The global expansion of Chinese oil companies: Political demands,profitability and risks

Abstract

PetroChina, Sinopec, and China National Offshore Oil Corporation (CNOOC) have been prominent instruments used by the Chinese government in its policies to ensure greater security of oil and gas supply in the face of growing domestic shortages. Chinese overseas acquisitions and activities have diversified, with a greater emphasis on offshore, gas and the Americas. Both parent and listed daughter companies are run by CCP-appointed managers who have to balance political and commercial goals. Their lacklustre financial performance can be attributed to domestic and institutional constraints, such as state-set social goals, low pricing, and government controls over their monopolies. Not only have state companies sustained losses from refining activities, but financing their rapid expansion has also increased their debts and dependency on the government. Cases of corruption have further weakened their political influence. Long-term supply contracts have made a greater contribution to the security of energy supply as compared with equity oil and gas. Nationalistic preferences for investment over trade increase company risks but are somewhat mitigated by an integral economic package approach and political backing in weak countries. Recent policies to reduce monopoly power are unlikely to produce viable commercial alternatives, but may increase the focus on listed daughter companies, overseas assets and international trading. Because of these developments and the recent fall in oil prices, a better evaluation of political and economic risks is required.