China arms CNPC with $30-billion loan for overseas acquisitions

China National Petroleum Corporation (CNPC), parent of the state-run oil and natural gas giant PetroChina, has received a low-interest $30 billion state loan to fund overseas acquisitions, as China thinks that the fallen asset prices during the global economic downturn is the right time for cheap acquisitions.

The loan has been extended through state-owned China Development Bank for five-year on low interest under an agreement signed yesterday, CNPC said on its Web site, without revealing the interest rate  on it, nor has it disclosed the likely overseas assets it could be interested in acquiring with the state loan.

The loan reflects China accelerating its overseas acquisitions to secure its energy requirements since the country's need for oil has more than doubled in the past 10 years, during which period the price of oil has soared more than three times

Armed with more than $2 trillion in foreign exchange reserves, China has supported its oil companies to make landmark overseas acquisitions since energy assets have fallen considerably due to the global economic downturn.

"We should hasten the implementation of our 'going out' strategy and combine the utilisation of foreign exchange reserves with the 'going out' of our enterprises,'' Wen Jiabao, the country's premier told Chinese diplomats in July.

Oil prices have fallen to half since hitting a record high of $147.47 a barrel last year. In February 2009, oil prices fell to a low of nearly $30 a barrel. Yesterday, oil closed at $71.35 a barrel on the New York Mercantile Exchange.

Oil consumption in China, now the world's second largest oil importer after the US,  doubled in the last decade to 8 million barrels a day in 2008.

Riding on the $585-billion stimulus spending, China's crude imports for July soared by 18 per cent from a month earlier to 19.63 million metric tons, or about 4.64 million barrels a day, according to the China's General Administration of Customs.

According to a recent report put out by the Chinese Academy of Social Sciences (CASS), China will need to rely on oil imports for 64.5 per cent of the country's needs by 2020.

Taking advantage of the current low valuations of energy assets, China has spent nearly $12 billion this year on foreign oil fields and refining assets, while it has signed $46 billion worth of loan-for-oil deals this year with Russia, Brazil, Ecuador, Kazakhstan and Venezuela.

Currently CNPC has teamed up with CNOOC to acquire a 75 per cent stake in YPF, the Argentine unit of the Spanish energy company Repsol, and is reported to have made a offer as much as between $13 billion to $14.5 billion. (See: CNPC, CNOOC to bid for Repsol -YPF's Argentinan arm)

In June, China's second-largest oil company, Sinopec, a subsidiary of China Petrochemical Corporation, agreed to acquire Swiss oil exploration firm Addax Petroleum for $7.2 billion-the largest ever Chinese offshore acquisition. (See: Sinopec to acquire Addax Petroleum for $7.2 billion)

In August, PetroChina agreed to acquire a 60-percent stake in two planned Athabasca Oil Sands projects in Western Canada for $1.9 billion. (See: Petrochina buys 60 per cent stake in Canada's oilsands for $1.7 billion)