China Eyes New Energy Exchange To Expand Global Oil And Gas Trade
“If you are looking at China, small businesses do not know how to approach it — to attract finance and technology,” says Gong Jialong, chairman of the Greater Bay Area International Energy Transaction Center, in a roundtable discussion with reporters in Beijing last month in which this reporter took part. “We are providing a transparent exchange channel. This exchange serves that purpose. Small businesses do not know where to look. But if you are an exchange member, you have access to all the Chinese counterparts. Ninety-percent of small businesses cannot connect with each other but this exchange is for that purpose.”
China’s
burgeoning economy is demanding oil and natural gas and the chemical offshoots
from both. As such, Chinese companies are looking to make investments in all of
these areas and especially with U.S. producers. A platform such as this is
essentially a match-making service — something that introduces all the players.
By being transparent, it creates more efficiencies and better prices. And in
Asia, that is much-needed; natural gas is cheap in the United States but by the
time it is frozen and shipped to China, its price can triple.
Why
build this exchange in China, which has little oil and gas production? Because
it has the necessary refineries that can break apart the various chemicals and
derivatives, all of which are used in manufacturing and production and which
are part of nearly every consumer product made.
To
boot: Chairman Jialong says the exchange is a disruptive technology, giving
developing nations cheaper prices and increased access to those resources.
Russia, for example, is a major producer that is looking to supply new markets.
Canada, meanwhile, has lost U.S. market share and it is now it is seeking to
sell in Asia. The Greater Bay Area is 50,000 square kilometers with 70 million
people, and a region that includes Hong Kong.
“We believe this exchange could rise to be
major center for the future,” says Eric Fang, president of The National Center
for Sustainable Development, a U.S.-based nonprofit organization, who led the
roundtable discussion. “Once we stop the trade war, you will see a lot of
energy supply going to China.”
Win-Win
Proposition
The
exchange could increase transparency and reduce prices. But a few concerns pop
up. For starters, China’s reach will extend to parts of the world that may not
be aligned with that of the United States, like Venezuela — hardly a concern to
China, given its current spat with this country over Hong Kong and Taiwan.
Meantime, China’s privately-funded platform could “crowd out” other existing
exchanges where China is creating hubs. With potential investors like BP and
Exxon Mobil, it will have deep pockets.
In
Africa, for example, Alpha Ports is creating a similar exchange, which also
introduces potential business partners to each other across several economic
sectors. Oil and gas are a major component of its exchange.
Still,
Kingsley Ekwearir, who is the chief executive of Alpha Ports, told this writer
that he feels that the two businesses would complement each other and that he
would be interested in partnering with China: “I do see anyone able to elbow us
out of the market regarding investment. We have a strong network.”
To
that end, Angola sells crude oil to China. But Angola needs chemical products
that are derived from oil. After China buys Angola’s crude, it then refines it
and sells Angola the spin-offs. It’s a “complementary” arrangement, says
Jialong, chairman of the Greater Bay Area exchange. China can produce 1 billion
tons, with half of that being exported. Africa has few oil refineries of its
own.
“We
don’t compete on the production side,” adds Fang, president of The National
Center for Sustainable Development. “The exchange opens up a whole new set of
dynamics. It will bring prices all the way down.”
The Greater Bay Area International Energy Transaction Center is an innovative idea that will give China more leverage in international energy markets. It’s just one more way that it is trying to reach economic parity with the West. But China emphasizes that its exchange is open to all players and that its primary purpose is to drive global development, creating a ripple effect and a win-win proposition.