BP, the world's largest oil firm, is seeking to jointly tap oil and gas reserves with Chinese companies in foreign countries, betting on China's emerging clout in the global oil market to bring it windfalls.

The move also represents a new philosophy for China to safeguard its long-term stable energy supply. By linking with BP which controls sprawling reserves from Alaska to Azerbaijan, Beijing hopes to reduce the risks in overseas expansion and increase its say in the world energy market.

BP's CEO Lord John Browne said his company is well aware of China's shifting role moving from soliciting inward foreign investment to seeking expansion abroad.

Instead of only focusing on increasing investment inside China, "now is the time (for BP) to do more with Chinese companies to co-invest overseas," said Browne during a question-and-answer session after a speech at the Central Party School in Beijing.

Browne said Chinese companies, such as PetroChina and Sinopec, have proven themselves during the past 25 years of cooperation as respectable partners for BP to work with.

The idea of "co-investment" was first initiated in May when Premier Wen Jiabao visited BP's headquarter in London during his official visit to Europe.

Co-investment is Beijing's latest move to construct a comprehensive system to defend its energy security. China, now the world's second largest oil consumer, is investing billions of US dollars to build up strategic oil reserves, diversifying oil imports, promoting natural gas consumption and buying into oil fields in foreign countries.

Chinese companies' overseas investment is by no means a big success yet. They failed in several attempts to acquire reserves in places such as the Caspian and Russia at the last minute, partly due to a lack of experience in dealing with complicated commercial, as well as political issues.

Zhou Dadi, director of the Energy Research Institute under the National Development Reform Commission, said co-investment with foreign companies could be conducive for the neophyte Chinese companies to carve a niche in the world energy market.

Chinese companies can take advantage of BP's rich experience, resources and well-connected political and economic relations.

"It reduces the risks when investing overseas and increases the possibility of success," said Zhou.

China is also a good partner for BP.

"China is now an integrated participant in the world energy scene," said Browne.

The country's increasing influence can give BP significant leverage in virgin places, especially politically sensitive areas which others are daunted to touch, Browne said.

BP has already begun working with Chinese companies on several overseas projects.

BP is working with China National Petroleum Corp to build a 4,900 kilometer gas pipeline from East Siberia to Northeast China and South Korea. The project is still desperately waiting for final approval from the Russian Government.

Browne flew to Beijing on November 1 to attend a consultant meeting at Tsinghua University and visit Chinese oil companies and government officials.

BP's 56-year-old CEO has a reputation for the insight to recognize and seize new business opportunities.

Under his leadership, BP successfully acquired Amoco and Arco in the late 90s when oil prices were low. Last year, he helped BP become the first western oil company to acquire a major equity stake in a Russian oil outfit after finalizing a US$8.1 billion deal with Russian oil producer TNK.

Talking about China's energy security strategy, Browne said it is important to decide the mixture of energy consumption and promote research into clean and efficient energy.

Besides investing abroad, it is also important to take advantage of international trading systems to procure diversified energy from various locations.

Maximum diversity of energy sources, the application of technology, the protection of the environment and knowledge of trading are four basic elements to ensure energy security in China, as for the world as a whole, Browne said.

Speaking of the oil price spike, Browne said the fundamentals of supply and demand suggest that prices will not stay at current levels of US$50 a barrel or above, unless there are further disruptions.

Instead, the price is expected to fluctuate greatly around US$30 a barrel.

(China Daily November 8, 2004)