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Chinese Invade Oil Realm: PetroDollar Kill

March 25, 2018

China is working a strategy with the Saudis. Since the last months of 2017, the Jackass has been firm that the ARAMCO deal for IPO stock introduction might never occur. And if it did, then Hong Kong might be the only location for the IPO launch. It seems that disclosure and transparency is non-existent to this Arab kingdom. Now the stock listing might be in Riyadh and nowhere else. Imagine the risk to brokerage houses if the truth comes out, that the Saudi oil reserves are only 20% to 40% of the disclosed amount, a grand lie and deep fraud. Such will not stop China from investing privately in ARAMCO, since it would serve two purposes. It would enable huge diverse participation in the Saudi Economy, which contains a second treasure trove of minerals. It would enable the Chinese to purchase Saudi oil in RMB terms for payment. In the last month, the Russians confirmed an equally sized investment stake in ARAMCO. If the Chinese sit on the ARAMCO board of directors, they will surely convince the Saudis to alter the payment method in approval. It could be a primary part of the deal.


The view that makes sense is that Russia will set oil output policy and China will set oil payment policy, as the Saudis have found a new sponsor and protector. The Saudi Royals have ceded control for their remaining oil reserves and production policy. The pudding proof will be military missile deals, since the Saudi Royals want the best. The entire team at the table will continue the lie on the ARAMCO valuation, but keep honest the USDollar amount on their investment. They will cite 10% investment stakes, but while smiling like Cheshire cats. The resulting percentages will be much higher than disclosed, like over 50% for R&C combined, thus control!


Further Chinese investment across the Arab oil region is extremely evident, and in considerable volume. The extent, range, and depth has never been seen before. It extends from Algeria and Libya in North Africa to Iraq and Kuwait in the land mass, to United Arab Emirates in the Gulf region. The diversification includes port construction, oil production, building refineries, stakes in concessions, and provision of drill equipment. Such is without precedent. In typical Chinese manner, they sow the seeds of commerce, which produce jobs and economic growth, leading to more wealth and a better standard of living. The US approach for too long has been to foment discord, to sell weapons, and to observe economic destruction, with resentment in residue. In the process of the Chinese invasion into the petro fields, the US and European firms are gradually seeing encroachment on their turf, which had been securely held for decades. But they still have significant presence. It is easy to see that each Arab nation will be nudged into accepting RMB payment in oil shipments. They must comply with the wishes of their investment partner. The end result will be the death of the Petro-Dollar defacto standard by a thousand dragon cuts. It is assured. The demise will be slow at first, then occur suddenly.


Algeria has turned to China for development, after the IMF left the nation with poverty and debt servitude following a debt restructure. China is building ports, vehicles, and residential homes. The Chinese RMB is openly traded. Petro-China agreed to a deal to produce Libyan oil. The Eurasian Trade Zone reaches to North Africa. The Chinese are reaching into the North Ffrican region, to undermine the Petro-Dollar.

Algeria is turning to China to finance several infra-structure projects, including a new $3.2 billion port. The North African OPEC member has responded to the lower oil prices. Oil & gas production account for 60% of the state budget, resulting in an energy earnings decline by 40% last year. The government slashed spending, raised some subsidized fuel prices, and curtailed major projects. The nation weathered the oil decline well, with little foreign debt and more than $130 billion in reserves. The Chinese funding of key projects represents the first time it has sought external funding in a decade. Chinese businesses are already well rooted in Algeria, especially in housing and construction. In one flagship project, Chinese firms are helping to build a huge new mosque worth $5 billion in the capital Algiers. Soon Chinese banks will fund the port in Cherchell, east of Algiers. Its facilities will be capable of processing 26 million tonnes of goods per year. A vehicle and trucks assembly plant and thousands of houses are among the Chinese-funded projects planned for the next couple of years. China’s Shanghai Ports Group will manage the project. Total Chinese investment in Africa was $32 billion at the end of 2014.

A key sign of the growing trade between the two countries, Algeria uses the Yuan (RMB) currency in exchanges with China instead of the USDollar. Traders at ports cite big demand for the RMB currency. Algeria has had its fill of predatory IMF funding and aid. The Chinese funding is more politically acceptable than multilateral lenders such as the International Monetary Fund. After the nation signed a debt restructuring agreement (i.e. debt default) with the IMF in 1994, Algeria saw social tensions escalate as a result of unpopular measures such as closing state firms, sacking thousands of workers, and removing subsidies on primary consumption items. It also devaluated its currency by 40 percent. Many Algerians correctly blamed the IMF, seeing it as a foreign tool that created poverty. But the presence of China is widely seen as beneficial for Algeria and its economy. There are 35,000 to 40,000 Chinese workers in Algeria, according to the Chinese ambassador. See Reuters (HERE). The Chinese have entered the ravaged nation of Libya. Their large oil firms will assist in reviving the Libyan production. The United States left the nation in ruins after killing its leader Qaddafi, stealing its 144 tonnes of gold, and fomenting sectarian violence toward chaos and scorched earth. See Bloomberg (HERE).


