OREANDA-NEWS. October 05, 2011. Energy security is becoming a priority for economies around the world, not least the world’s biggest energy consumer, China. It will be responsible for most of the 36% increase in global energy demand by 2035, says the International Energy Agency.

It’s therefore not surprising that the the Financial Times reported that Chinese oil and gas companies — PetroChina and its parent company China National Petroleum Corp (CNPC), China’s National Offshore Oil Co (CNOOC) and Sinopec — were responsible for 20% of global mergers and acquisitions in the oil and gas sector last year.

As a result of the rising M&A activity, China’s oil and gas footprint in Africa is growing. The continent not only supplies about 12% of the world’s oil, but also has vast untapped resources, says Alex Vines, regional and security studies director at the UK international affairs think- tank Chatham House.

The Institute of Developing Economies Japan External Trade Organisation has pointed out that China’s presence in African countries has grown from its focus on Sudan before 2000 to nearly 20 countries today.

“If you were to combine the Chinese companies as a grouping, they could become the biggest investor in Africa, challenging the position of oil majors,” says PwC energy industry leader for Southern Africa Chris Bredenhann.

But a presence in Africa comes with its own rules. As exploration on the continent increases, all players need to up their game. “It’s becoming more and more competitive,” says Bredenhann. “The challenge for oil companies is that in general, easy oil is not being found, and regulation is becoming tighter, especially after BP’s spill in the Gulf of Mexico.”

There are also new oil provinces , like Ghana and Uganda, attracting attention. Competition for resources is increasing and “ the cost of acreage is going up”, says Bredenhann.

While the regulatory regimes differ from one country to another , most call for their companies and services to be involved in the exploitation of any new finds. As a result Chinese companies have formed joint ventures with the national oil companies of Sudan, Nigeria, Angola and Algeria.

But these new oil provinces are also likely to partner with the international oil companies or independents (such as UK-based Tullow Oil), “purely because they have the inside track already”, says Bredenhann. For example, this year CNOOC partnered with Total and Tullow in Uganda.

“[The Chinese] are looking for stability,” says Adi Karev, Deloitte’s global oil and gas leader. “Africa is risky, both geographically and politically, so joint ventures are a way to manage the risks.”

For SA, this brings opportunities. SA can bring execution to projects — most notably from energy giant Sasol. Karev says there is also potential for ventures with SA’s national oil company, PetroSA.

For now, though, Sasol has limited interest in Africa outside SA. It has some Mozambique gas interests.

But this does raise the question of what PetroSA is doing to secure some of the resource and reserves in Africa as it has a mandate to ensure security of supply.

PetroSA has activities in Namibia and Equatorial Guinea. In Namibia, it has 10% of an offshore block where exploration for gas will begin shortly, according to Everton September, PetroSA’s vice-president of new ventures upstream.

Namibia has huge gas potential in its offshore Kudu fields. Karev says there may be potential to build a pipeline to SA.

In Equatorial Guinea, PetroSA is a 75% shareholder in an offshore block where the government has just granted a one-year exploration extension. September says the company is seeking joint venture partners for the block.

Further afield, in Venezuela, PetroSA is working on an agreement to quantify hydrocarbon reserves.

PetroSA has scaled down its exploration and prospecting work in Africa and its strategy is rather “to focus on the acquisition of producing or near producing assets to grow its reserve base”, it says in its annual report.

However, September points out that while that is the case internationally, the focus at home remains on the entire value chain (exploration to production). The planned construction of a refinery known as Project Mthombo, which is to process 360000 barrels/day of crude, aims to reduce reliance on imports of refined oil.

While the scramble for Africa’s reserves is widely reported, it’s interesting to note how much exploration activity is happening on (or off) SA’s own shores.

The primary asset, says September, is off Mossel Bay, where PetroSA is developing a gas field. Procurement is well under way, and the first gas is expected in 2013, he says. This will be used to feed the Mossel Bay gas-to-liquids plant for six years.

Activities around SA include exploration (seismic surveys) and a feasibility study for developing existing discoveries for power generation.

Off the country’s west coast, PetroSA is looking for an exploration joint venture partner to drill where prospects have been identified .

The company also holds minority shares in ventures by US-based Forest Oil and resources giant BHP Billiton.

Legislation demands, too, that PetroSA be offered a 10% stake in all blocks held by other players when they reach the production rights stage, says September.

Securing energy supply locally — PetroSA’s strategy — isn’t the only option, as Bredenhann points out. “You could also own reserves in other territories,” he says. “For example, you could invest in an operating asset in Russia, sell to the open market, and then import from a different (closer) location.”

Local reserves, however, come with other advantages in that if they are developed they would create employment, logistical costs would fall and if the oil or gas were produced in SA by PetroSA specifically for use in SA, prices would be insulated from market volatility.