The major challenges on Oil and Gas under the framework of "Belt and Road Initiative"

The major challenges on Oil and Gas under the framework of "Belt and Road Initiative"

Li Lifan (SASS)
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With the internationalization program launched by Xi Jinping, China has given a new boost to the economy and to cooperation, especially on the energy front, with other countries. Despite the advantages, risks are also increasing. Between the new geopolitical structure and the performance of the energy market, the country is trying to be one step ahead

The Belt and Road Forum for International Cooperation (BRF) will be held in Beijing from May 14 to 15,2017, People from both home and abroad have expressed keen interest in the BRF since President Xi Jinping announced it at the Davos Forum in January. The Forum aims to discuss ways to boost cooperation, build cooperation platforms and share cooperation outcomes, as well as to explore ways to address problems facing global and regional economy, create fresh energy for pursuing interconnected development and make the Belt and Road Initiative deliver greater benefits to the people of all countries.

The energy sector for internationalization

Oil and gas cooperation in the "Belt and Road Initiative" plays an important role ,which will also effectively promotes the implementing  process of "going abroad " strategy for China's oil and gas enterprises, and also speeds up the transformation and upgrading with those enterprises , as well as the process of internationalization. In 2016, China's economy was generally stable, with an estimated annual economic growth of 6.7%. China's total energy consumption of about 4.36 billion tons of standard coal, up 1.4%, which is clearly shown, that China's energy structure continues to improve. Among them, coal consumption was 3.91 billion tons, down 2%, accounting for the proportion of primary energy consumption from 64% to 62.4%; oil consumption was 556 million tons, an increase of 2.8%, accounting for 18.1% of primary energy consumption, Natural gas consumption was 204 billion cubic meters, an increase of 6.5%, accounting for the proportion of primary energy consumption rose to 6.2%; non-fossil energy growth increased 8.9%, accounting for the proportion of primary energy consumption increased from 12% to 13.3%. Till right now, China's oil dependence on the external has been more than 65%, natural gas dependence has also exceeded more than 30%. 2017 is an important year for China's energy companies to go abroad and the 25th anniversary of China's energy industry involving with the energy globalization process. In the past 25 years, more than 20 oil companies appeared into the world market , in addition to the oil Giants: CNPC, Sinopec, CNOOC and other state-owned enterprises, also include Guanghui Energy , CEFC ,these private energy enterprises, has basically completed the global strategic layout. in the world market , they have  built five major Oil and Gas Cooperative Zone(OGCZ), the four strategic channels : northeast channel, northwest channel, southwest channel, marine time channel, these channels almost overlapped with  the six economic corridors of "B&R Initiative", which provides strong evidence that Oil and gas cooperation to become the pillar industry of this national initiative .

The international oil company CNPC operates more than 91 projects in 35 countries and two thirds of the projects have achieved investment recovery. Overseas investment of the Oil and gas industry leads to more than 1,200 engineering services team going abroad, and $30 billion of equipment exports. These operation have accumulated international experience.

Investments and new projects

Over the last 25 years, China’s oil enterprises obtained a good return on investment in global market. CNPC operates more than 91 projects in 35 countries and two thirds of the projects have achieved investment recovery. overseas investment of the Oil and gas industry leads to more than 1,200 engineering services team to go abroad, and 30 billion US dollars of equipment exports, it should be saying ,these operation have accumulated international experience, talent, cultivate a large number of energy elites as the backbone of the oil industry. More importantly, China established a very good relationship with those resource countries in the way of cooperation, the results obviously highlighted.

President Xi Jinping announced that Belt and Road Forum (BRF) for international cooperation will be held on May 14 and 15.

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Possible consequences in points

But the oil and gas industry faces huge risks and obstacles of taking go-abroad policies.

First, the international energy market has been referred as oversupplied as a whole. Recently, the low oil prices on the oil business brought a big challenge. The beginning of the end of 2014, the international oil prices felled persistently , so that the entire industry dropped into the "period of recession", In 2017, whether limited production of OPEC countries , or the rapid development on shale oil and gas industry in the United States, the profits of traditional energy industry have been unable to break.
Second, the geopolitical game will be further strengthened. The New Deal of Trump ‘s administration is to maintain the energy lifeline of the United States, shale gas revolution in the United States caused a major adjustment of the world's oil and gas patterns, energy production center will move to the Western Hemisphere, consumer centers will move to the Asia-Pacific region. But the Middle East still on the focus of contention, including Iraq and Iran. Geopolitics will be more complex and changeable, including the political turmoil of resource states, policies changes, and the threat of terrorism. The new cabinet members of the United States have lots of oil related backgrounds. The American shale gas revolution has led to a historic return and energy independence of the US on oil and gas industry, which has further strengthened the US hegemony and power politics in the world.
Third, the benign competition between China and other energy demand countries will increase in the field of oil and gas. The Chinese government has recently stressed reform urgency in oil and gas system, which will be more open and competitive in the areas of Oil and Gas.

But what is One Belt, One Road

But what is One Belt, One Road

The Eurasiain Integration Project One Belt, One Road (OBOR), consists in the New Silk Road and the Maritime Silk Road Initiative. It was presented by President Xi Jinping in 2013, the year he was elected, during his visit to Kazakstan. From that moment on, the OBOR project beame the conernerstone of China's economic and political expansion in the Eurasian continent, in Africa and beyond.

At the same time, other oil-producing countries are also constantly adjusting the energy contracts, such as Iran, Algeria, and more over, such as Russia, Kazakhstan, Indonesia reduced mining tax ; Mexico, Uganda, Angola and other countries have relaxed restrictions on bidding of oil fields. This also gives a lot of opportunities to India, Japan and European countries injecting into these oil markets ,which bound to compete with China in the price and technology output.
Fourth, how China adapts to international trade rules from the past, to actively participate in the development of international trade rules and pricing center construction. China has to shift into a focus on Asia's common energy security regional security from the domestic energy security. Meanwhile China is in the export of capital, but have to considerate transformation of going abroad for energy industry into manufacturing standards, technology, human capital in all directions, in order to lead the Chinese energy companies to engage and become the international energy giants. However, the certain way of promoting localization and sustainable development of energy cooperation, promoting popular contacts, strengthening cooperation on the demand-oriented international energy technology public relations.

To sum up, in the process of "Belt and Road Initiative", the Chinese policy makers should strengthen the policy communication, in the spirit of "mutual respect, equality and mutual benefit", as well as "based on the current and forwarding long-term" principle to actively build energy transport network, and establishment of multilateral energy international Cooperation and coordination mechanisms to avoid the adverse effects of energy policy changes along the country of B&R Initiative, while promoting consultation and communication among energy producers, transit countries, consumer countries, and finally to formulate of the community of energy interests and win-win cooperation, which reflecting the propose of "Joint Construction and Sharing" with the Belt and Road Initiative.

In 2016, China's economy was generally stable, with an estimated annual economic growth of 6.7%. China's total energy consumption grew by about 4.36 billion tons of standard coal, up 1.4%, which clearly shows that China's energy structure continues to improve.