(Bloomberg) -- While there’s a risk of crude sliding below $30 as demand is displaced by alternative energy, it’ll still be needed for making petrochemicals, said the head of the enigmatic Chinese company that last month bought a $9 billion stake in Rosneft Oil Co.
In a note running longer than 12,000 Chinese characters posted on CEFC China Energy Co.’s WeChat account, Founder and Chairman Ye Jianming justified purchasing a chunk of the Russian firm from Glencore Plc an (LON:GLEN)d Qatar’s sovereign wealth fund -- a deal that’s thrust the previously little-known firm into the global spotlight. He also riffed on everything from his nation’s history and philosophy to the future of fossil fuels and electric vehicles.
With crude’s slump since 2014 wreaking havoc on Russia’s economy, and Western sanctions adding more pressure, there was an opportunity to take a relatively cheap share in Rosneft and contribute to the long-term supply security of China, the world’s biggest energy user, Ye said. Moreover, privately held CEFC wasn’t under pressure to exit some businesses amid weak oil and gas prices, unlike more traditional players in the industry, he said.
“Won’t the acquisition of these oil and gas resources become a burden? Of course not,” Ye said in the note. He said crude’s use will prove critical in the production of petrochemicals, which are used to make everything from plastics to fabric.
Scarce Chemicals
“Chemical products have been scarce, and oil is the raw material that’s used for chemical processing,” he said. CEFC plans to work with Rosneft and Abu Dhabi to produce petrochemicals for the Chinese market, according to Ye.
In February, CEFC signed a deal with Abu Dhabi National Oil Co. for a share of an onshore venture that includes state-run giant China National Petroleum Corp., as well as international oil majors BP Plc and Total SA. The company curr (LON:BP)ently has more th (PA:TOTF)an 80 million metric tons of foreign crude oil equity, of which 42 millicrude oils from Rosneft, 13 million tons is from Abu Dhabi and the remaining from Chad and Kazakhstan, Ye said in his note.
Brent crude, the benchmark for moreBrent crudethe world’s oil, was trading at $55.95 a barrel on the London-based ICE Futures Europe exchange at 8:36 a.m. Singapore time. Prices were at more than $115 a barrel in mid-2014.
The company’s steps toward securing oil supplies has been “very successful,” he said. CEFC is next seeking natural gas, which will be the resource usednatural gasture electricity generation, including for charging environment-friendly cars, as nations seek to curb pollution, according to Ye.
The company plans to boost upstream supplies in Qatar and Africa, according to Ye. He also predicted that aircraft and ships, as well as cars, would be powered by electricity in the future.
Belt And Road
CEFC has followed Chinese President Xi Jinping’s efforts to boost investment and construction across a trade route between China, Asia and Europe, in what is known as the “Belt and Road” initiative, amid his government’s encouragement of private enterprise.
Russia and Central Asia provide the best solutions to China’s oil and gas needs due to the ease of land transportation, enabling fuel to bypass potential supply bottlenecks in the Persian Gulf and Strait of Malacca, Ye said in his note.
Starting as a small trading firm almost two decades ago, CEFC bought assets including storage, terminals and oil fields, as well as financial units. In its statement about the Rosneft purchase, it described itself as China’s largest private oil and gas company, with 50,000 employees and revenue of more than $40 billion.
(Updates crude prices in seventh paragraph.)