Iraq to build the first of four oil refineries in the city of Fao under Chinese contractors. The ISIS asset captures have been reversed. Iraq is OPEC’s second largest oil producer, behind Saudi Arabia. The Chinese are reaching into the interior Arab region, to undermine the Petro-Dollar.

Iraq plans to build an oil refinery at the port of Fao on the Gulf with two Chinese companies, and is seeking investors to build three more large facilities. The refinery in Fao will have a capacity of 300,000 barrels per day and include a petro-chemical plant. Two other refineries, each with a lesser 150,000-bpd capacity, are planned in Nasiriya in southern Iraq, and in the western Anbar province. A third will feature 100,000-bpd capacity, set for Qayara, near Mosul in northern Iraq. It was taken back from Islamic State militants (ISIS) last year.

Iraq is OPEC's second largest oil producer, behind the leader Saudi Arabia. Its refining capacity was curtailed when in 2014 ISIS guerrillas (under hidden US and Israeli control, truth told) overran its largest oil processing plant in Baiji, north of Baghdad. Iraqi forces recaptured Baiji in 2015, but the location sustained heavy damage from the war. The country now relies on the Doura refinery in Baghdad, and Shuaiba plant in the south. The expansion of these four additional refineries will lift Iraq back to pre-ISIS levels. The rape and pillage of Iraq by the United States is gradually coming to an end, as its leaders look to China for development. The Iraqi Reconstruction Fund set up by the USGovt was nothing more than a shell game for large US corporations to pilfer and defraud. See Jerusalem Post (HERE). In one of several agreements, a deal with China’s state-run Zhenhua Oil is set to help market Iraqi crude oil to Chinese refineries. They will share profits. China is working both ends with Iraqi, which enjoys some revival. See Gulf Times (HERE).


Petro-China acquires stakes in two UAE offshore concessions to enhance economic cooperation, at cost of $1.18 billion. Output is expected to be 460,000 bpd oil plus 500 million cubic feet gas per day. The Chinese are reaching into the Gulf Region, to undermine the Petro-Dollar.

The deals were signed by Sultan Ahmed Al Jaber, CEO OF Abu Dhabi National Oil Company (ADNOC), and Wang Yilin, chairman of China National Petroleum Corporation (CNPC). The 40-year term of contracts enables their subsidiary PetroChina to acquire stakes in two Abu Dhabi's offshore concession areas. PetroChina is granted a 10% stake in the Umm Shaif and Nasr concession at cost US$575 million, and a 10% stake in the Lower Zakum concession at cost US$600 million. Both concessions will be operated by ADNOC Offshore. Through PetroChina, the CNPC produces 52% of China's crude oil and 71% of its natural gas. This deal enhances an already firm position for China in UAE. In February 2017, the CNPC was awarded an 8% interest in Abu Dhabi's onshore concession, operated by ADNOC Onshore. It also has acquired a 40% stake in the Al Yasat concession.

Sultan Al Jaber added that, “Energy cooperation is an increasingly important aspect of the UAE’s relations with China, the #1 oil importer globally and a major growth market for our products and petrochemicals.” The Umm Shaif field's Arab reservoir is characterized by a huge gas cap, one of the largest in the region, with rich reserves in condensates. The gas cap overlays an oil rim, which in combination with Nasr field has a crude oil production capacity of 460,000 barrels per day. The ADNOC plans to process 500 million standard cubic feet of gas per day, drawn from Umm Shaif's gas cap. Abu Dhabi harbors 90% of the oil reserves in the UAE, which accounts for 7% of the world's known oil reserves, the WAM reported. See Xinhua Net (HERE).


China has grown to become one of the biggest oil drillers in Kuwait, with 45% share of the Kuwaiti rig market. The Chinese are reaching into the Gulf Region, to undermine the Petro-Dollar.

Kuwait has purchased a huge amount of Chinese-made oil equipment, thus breaking the monopoly long held by the United States and Europe in the Middle East oil sector. At end 1Q2018, Chinese enterprises had won contracts for 64 projects in Kuwait, covering such sectors as oil field services and exploration, infra-structure, and telecommunications, with total value of $13.7 billion. New oil drilling contracts alone reached $3.01 billion in the oil drilling sector in the first quarter, creating a landmark level for projects in China-Kuwait cooperation. In the Kuwait subsidiary, the Sinopec International Petroleum Service Corp (SIPSC) has transformed the Chinese enterprise's image and become the biggest rig contractor in Kuwait. The Chinese firms have delivered with completed projects, offering quality, and thus erasing original worries and doubts. The US has been more interested in selling weapons in recent years, typical of fascist regimes. China has taken market share. See See Global Times of China (HERE).


Chinese carmaker Geely has nailed down a $9 billion stake in Germany's Daimler (Mercedes Benz). They already acquired Volvo for its car division. The channels are open for exporting Chinese cars to Europe, and for Mercedes vehicle sales across China. It is a brilliant stroke by the suddenly multi-national Geely. The Chinese carmaker has a global reach to take on all markets.

