US: $18bn Bid by Chinese for Unocal Has US Policymakers Worried

Publisher Name: 
The Guardian

China yesterday made its
most aggressive move yet to challenge US dominance of the global energy
market with an $18.5bn (£10.1bn) bid by state-run firm Cnooc for the
American petrochemical company, Unocal.

The
takeover attempt - by far the most ambitious in a recent wave of
overseas deals by Chinese corporations - is likely to raise political
hackles in Washington where senior policymakers are increasingly
expressing concern about the rising power of the world's most populous
nation.

It is far from certain
that the buyout offer will be accepted. Unocal's California-based board
have recommended a rival bid by US oil giant Chevron. The US government
would also need to approve any deal that may pose a threat to national
security.

Two
congressmen from California, Chevron's home state, have urged president
George Bush to block the offer. Richard W. Pombo told reporters it was
not in the best interest of the US to have Unocal owned by the Chinese
national government. He said the deal could have "disastrous
consequences for our economic and national security". Cnooc signalled
its seriousness yesterday with a cash bid that was 10% higher than
Chevron's. Shareholders are expected to choose at a meeting in August.

Although
it is offering a considerable premium, the Chinese firm, which is 100%
state owned, would gain strategically important oil and gas fields,
mostly in South-East Asia and the Caspian Sea region. Cnooc said the
deal would more than double its production and increase reserves by
nearly 80%.

Analysts
gave the deal, which would have to be financed by a huge loan, the
thumbs down. Ratings agencies downgraded the Chinese firm and investors
dumped shares. But it is in keeping with a wave of recent strategic
acquisitions by Chinese energy companies.

Last
month, Sinopec, China's second biggest oil firm, agreed to buy a 40%
stake in an oil sands project in Canada for $83m. In February CNPC, the
country's leading energy company, signed a deal with Brazil's state oil
firm Petrobras on refining, pipelines and exploration and oil
production projects. In January, CNPC signed a deal to exploit more
than a dozen oil and gas wells at Zumano in eastern Venezuela.

While
many of these have been at over market prices, China's industrial
planners clearly believe that they are necessary investments to ensure
future supplies for the world's fastest expanding economy. Less than 15
years ago, China was a net exporter of oil. But demand has grown so
fast that it has overtaken Japan as the world's second biggest importer
of crude after the US.

This
has contributed to a steep rise in world oil prices, which recently hit
a record $60 a barrel. It has also pushed China into closer
relationships with politically controversial oil-exporting states, such
as Sudan, Iran, Burma and Kazakhstan, and a bitter rivalry with Japan
over an oil pipeline from Russia and gas fields in the East China Sea.
China has also been acquiring some of the best known names in American
capitalism. Lenovo acquired the personal computer business of IBM at
the end of last year while another of China's leading companies, Haier
Corporation, has made an offer for Maytag, the owner of Hoover.

Amid
growing tensions with the US over the trade deficit, military spending
and the currency rates, there is also growing concern in Beijing about
the country's vulnerability to a blockade. To counter this, China has
started to build a 100m barrel petroleum reserve - sufficient to supply
national needs for one month. The first 16-tank facility will be filled
in Zhenhai, Zhejiang province, later this year.

The
Cnooc chairman, Fu Chengyu, insisted national security was not an issue
in the proposed buyout of Unocal. "This transaction is purely
commercial," he told reporters. "It is a good offer for Unocal and it
is good for America." The two Californian politicians wrote to Mr Bush
last week when speculation first emerged about Cnooc. They wrote: "As
the world energy landscape shifts, we believe that it is critical to
understand the implications for American interests and most especially,
the threat posed by China's governmental pursuit of world energy
resources".


AMP Section Name:Energy