Summit focuses Chinese role

Updated: 2012-09-21 11:12

By Chen Jia in San Francisco (China Daily)

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Some Chinese entrepreneurs are starting to warm to the prospect of investments in US oil wells that yield annual returns of up to 30 percent.

"It isn't gambling. I could have a relatively accurate assessment of whether an oil well in the US would be worth investing in, due to today's highly developed geographic technology," Zhang Guochang, chairman of Henan Shenghongxiang Chemical Co, told China Daily.

"The concern is about US government policies for Chinese investors," he said.

Zhang spoke in San Francisco on Sunday at the start of a 10-day tour for investors in conjunction with the US China Energy Summit, with events in Houston and Washington to follow.

Chinese investors in recent years have begun expressing interest in the lucrative US oil-production business, despite unfamiliarity with it. At the summit, which ends Tuesday, attendees will learn about the industry's inner workings, including the impact of government policies and regulations, with the goal of sparking investment opportunities.

Four forums in Houston will focus on US oilfield exploration and development, and supply and demand affecting the world's oil reserves.

US Energy Secretary Steven Chu and former president George W. Bush will present the Houston portion of the summit and give speeches.

Although development of renewable forms of energy has been on the rise in China and the United States, Zhang believes investment in fossil fuels remains a highly profitable, "less risky" option given that market demand far exceeds supply.

"I plan to tap the US energy market with $2 million; ideally, I expect the investment return will be from one oil well within a year and a half," he said.

The US imports more than 60 percent of its oil from foreign sources compared with 40 percent in 1985, according to statistic from summit organizers. Worldwide demand for oil and natural gas continues to increase at between 2.5 percent and 7 percent a year, while supply has declined from year to year.

Nearly all 300 of the world's major oilfields are unable to meet continually rising demand from China, Indonesia, the United States and other oil-consuming countries. According to summit organizers, the development of alternative energy continues to increase yet fossil fuels such as oil, gas and coal still provide 88 percent of global energy needs.

"Accelerating Chinese investment in the US has been one of our top priorities," Xia Shuguang, an economic and commercial officer with China's consulate in San Francisco, said at a reception for the summit. The push "to promote cooperation in the energy sector between Chinese provinces and US counties" stems from Vice-President Xi Jinping's visit to the United States earlier this year.

However, Chinese investors need to familiarize themselves with US energy policies, which many view as hostile to their interests, said Yang Bingqing, the summit's chairwoman and CEO of Texas-based oil exploration and production company Luca International Group LLC.

In 2005, China National Offshore Oil Corp, or CNOOC, withdrew its $18.4 billion bid for US-based Unocal Corp, ending a takeover battle that highlighted growing US unease with an economically assertive China.

"Many medium-size and small oil companies in the US are running into trouble in the wake of the global financial crisis and they urgently need partners," Yang said. "That's a cooperative opportunity for Chinese investors that benefits both sides."

"Smaller, independent operators within the US discover over 65 percent of all oil production as opposed to the common belief that new production continues to flow from the major oil companies," she said.

Oil has been a favorable alternative for investors for several reasons, Yang explained: upside potential in price given escalating global demand and limited supply, usefulness as an inflation hedge, and particularly in the US, substantial tax incentives to the industry.

The US consumes 80 million barrels of oil per day and is forecast to increase to as much as 115 million barrels a day by 2015. Unfulfilled demand, she said, will produce a sharp rise in price, enriching those with the foresight to invest in oil-producing assets.