China’s Energy Acquisition: Three Ways To Invest In China
by David Fessler, Advisory Panelist
Friday, September 4, 2009: Issue #1084
Every country needs a few basic ingredients in order to achieve healthy, sustained economic growth.
- Reliable sources of energy.
- A modern, efficient infrastructure, consisting of a good road and rail system, reliable power grids and high-speed digital communications networks.
And if a country wants to be considered a “global economic powerhouse,” it’s nearly impossible for it to do so without these critical building blocks.
So it’s not too surprising that China is spending unprecedented amounts of money to beef up its infrastructure.
It’s also spending huge amounts of money on long-term oil and gas contracts. And with nearly $2 trillion on hand, it’s the perfect time for China to go on an energy acquisition spree.
Right now, it’s spending like a thirsty sailor on shore leave…
You see, despite the recent pullback in the Chinese stock market, the country is still on an economic roll that will continue for the next 50 years. According to The Economist, China’s capital spending is a whopping 44% of its GDP, and in raw dollars could exceed that of the United States for the first time this year.
And you can bet that its increase in energy use will track right along with its growth.
But China’s energy problems are similar to those of the United States: It doesn’t have enough of its own sources of fossil fuel to meet its needs.
So what is China doing to combat this? And is there a way to tap into this in terms of investing? Answers below…
China’s Energy Asset Acquisition Spree
At the moment, China is importing coal, liquefied natural gas (LNG) and crude oil. And to guarantee that those supplies are uninterrupted, it’s buying some major deposits of oil and gas, along with the refineries to process it.
We’re not just talking small potatoes, either. Since Christmas, China has been on an overseas energy asset acquisition spree. The country has spent a total of $17 billion, easily topping the $13.1 billion it spent in all of 2008. What’s more, the pace of acquisitions doesn’t appear to be slowing – and could even ramp up into 2010.
Many companies are teaming up, putting together joint deals that insure even the largest purchases have funding behind them. And some are very, very big. For example…
- In April, PetroChina (NYSE: PTR) partnered with KazMunaiGaz and plunked down a cool $5 billion to purchase JSC MangistauMunaiGas from Central Asia Petroleum. This was one of the first instances of Chinese firms partnering together to purchase a foreign oil company.
- June saw a highly publicized $20 billion deal, in which China National Petroleum Corporation joined forces with BP (NYSE: BP) to buy a 75% stake in the Rumaila oil field in southern Iraq. The consortium’s bid topped that of the Exxon/Mobil (NYSE: XOM)/Shell (NYSE: RDS) partnership.
- Just one month later, the China National Offshore Oil Company (NYSE: CEO) – often referred to as CNOOC – hooked up with Sinopec. The two of them coughed up $1.3 billion to acquire a 20% stake in a deepwater block off Angola from Marathon Oil.
China’s Knee-Deep In Canadian Oil Sands
Now, the Chinese have landed in Canada. And it’s not because they like hockey. They’ve quietly bought up several parts of different oil sands operations.
Just a few days ago, PetroChina announced a $1.7 billion deal, in which it will acquire a 60% stake in Athabasca Oil Sands Corp’s MacKay River and Dover oil sands fields.
This isn’t the first time that China has invested in Canadian oil sands. Back in 2005, CNOOC purchased a 16.7% stake in MEG Energy Corporation, while China Petrochemical Corporation plunked down $83 million for a stake in Syneco Energy, Inc.
So why is China interested in something like oil sands – oil that is very difficult and expensive to bring to fruition? Simple. All the easy, lucrative projects have already gone. It’s a disturbing indication of China’s quiet determination to increase its oil and gas reserves… at any price.
So what’s next?
How To Invest In China’s Energy Acquisition Express
As evidenced by the variety of different operations that China has acquired recently, the country is taking a shotgun approach to energy.
And while it’s not easy to see what it’s focused on next, the best way to play this trend is by owning shares of the buyer. This includes big Chinese oil companies like…
- PetroChina
- Sinopec
- CNOOC
All these firms have American Depositary Receipts (ADRs), which means you can trade them on the U.S. exchanges.
One note of caution before you do, however: If you read my colleague Louis Basenese’s piece on the China sell off earlier this week, he highlighted 10 reasons why the Chinese market is set to fall from here.
I agree with Lou – and I believe waiting until we see evidence that the Chinese markets have bottomed will represent an excellent time to take a position in some of these companies.
Good investing,
David Fessler
Related Investment U Articles:
- China’s Oil Companies: The New Kids on the Oil Block
- China Buying its Way to Shale Technology
- China Invests ‘Down Argentine Way’
- China’s Mining Companies Begin Moving Overseas
- International Oil, Strange Bedfellows and Ultimate Profits
One Response to “China’s Energy Acquisition: Three Ways To Invest In China”
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David Fessler is the energy and infrastructure expert for Investment U.
I am not commenting on the article. Rather, I am trying to make a point to all the commentators about the present economy. I run a small business and we have noticed the drop for the past 18 months. I read the unemployment data and watch wall street’s reaction. What I do not see or read about are the statistics on the number of companies that work three or four day weeks, require a one week no pay time off, etc. I deal with companies all over the country. They have sales in the thousands and billions, so it is the entire range. All are suffering. BUT, the statistics do not reflect the short work weeks. The companies need to retain their work forces, in small communities you do not lay off some workers and have others working full time.
My point is, that if the real employment figures were reported and the number of unemployed both actual and percentage wise was not adjusted for those who have used up their benefits, the numbers would really be astounding.
I suggest you look into this and report on it.
Thank you for listening.
William La Londe
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