China reviewing oil relationships with Sudan, South Sudan, researcher says

Corrections to this story were made Oct. 23.

The Chinese government and China National Petroleum Corp. are reviewing their relationships with Sudan and South Sudan following years of growth that changed both sides, a researcher said at Johns Hopkins University’s School for Advanced International Studies.

“Sudan was a launching pad for CNPC to become a global corporation through financial and resource benefits,” said Luke Patey, a senior researcher at the Danish Institute for International Studies and author of “The New Kings of Crude: China, Oil, and Civil War in Sudan and South Sudan.”

“For much of the 2000s, CNPC took 40% of its oil from Sudan through subsidiaries as well as through the main subsidiary,” Patey said during an Oct. 20 event hosted by the SAIS China-Africa Research Initiative. “Things started to go bad for CNPC when the two Sudans signed a comprehensive peace agreement. There now was less, not more, security where local groups targeted Chinese workers.”

As Chinese corporations have become increasingly global, China’s government has had to follow with crisis diplomacy to protect its citizens and investments abroad, Patey said. “Officials in Sudan and South Sudan say they’re confused about whether they should contact the Chinese government or CNPC’s local representative,” he said. “They need to disentangle the assortment of Chinese actors and coordinate their solutions.”

Patey said, “There’s an old Chinese saying that the mightiest dragon can be defeated by a local snake. It could be argued that this might apply to China’s experience in Sudan and South Sudan. While it has become very assertive in protecting its interests there, it can’t do this alone.”

Affecting other efforts

After CNPC’s global production fell for the first time in 2012 because of its heavy involvement there, Patey said the company tried to diversify. But its record in Sudan and South Sudan had impacts on its entry into North American and other markets, he said, adding that sometimes, CNPC’s relationship with its own government complicated matters, too.

CNPC executives have replacements waiting in the wings should they be detained during one of the government’s periodic anti-corruption probes, as happened to the head of the company’s Canadian operations during a visit to Beijing, Patey said. “It’s reached a point where if an executive hasn’t been heard from for a few days, it’s assumed he’s been taken out of circulation,” he added.

Meanwhile, South Sudan may be only a few years old as a country but its oil fields are very mature and need new investment, he continued. “I don’t see CNPC leaving town at any point because this is a crown jewel,” Patey said. “But it won’t invest billions of dollars there in new projects either.”

Falling commodity prices are making many countries and companies realize there are other issues, he continued. “A lot of Western companies like Schlumberger stay in Sudan and South Sudan through all the conflicts,” he said. “CNPC and other big players are starting to be concerned. Smaller companies that haven’t had many opportunities could start to move in.”

When CNPC first moved into Sudan in the 1990s, its willingness to build a refinery there gave it an advantage over Total SA and other multinational competitors, Patey said. “To have a local refinery, even if it’s small and expensive, is a strategic advantage for CNPC because its subsidiaries benefit from providing construction and related services,” he said.

Other players

India’s entry in 2003 there through its own state oil company Oil & Natural Gas Corp. occurred because the South Sudanese government didn’t want CNPC to be dominant, Patey said. “It’s not as powerful politically because India still has a separate oil and gas ministry, unlike China, which turned its ministry into CNPC,” he said. “It made significant changes there, but South Sudan definitely had a role.

“Malaysia is the real untold story,” Patey posed. “Its share of Sudan’s operations is bigger than India’s. Sudan also let Petronas bring its own workers in, which prevented serious labor problems.”

He said that ONGC and Petronas don’t have the number of subsidiaries CNPC does “to the point that many people believe [CNPC] makes more money from oil and construction services in Sudan and South Sudan.”

But CNPC also was blamed for producing revenue for Sudan’s government to pursue aggression in the 1990s, according to Patey. It’s trying to show that it has cleaned up its act by engaging local interests there and Western nongovernment organizations, he said. “So far, its record has been pretty thin on the ground. Guiding principles have been introduced, but NGOs need to push CNPC forward harder,” Patey said.

“CNPC has a horrible environmental record back home,” he said. “It hasn’t done any better in Susan and South Sudan because laws aren’t being enforced. We don’t hear about problems with CNPC operations in Canada, for example.”

Contact Nick Snow at [email protected].