China to Offer Oil Loans; May Set Up Acquisition Fund

By Wang Ying

Feb. 16 (Bloomberg) -- China, the world’s second-biggest energy user, will offer preferential lending rates for overseas oil investments and may tap the country’s $1.95 trillion foreign-exchange reserves to help companies buy fields abroad.

The nation may set up an oil fund to boost exploration, China National Petroleum Corp., the country’s biggest oil producer, said in a statement on its Web site today, citing the state’s three-year energy plan. The government will increase capital injections of overseas spending on energy assets, it said.

Chinese companies have resumed their quest for global resources after a two-year hiatus as the economic slowdown and falling commodity prices prompt a sell-off in share markets, making companies cheaper to acquire. Crude oil in New York has fallen more than 70 percent from a record $147.27 a barrel reached in July last year. China’s foreign-exchange reserves are the world’s biggest.

The fund “makes perfect sense because overseas acquisition will instantly boost production and reserves, probably at very attractive long-term prices amidst distressed asset valuations at the bottom of the oil price cycle,” Gordon Kwan, head of China energy research at CLSA Ltd., wrote in an e-mail today.

Oil companies are encouraged to boost development and acquisitions of resources abroad, China National, the parent of Hong Kong-listed PetroChina Co., said in the energy plan. The plan to 2011 covers China’s ambitions to speed up the development of alternative fuels, coal-to-liquids projects, and the setting up of a separate fund for the stockpiling of crude oil.

Crude Reserves

The country aims to find additional recoverable crude oil reserves of 700 million metric tons and discover incremental recoverable natural gas deposits of 1.2 trillion cubic meters within the three years to 2011, it said in the report.

The country plans to have total oil refining capacity of 440 million tons by 2011. China will push forward joint-venture refinery projects with companies from Venezuela, Qatar and Russia, it said, without giving details. China’s oil-processing capacity is about 396 million tons currently, according to Bloomberg calculations.

The government plans to start building four additional liquefied natural gas import terminals in Qingdao, Ningbao, Tangshan and Zhuhai, China National said. China will start building pipelines to import oil and gas from Myanmar before the end of 2011, it said.

Coal-to-Liquids Projects

The construction of coal-to-liquids projects in the northern provinces of Shanxi, Inner Mongolia and Ningxia will be accelerated, it said, without giving further details. It will also set up separate government funds for crude oil stockpiling, energy exploration and coal-bed methane production, it said.

The government will simplify the administrative procedures of energy project approval, it added.

China aims to boost crude-oil production by 1.2 percent to 192 million tons and targets 86 billion cubic meters in natural gas output this year, representing a gain of 13 percent, China National said. Crude output may reach 198 million tons in 2011 and gas production may rise to 120 billion cubic meters by then, it said.

Emergency crude oil reserves may reach 44.6 million cubic meters by 2011, it added. China will take advantage of current lower prices to boost imports of oil and natural gas as it builds reserves, Zhang Guobao, head of the National Energy Administration, said on Dec. 29.

Fuel Shortages

China has sought to take advantage of the rout in commodity prices to lock in resources worldwide. China’s oil and gas shortages will continue over the “long term,” PetroChina Chairman Jiang Jiemin said on Jan. 12. The country relies on imports for about half of its crude consumption, which rose by 6.5 percent last year, China National Petroleum said Feb. 10.

The nation’s oil companies including China National Petroleum, China Petrochemical Corp. and China National Offshore Oil Corp. have shown interests in the assets of U.S.-based Kosmos Energy LLC worth at least $3 billion, the South China Morning Post reported today, citing unidentified people.

China Minmetals Corp., the country’s biggest trader of metals, agreed to buy Australia’s debt-laden OZ Minerals Ltd. for A$2.6 billion ($1.7 billion) in cash, gaining copper, zinc and gold projects in Asia, the Melbourne-based company said today. The purchase follows Aluminum Corp. of China’s $19.5 billion agreement to invest in Rio Tinto Group last week.

To contact the reporter on this story: Wang Ying in Beijing at ywang30@bloomberg.net.