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Mainland firms learn the cost in guns and death in search for oil

Sinopec

Resource-rich nations turn deadly for Chinese workers abroad

Guns and death are as much a part of the oil business in some parts of the world as drilling and pipelines, and Chinese companies are likely to encounter more violence in the future as they explore some of the most dangerous corners of the globe in their search for better energy deals.

Nine Chinese employees of China Petroleum and Chemical Corp (Sinopec) were killed and seven taken hostage when gunmen from the Ogaden National Liberation Front on April 24 attacked an exploration site in eastern Ethiopia, also killing 65 Ethiopians.

'It's a bit of a wake-up call to the dangers that other oil companies all around the world have known for 100 years. I don't see them changing their strategy, although they may change the implementation,' said Philip Andrews-Speed, professor of energy policy at the University of Dundee.

Attacks such as the one in Ethiopia are not uncommon in the oil exploration business. This one attracted interest because China has embarked on an aggressive policy of exploring for oil in countries that others fear as the mainland seeks the fuel needed for its explosive economic growth.

Chinese policy watchers and oil analysts say the attack in Ethiopia is unlikely to have much impact on state-owned companies as they expand and they will continue using Chinese workers whenever they can.

'This is part of that gamble. It's the way the Chinese have decided to pursue that strategy,' said David Hurd, head of Asian oil and gas research at Deutsche Bank. 'China has a very big and very clear policy on this, and that's to buy more oil, and state companies will continue doing this with their own people unless they have to do otherwise.'

While oil companies such as Royal Dutch Shell and BP have faced similar risks for many years, Chinese companies face the additional complications that come with employing imported Chinese workers.

'Overseas employment on short contracts is definitely one way that the Chinese are trying to alleviate unemployment, or an underemployment problem, back home,' Mr Andrews-Speed said.

Chinese companies are taking things one step further as the country tries to secure energy supplies at a lower cost. Mainland planners have repeatedly demonstrated that they are not willing to bargain head-to-head on oil and gas in the global open market, instead seeking more favourable contracts in places such as Ethiopia, the Sudan and Iran, which have trouble attracting other buyers.

'They will become more vigilant on security. This will change their attitude a bit. Chinese companies have been more relaxed on security than other companies in this business,' said Dr Lawrence Saez, a visiting fellow at the Asian Research Centre at the London School of Economics.

Twenty-three per cent of China's 2005 oil imports came from Africa, with much of that from Angola and Sudan.

China hopes to get better prices using the state-owned status of their oil companies to strike government-to-government deals.

'They have the belief that they are good at managing political risk on a government-to-government basis,' Mr Hurd said. 'The Chinese government feels it can manage the political risk, and political risk is also about putting people in harm's way.'

Shortly after the attack, Sinopec said the company would not pull out of the country and would improve security. 'There is no way we would stay away from Africa due to the fear of risk,' a company spokesman told the China Daily.

In Sudan, Chinese oil companies have been criticised for dealing with a government accused of genocide and human rights abuses in the western Darfur region, and have also been criticised by other governments for being too friendly with shady regimes in order to secure oil supplies.

The companies maintain that they are not interfering with local politics, and that they operate on a strictly commercial basis. However, it is usually not the people in power that cause the trouble.

Chinese companies may need to consider putting more effort into how they are perceived by the local population, which often sees them as wealthy businesses coming to plunder a resource-rich but economically poor country.

'It would help if Chinese investment more clearly showed that they will have positive benefits for the local economy. As China has pledged to help develop Africa's infrastructure among others, more action along these lines would be warranted,' said Dr Linda Yueh, an economist at Oxford University.

This is not the first time that Chinese workers have died extracting natural resources in Africa. In February, a Chinese engineer was killed and another injured in an attack on a minerals operation in Kenya. Chinese oil facilities have come under repeated attacks in Nigeria this year, with about 16 people kidnapped so far. Hostages are normally released unharmed in Nigeria after a ransom is paid. In Zambia, local workers have rioted over pay at a Chinese-owned mine.

Other companies face similar challenges. A Nigerian militant group last week said it had abducted six foreign workers from an oil facility owned by US energy company Chevron in southern Nigeria.

The Movement for the Emancipation of the Niger Delta, which says it is fighting for more local control over the delta's oil wealth, said the attack should also serve as a warning against Shell as it prepares to return to oilfields previously attacked by the group.

Nigeria's oil output has been reduced by about 20 per cent since a series of raids on Shell oilfields in February last year forced their closure. Shell, Nigeria's largest foreign oil producer, is preparing to restart the operations.

'Oil and gas reserves are not often in nice places like Hong Kong or Singapore. They tend to be in remote places where the political environment can be more challenging,' said Victor Shum, an analyst at energy consultants Purvin & Gertz.

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