[Viewpoint] Korea watches as China adds resources

It is hard to underestimate China. The cash-loaded bulky nation is out to become a powerhouse on energy and resources by capitalizing on the economic constraints plaguing the United States and Europe. The world’s largest energy-consuming country has never been shy of exhibiting its gluttonous appetite for resources.

It lavished African states with cash aid and funding regardless of political and security risks to get its hands on the continent’s rich natural resources. But its days of blind investment may be over. Due to the deepening and prolonged economic plight in North America and Europe, multinational energy companies are one by one going up for sale. China not just proved to be an eager buyer, but appears to be alone in its the ability to afford to invest during a worldwide depression and liquidity crunch.

State-owned China National Offshore Oil Corporation is reported to have offered a 61 percent premium to buy Canadian energy producer Nexen for $15.1 billion cash. The China Petrochemical Corporation, known as Sinopec Group, snatched up a 49 percent stake in Canadian oil and gas exploration company Talisman Energy’s North Sea operations for $1.5 billion.

The Chinese top refiner has been scooping up foreign acreage and interests in resource reserves, including $2.2 billion for a third of U.S. oil and gas company Devon Energy’s stake in shale basins on American soil.

A Chinese resource acquisition that already includes a handful of major multinational companies, such as Anglo-Australian miner Rio Tinto, can only be expected to get longer.

The energy production market is in de facto clearance sale mode with quality European and North American companies up for grabs at bargain prices. Major energy producers and explorers are an entirely different category from African and Latin American companies. To explore and develop underground and undersea resources in the third world, basic infrastructure like roads, pipelines, water supply systems and ports must be built.

The projects may be seized or construction sites blown up when civil wars erupt or rebel groups overthrow governments. But major companies are a safe investment that does not require additional costs or risk-taking. Industry experts say it is the best time to shop for lucrative oil fields and mines.

But for now, China has no competition on the auction and sales block. South Korea is equally eager and desperately in need of resources, but remains strangely aloof. Industry insiders express frustration at watching Chinese buyers return home in glee with their newest purchases.

With President Lee Myung-bak’s elder brother Lee Sang-deuk, who had been the ringleader of an overseas resource development campaign, now preoccupied with preparations for trials on bribery charges, few are likely to replace him during the lame-duck period.

In May, the Board of Audit and Inspection cornered the chief executive of a state-owned resource corporation for poor trade - losing public funds by paying too much for overseas mines and selling them for too little. Working-level officials can hardly pursue deals when their leaders are being scrutinized.

Good math cannot be applied on resource deals as there is no guideline on pricing and the values often change according to market demand and competition among bidders.

The Chinese have been gobbling up mineral fields in Australia, including Rosebery mines, by beating the competition with unmatchable bids. Industry insiders agree resource deals are best left up to the decision of the moment if they can avoid blunders and wrongdoing.

With less than six months left in President Lee’s term, candidates are lined up and reportedly lobbying heavily to snatch up executive seats at public corporations. Korea Gas Corporation and Korea Resources Corporation are seeking replacements for chief executives, and candidates under review are mostly new to the field.

Despite many follies, the incumbent government has accomplished a lot on the overseas resources development front. The campaign had been initiated by the Roh Moo-hyun government but picked up speed under the current administration.

As result, Korea’s petroleum and gas self-sufficiency rate went up to 13.7 percent last year from 4.2 percent in 2007, while the rate for mineral resources rose to 29 percent from 18.5 percent. It is a pity the resource pioneering project cannot be free from political weather. Meanwhile, we will only have to watch and sulk as potentially lucrative projects fall into the Chinese orbit.

* The author is an editorial writer of the JoongAng Ilbo.

by Sunny Yang