an Alaska engineering, design and construction management firm, participating in more than 500 Alaska projects including design work for the Service High School swimming pool and some North Slope facilities back in the ARCO days. But thereís not much oil industry connection. Neither Lee nor anyone else from Little Susitna was willing to talk with Petroleum News about the pipeline project at this point.

Plenty of expertise

Sinopec itself (formally China Petroleum and Chemical Corp.) has plenty of technological expertise and financial muscle. Itís Chinaís largest refiner and a major oil producer.

In size, itís roughly in the same league with ConocoPhillips, producing 790,000 barrels a day of oil and 767 million cubic feet of gas, while refining 3.1 million barrels of crude each day, 70 percent of that imported. Net income last year was nearly $7 billion, on $140 billion in revenues. With 30,000 gas stations, the company has 365,000 employees.

Sinopec has experience building and running crude and product pipelines for its refining operations. On the gas front, it recently began construction on a major line running about 1,100 miles from its Puguang field in Sichuan, in western China, to Shanghai.

The line will cross the Yangtze River five times and run across mountains and other challenging terrain, carrying 1.2 billion cubic feet daily. Cost of that project, including field development, is more than $8 billion.

Sinopec carries the muscle of the Chinese government, which owns nearly 76 percent of the shares through a holding company. China already showed once, in the battle over Unocal, that itís willing to provide capital for a major investment by one of its national oil companies, in that case CNOOC.

Political hurdles

But the political implications in this case are daunting. China has been shopping around the world for energy to feed its expanding domestic appetite, and the Alaska project would logically provide LNG for export to China. That could be a tough sell in the current political climate.

Plus, Sinopec has been doing business in plenty of places where big U.S. and European companies fear to tread for political reasons. Name a country thatís considered a pariah in the United States, and Sinopec is probably deeply invested.

Back in 2004, the company signed an agreement with Iran for a 51 percent stake in the Yadavaran field, a deal that could involve as much as $70 billion and likely will include LNG shipments to China.

Chinaís interest in the Sudan is substantial, and while Sinopec has taken a secondary role to PetroChina, itís still a significant one. Sinopec ZPEB, the subsidiary that made the formal bid in Alaska, has 750 employees in Sudan, including 430 Chinese, running more than a dozen drilling rigs and also providing seismic, logging and other oilfield services. That wonít be a political plus in the U.S.

And this month, Koreaís Daewoo International indicated it would sell gas from its Myanmar fields to Sinopec, which is expected to build a $1 billion pipeline to bring the gas from the fields to China. Myanmar is another country whose leaders have faced criticism in the United States.



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