Gas Today speaks with founder and Managing Partner of Capital Eight and founding chair of AustCham Greater China Joanne Wood in Shanghai about the how, what, when, where and why of China's evolving interest in natural gas both at home and abroad, and how the 12th five-year plan can act as a guide to doing business with China.
What opportunities exist for Australian companies to work with the gas industry in China?
Many opportunities exist across all aspects of the sector, from exploration through to engineering, technology research and development, pipelines, generation, training and education, and more. While each subsector of the industry may have restrictions such as limitations on foreign shareholding and on the form of activity that can be undertaken, Australian companies are really only limited by their creativity in terms of the approach they take – and they have an increasing amount of competition entering China now from other regions such as North America, South Africa, Latin America and Russia.
What are the three most important cultural considerations to remember when doing business with China?Article continues below…
- It is important to understand the concept of ‘face’ and ensure that you do not make a Chinese counterpart ‘lose face’.
- Take the time to get to know your Chinese counterparts and develop a deep/strong relationship with them which will hold you in good stead for meeting business challenges.
- Don’t try to become Chinese but learn as much as you can about Chinese etiquette in meetings, at meals and in the office.
How can companies interpret the five-year plans to gain insight into China’s direction in 10–15 years time?
The five-year plans are a comprehensive blueprint that the Chinese Government constructs, setting out China’s strategic priorities, industry by industry for any five-year time frame. It publishes very specific targets and development goals to be achieved at all levels of government, along with detailed implementation plans sector by sector. An investment guide has also been published for the most recent 12th five-year plan that acts as a guide to foreign investment, so foreign companies know exactly what they can or cannot do, in what time frame, on what terms and with which entities.
What does the shift in focus of the 12th plan and the imminent changes in the Government’s leadership, forecast for China’s energy outlook?
Natural gas development within China is now permitted under the revised foreign investment catalogue, which became effective as of 30 January 2012. China has a large amount of shale and unconventional gas resources within the country across eight basins. The Chinese Government is projecting a combined CSG and shale gas output of 20 per cent by 2020.
The 12th five-year plan has set ambitious targets for projected shale gas production aiming at 6.5 billion cubic metres (Bcm) of shale by 2015 and 80 Bcm by 2020. However, domestic demand by 2020 is projected to be approximately 300 Bcm, meaning that there is still a need to import gas from countries like Australia and Russia.
Other sources of energy that will be developed by 2015 include nuclear (44 GW), solar (5 GW), hydroelectric (63 GW), coal (260 GW) and wind (48 GW). These figures are comparable to growth of 22 GW in gas-fired power generation in the next three years.
Many Chinese companies are already strengthening their position within the domestic natural gas industry. Sinopec has indicated that it aims to produce CSG resources to the equivalent of 4 million tonnes per annum (MMt/a) by 2020; PetroChina aims to produce 4.5 Bcm/a of CSG and 500 million cubic metres of shale by 2015, and have rights to 70,000 sq km of acreage. China United Coalbed Methane owns 27 permit blocks covering an area of 20,000 sq km. Sinopec has shown that it may be interested in the possibility of co-operating with Chevron and BP to develop shale in China’s southwest. CNOOC has shown interest in learning more about developing the resource by becoming a co-acquirer with Chesapeake Energy in a United States Eagle Ford Shale project funding 75 per cent of the costs up-front, and purchased a 30 per cent stake in five Devon Energy shale operations in the United States for approximately $A2.2 million.
Do you suggest singling out state-owned enterprises (SOE) for collaboration?
I do not necessarily advocate singling out SOEs as being the best partners for collaboration. This is one of the exciting areas of development in the 12th five-year plan; the Government is opening up the industry to the private sector for the very first time. There is a good reason to look at collaboration with SOEs as they are well-established industry leaders – but this doesn’t mean they are naturally the best fit.
Do you think China will float its currency before the end of 2012?
Definitely not. There is simply not enough time to complete all the development and processes necessary to allow full convertibility. Nor does the Government have all the infrastructure in place required to float the currency and make it fully convertible – and much also needs to be developed internationally, not just in China. For example, China recently announced currency swap agreements with Australia and Canada as part of this process, but there are many other countries still waiting to sign currency swap agreements, and this will take time.