Chinese Companies Energy Activities in Emerging Asia

In non-Organisation for Economic Co operation and Development (OECD) emerging Asian countries, Chinese companies will contribute to 15% (54 gigawatts) of power generation capacity additions over 2013-22.

Emerging Asian economies supply a marginal portion of China’s oil but an increasing amount of its gas, despite China having recently rapidly expanded natural gas imports from other regions as well.

Motivations for Chinese company involvement in the emerging Asia region are diverse: primarily business opportunities under the Belt and Road Initiative, but also greater energy security in some cases.

In the power sector, Chinese energy companies are primarily contractors, providing construction services and supplying equipment. In oil and gas, Chinese companies are investors as well as contractors.

Companies from China supply their main equipment both from China and from other countries, within a global value chain that offers opportunities to multiple participants.

Contracted power generation projects and oil and gas investments of Chinese energy companies were worth USD 10.5 billion annually on average between 2013 and 2017.

The scale of Chinese energy companies’ contracts and investments tends to be smaller in riskier countries, except when political ties with the country are strong. Meanwhile, there is no clear correlation between the scale of contracts and investments, and the amount of energy resources these countries supply to China.

Among Chinese companies, overseas market involvement is undertaken mostly by the top state-owned enterprises (SOEs) for energy and their subsidiaries, while the role of increasingly dynamic private enterprises remains small. Most Chinese SOEs provide integrated services centred on turnkey project delivery.

China has become a major provider of capital, construction services, and equipment to the energy sectors of developing and emerging economies. Chinese energy and energy infrastructure companies, largely state-owned, are active across the energy sector in most fuels and through diverse modes.

This report analyses construction services, equipment, and investments provided by Chinese energy and energy infrastructure companies in the power, coal, and oil and gas sectors in non OECD emerging Asian economies (referred to in this report as “the region”, “emerging Asia” or “non-OECD Asia”).1 It uses an integrated approach to provide a fact-based quantitative overview that complements existing research efforts, identifying the main Chinese stakeholders (headquartered or with a parent company in China), highlighting major trends, and analysing strategies and drivers.

Energy demand for all fuels and technologies in developing and emerging Asian countries is set to increase during the 2017-30 period. The region’s share of global energy demand therefore rises by the end of the period most notably for coal, for which demand increases from 20% in 2017, to 29% in 2030.

Chinese company involvement in emerging Asia power sector development is substantial in terms of new capacity, but small in comparison with the scale of China’s domestic market. Chinese companies are expected to contribute to 15% (54 gigawatts [GW]) of power generation development in the region over 2013 22, and although the 160 new Chinese-built power plants are equivalent to half of Spain’s generation capacity, they represent only 1/20 of additions within China during the period.

IEA analysis does not indicate market dominance by Chinese companies in any segment of the electricity generation sector even though they have large market shares in coal, nuclear, and hydropower. The Belt and Road Initiative has raised concerns in the media and governments over Chinese exports of fossil fuel technologies to developing countries. Findings reveal that Chinese manufacturers supply turbines for coal generation to 35% of coal-fired projects built in the region.

Reflecting trends in the region where fossil fuels continue to lead power capacity additions, Chinese added capacity reaches 33 GW in coal-fired generation and 4 GW in gas. Chinese capacity additions from low carbon sources, including nuclear, represents 30%, led by hydropower (10.4 GW), and followed by waste heat to energy (1.9 GW). This low level of additions in wind and solar power contrasts with the success of these technologies in China.

Within emerging Asia, most Chinese-built power projects are in South Asia (53%) and Southeast Asia (42%), followed by Central and North Asia. Pakistan is the primary contractor of Chinese-built additions, followed by Indonesia, Viet Nam, and India.

Chinese companies are involved in upstream, midstream, and downstream activities in the oil and gas sector; in some projects that secure resources for China; and in others that supply global markets. Their activities are reflective of the wider context and trends.

As a major energy consumer and importer, China’s dependence on imported resources exposes it to energy security risks, thus it actively promotes activities outside China while also strengthening domestic production when possible. Despite strong links with Central Asia, Asia is the source of only 3.7% of China’s oil supply (but 55% of its gas).

Although most Chinese investment in the Asian oil and gas sector has historically been in oil exploration and production, investment in this area is declining while spending on gas production has increased. The importance of Chinese companies in the region’s oil production remains limited and has even declined slightly since 2013, but gas production by Chinese companies in the region is expanding.

Midstream activities consist of building infrastructure linking China with supply sources, as well as addressing oil and gas infrastructure development needs within the host countries. Chinese companies are currently involved in refining projects with a total capacity of 1 million barrels per day (mb/d).

Emerging Asia supplied 57% of China’s coal imports in 2017, with Indonesia and Mongolia as the main Asian suppliers. Mergers and acquisitions (M&A) by Chinese companies in coal mining appear to be limited, but some companies are involved in coal mine modernisation projects or mine-mouth power plants.

Most Chinese energy companies are state-owned enterprises (SOEs) that receive guidance from the government. Private companies are increasingly active, but their shares in overseas markets are still small. Most Chinese SOEs provide integrated services centred on turnkey project delivery.
Most activities of Chinese energy companies in emerging Asia involve supplying construction services, equipment and investments (with the financial support of Chinese banks that provide credit to companies or concessional loans to host countries). In the power sector, Chinese energy companies are contracted primarily to provide construction services and supply equipment; in oil and gas, they are investors as well as contractors. M&A and direct involvement in project operations happen only occasionally outside the oil and gas sector.

The scale of Chinese energy companies’ contracts and investments tends to be smaller in riskier countries, except when political ties with the country are strong. Meanwhile, there is no clear correlation between the scale of contracts and investments, and the amount of energy resources these countries supply to China. Contracted power generation projects and oil and gas investments of Chinese energy companies were worth an average USD 10.5 billion annually between 2013 and 2017.