ESSO CHIEF ON CHINESE OIL PROJECTS IN CHAD

UNCLAS SECTION 01 OF 02 NDJAMENA 000551 SIPDIS SENSITIVE STATE FOR AF/C STATE AND S/USSES OSD FOR DASD HUDDLESTON NSC FOR GAVIN LONDON FOR POL - LORD PARIS FOR POL - BAIN AND KANEDA ADDIS ABABA ALSO FOR AU E.O. 12958: N/A TAGS: PGOV PREL EPET PREF CH CD SUBJECT: ESSO CHIEF ON CHINESE OIL PROJECTS IN CHAD -------------- SUMMARY -------------- ¶1. (SBU) The Chinese are making concrete progress to exploit wells, build a pipeline system, and construct a refinery near the capital for domestic production, after years of speculation about Chinese development of oil fields in Chad, ESSO/Chad chief de Mahieu told Ambassador November 18, calling the Chinese ventures positive for Chad and local competition. De Mahieu said he was impressed with the Chinese National Petroleum Company's (CNPC) leadership here, but underscored that the Chinese would not likely have the same rigorous construction, maintenance, and environmental standards as ESSO/Chad. He estimated that even limited Chinese oil production could compensate down the road for reduced ESSO/Chad production and judged that the CNPC could see a small profit on its oil projects, especially if it sent some of its production to the world or Chinese market by linking to ESSO/Chad's pipeline for exportation. ¶2. (SBU) If the CNPC realizes its project to refine Chadian oil in Chad for local consumption, it will be a major triumph for the Government of Chad, whoever is in power then, because the decades-old dream of even partial self-sufficiency in petroleum fuel has become part of Chad,s self-image and national prestige. If the CNPC,s production for export can even partially offset the inevitable reduction of ESSO/Chad,s production as its southern wells give out, it will provide a softer landing for a Chad that can no longer count on substantial oil revenues. END SUMMARY. -------------- DOMESTIC REFINERY: MORE REALITY THAN DREAM -------------- ¶3. (SBU) While there has been talk for decades years over the possibility of an oil refinery in Chad, the Chinese appear determined to realize this dream, by pumping Chadian oil from its southern field to the capital for refining for local fuel needs. The Djermaya refinery, which will provide refined oil for domestic use, is in the design phase with construction expected to take less than two years. The refinery, located 30 km north of N'Djamena , will be fed by the Bongor oil field, 300 km south of N'Djamena and, potentially, the small Sedigui oil field, north of Lake Chad. The Chinese National Petroleum Company (CNPC) has the contract to develop the Bongor field and build a subterranean pipeline connecting it to the Djermaya refinery. The GOC started to build the pipeline in July 2009, which is expected to be completed in 18 months, transporting 20,000 barrels per day. The GOC is in discussions with KNM, a Malaysian company, to develop the Sedigui field, although no deal has been finalized. ¶4. (SBU) In a November 18 conversation with Ambassador, ESSO-Chad Chief Stephane de Mahieu shared his insights on the CNPC projects in Chad, most notably wishing the Chinese success with their endeavors. De Mahieu believed that the competition would be good for the Chadian oil market. He spoke highly of CNPC General Manager Dr. Dou Li Rong, calling him, "realistic, practical, with a solid engineering background and a good understanding of the situation on the ground." De Mahieu viewed as positive CNPC's decision to hire several technical experts who had been involved in earlier oil exploration ventures in Chad. The ESSO chief said that ESSO and CNPC had good relations, especially in terms of mutual aid issues and that ESSO had shared with CNPC much of its own environmental data and analysis. De Mahieu also stated that ESSO was open to exploring CNPC's idea of linking to ESSO's pipeline to export a percentage of the oil from the Bongor fields and that ESSO could possibly sign a confidentiality agreement with CNPC in the near future to share ESSO's pipepline information. ¶5. (SBU) Drawing differences between ESSO's project and CNPC's efforts, De Mahieu felt that CNPC was under pressure from the GOC to complete the project, but that the Chinese NDJAMENA 00000551 002 OF 002 company would not have as rigorous social, environmental, and fiscal standards as the ESSO project. De Mahieu noted, however, that CNPC would have to adhere to IFC and other petroleum oversight bodies, as well as meet ESSO's environmental and other operating standards, if and when it connected to the ESSO pipline. De Mahieu stated that he tried to convince the Chadian Ambassador to China of CNPC's need for a national coordination entity, with a single point of contact having appropriate authority in the government, similar to the one ESSO had during its development and building phase. Separately, De Mahieu noted that Dr. Dou had said that CNPC had recently completed design plans for the Djermaya refinery and was considering purchasing some of the major equipment from U.S. manufacturers. -------------- TO GET A CHINESE FOOT IN THE DOOR -------------- ¶6. (SBU) Postulating on CNPC's profitability from the oil field, pipeline, and refinery ventures, de Mahieu guessed that CNPC would have lower building standards and, therefore, a lower cost structure for the project, estimating one billion USD or less for the whole project. He guessed that CNPC could probably build the refinery for half of what it would cost ESSO. At that same time, de Mahieu noted, CNPC would benefit from domestic price protection on fuel. He estimated that the Chinese could see a small profit on the projects, which is characterizes as, "not bad as an entry ticket into the market." He highlighted, however, the Chinese's different views of costs and benefits of a project. For example, he said, they looked on labor as cheap or free; equipment from China as free; and oil going back to the mainland as a boost to industrial and economic activity. -------------- FUTURE DEVELOPMENT? -------------- ¶7. (SBU) Commenting on the Sedigui field north of Lake Chad, de Mahieu said that he had heard of Malaysian interest in developing the field, to include a butane gas bottling plant, but it was unclear who would undertake that pipeline project as he did not believe that Chinese would. De Mahieu calculated that if the Bongor and Sedigui fields came on line in the next five years, it would coincide with the decline of ESSO's output, likely keeping Chad's oil export volume flat. -------------- COMMENT -------------- ¶8. (SBU) If the CNPC realizes its project to refine Chadian oil in Chad for local consumption, it will be a major triumph for the Government of Chad, whoever is in power then, because the decades-old dream of even partial self-sufficiency in petroleum fuel has become part of Chad,s self-image and national prestige. If the CNPC,s production for export can even partially off set the inevitable reduction of ESSO/Chad,s production as its southern wells give out, it will provide a softer landing for a Chad that can no longer count on substantial oil revenues. END COMMENT. ¶9. (U) minimize considered. NIGRO