China's major producers take steps to minimize possible geopolitical risks

BEIJING - China's biggest oil companies are learning how to alleviate the risks resulting from the uncertain geopolitical scenarios in the Middle East and North Africa.

One of their latest moves is a plan to assemble equipment in Dubai in the United Arabic Emirates. The regional business hub will act as a halfway house on the road to the turbulent areas.

China National Petroleum Corp, the country's biggest oil producer with a strong presence in countries from Iraq to Sudan, is planning to set up an industrial park of 200,000 square meters in Dubai's "Free Zone", said a CNPC source with direct knowledge.

The source said that the park will be a logistics hub, with production lines for engineering equipment to supply the company's needs in the Middle East and North Africa. CNPC will use the park as an equipment store in the event of an emergency withdrawal from the Middle East and North Africa.

CNPC has been in Libya since 2002 and has oil and gas assets in addition to oilfield services contracts. The company suffered huge losses when the uncertain conditions in the country forced its withdrawal in 2011, the source said, without citing figures. "We have to learn lessons and the Dubai project is among a number of solutions designed to make us more nimble and flexible when pulling out from turbulent regions."

Despite the political turmoil, the region remains the most important one for CNPC, and the geographical advantage and political stability of Dubai means it will become a safe haven, the source said.

Chinese oil companies have invested heavily in the turbulent Middle East and North Africa region, which is the foremost oil supplier for the country. Those companies have been seeking ways of reducing the impact of any possible problems.

Sinochem Group, China's fourth-biggest oil company, said recently that it will set up a logistics center in Dubai.

The company has set a combined output target of 15 million metric tons of oil equivalent - the amount of energy liberated by burning one barrel of oil - from the Middle East, Latin America and North Africa by the end of 2020.

The upheavals in the Middle East and North Africa will not stop oil companies from continuing to invest heavily in those areas, because they have no other option as they seek to supply China's huge demand for energy, said Andrew George, managing director of the London-based global risk adviser Marsh's Energy Practice.

CNPC has set an ambitious goal of operating output of 200 million metric tons of oil equivalent from overseas by 2015, which will account for 50 percent of the company's total output.

In 2011, its overseas operations produced about 100 million metric tons of oil equivalent.

The Middle East and North Africa region is the destination of the company's heaviest overseas investment: CNPC holds a 37 percent share in Iraq's biggest oilfield Rumaila, which has reserves of about 17 billion barrels, and a 50 percent stake in the Halfaya oilfield, which has an estimated total output of 70,000 barrels a day throughout 2012.

Meanwhile, the energy giant has four upstream projects in Sudan and also participates in Syria's Gbeiba oil field.

CNPC warned recently that political upheaval poses the biggest challenge for the overseas operations of Chinese oil companies

Diversity of investment in other regions, such as the Americas, would help reduce the impact of geopolitical risks, George said.