Li Shufu is the chairman and main owner of Chinese carmaker Geely. He announced an accepted bid toward a 9.7% stake in Daimler AG, the German carmaker. Worth nearly $9 billion, the stake makes Geely the biggest single shareholder in the maker of Mercedes Benz cars, trucks, and vans headquartered in Stuttgart. The Geely acquisition makes for the top shareholder in Daimler ahead of the Kuwait Investment Authority, which owned 6.8% in recent data. The motive by Geely is to seek an alliance in electric vehicle technology. The Chinese initiative has been strong to put more clean cars on the road to cut pollution. In actual deed, a Daimler spokesman called the stake purchase a private investment by Li. The two company executives have mutual respect and admiration. In November, it seems Daimler had turned down a separate offer from Geely to take a stake of 5% via a discounted share placement.

Zhejiang Geely owns Volvo Cars, as well as the maker of London’s black taxi cabs. Last year, Geely acquired a 49.9% stake in the struggling Malaysian automaker Proton, which will benefit from a transfer of technology and an enhanced product line. Geely’s recently commissioned a factory in Belarus which will target the vast Russian market. Geely expects to succeed in quickly penetrating the Southeast Asian market. The biggest globalization move this year for the company is afoot. Geely already has the best selling domestic brand in China with a 5% share. Next comes the launch of its Lynk brand of sedans and crossovers that combine features of passenger cars with those of sport utility vehicles. Soon Geely will become the most widely seen Chinese brand across the globe. See Reuters (HERE) and South China Morning Post (HERE). In Costa Rica, they are present along with the Great Wall, BYD, and FAW brands.


Honeywell, Waters, and other US-based companies look to benefit from China's gigantic Belt & Road Initiative. It contains over $8 trillion in planned projects. It is the most ambitious cornucopia (conference table) of massive projects since the Marshall Plan, and many times larger. The Belt & Road Initiative will trigger a global economic boom, the opposite effect from the American global war destructive era of shame.

At least 15 major companies are cited as participants within the giant regional development program which contains an estimated $8 trillion in projects, as an opportunity for business growth. Examples from the United States include Honeywell and Massachusetts-based Waters Corp. The Belt & Road Initiative has been the massive pet project by Chinese President Xi Jinping, begun in 2013 to promote investment connecting Asia, Africa, and Europe. The program focuses on infra-structure development, echoing the Silk Road that once linked Asia and Europe centuries ago. Roughly 70 countries covering about two-thirds of the world's population are participating in Belt & Road projects. The US corporations had been notably missing until recent months.

The list is impressive of majors in participation for the myriad projects with a marketcap over $1 billion. It includes Honeywell (US-based electronics), Chubb Insurance (US-based), Waters (US-based analytical instruments), Rio Tinto (Australian mining giant), HSBC (British & Hong Kong bank), Siemens (German electronics), Kubota (Japanese contruction equipment), WEG (Brazilian electronics), Schneider Electric (French electronic equipment), Eutelsat Communications (French satellites), Worley Parsons (Australian engineering consulting), Alibaba (Chinese retail conglomerate), United Overseas Bank (Singaporean bank), Sime Darby (Malaysian conglomerate for its construction unit), and Thai Oil Public (refineries). Although not cited in the CNBC article (HERE), it is reported that General Electric (GE) has also landed some lucrative contracts.


The Eurasian linkage moves apace. The Trans-Asian Railway network construction is on track. More freight connectivity is to come between East China and West China, to join China’s poor neighbors in Southeast Asia. The initiative adds to the growing linkage to former Soviet Republics and then to Eastern Europe. China strives to connect the end points of Eurasia.

Yunnan province will speed up construction of the Trans-Asian Railway within the southwestern Chinese province. It aims to complete a railway network connecting China with Vietnam, Laos, and Myanmar. Wang Gengjie is general manager of China Railway Kunming Group. He stated, “Our goal is to build a modern railway network that could connect the provincial capital Kunming, with the bordering nations in five hours and neighboring provinces within eight hours.” Yunnan is the center of the Trans-Asian Railway, which is a project to create an integrated freight railway network across Europe and Asia. As a deputy to the 13th National People's Congress, Wang revealed that all the construction work connecting China with its southern neighbors is speeding up with expected completion by 2021. Under the current plan, the cross-border railway network will mainly serve freight trains for commercial trade. See Peoples Daily Online (HERE).

Suzie from Taiwan, Hat Trick Letter contributor, reminded that this huge railway is mostly intended for freight, connecting Southern China with Vietnam, Laos, and Myanmar. In the end, the result is to bring linkage to the expanding Belt & Road in an integrated piece. Trade in real goods is the primary emphasis, the main push, in support of China’s real economy. The Beijing officials have again and again emphasized the goal to march onward with the real economy. They literally use this term Real Economy in their public statements, kind of a slap at the Americans, whose financial engineering facades and structures have been a grand grotesque disaster.


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Jim Willie

Jim Willie

Jim Willie CB, also known as the “Golden Jackass”, is an insightful and forward-thinking writer and analyst of today's events, the economy and markets. In 2004 he launched the popular website that offers his articles of original “out of the box” thinking as well as content from top analysts and authors. He also has a popular and affordable subscription-based newsletter service, The Hat Trick Letter, which you can learn more about here.  

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