China is now the largest oil operator in the North Sea thanks in part to huge tax breaks by Britain, despite the communist country claiming the operations are “strategic weapons.”
The country’s oil expansion in the area means that Britain dolled out nearly $2.6 billion in tax breaks to one of China’s communist-run oil company, according to a report Tuesday by The Times.
The China National Offshore Oil Corporation (CNOOC) operates two of the North Sea’s biggest oilfields. One CNOOC-owned company, Nexen, has produced 200,000 barrels a day in the area.
British analysts say China’s dominance in the North Sea is an example of the country using “soft power” to sway influence in the region — the move to increase oil production is happening as oil prices continue to hit historical lows.
Meanwhile, China is hatching plans to deploy thousands of troops at its first overseas military base in East Africa, according to The Times. The move could put the Asian country on a collision course with the U.S., which has a military base nearby.
China’s Assets Supervision and Administration Commission owns CNOOC, which is under “direct control” by Beijing’s highest government authority.
The company was blocked from purchasing a U.S. oil company over national security concerns. Britain, on the other hand, had no such concerns when, in 2012, it allowed CNOOC to acquire Nexen, a Canadian company with large stakes in the North Sea.
CNOOC’s former chairman, Wang Yilin, told the Communist Party in 2012 that “large-scale deep-water rigs” in the North Sea and South Sea were China’s “mobile national territory and a strategic weapon.”
The UK government tax cuts for oil production allowed China to take advantage of a huge reduction in taxes, which were reduced from $3.2 billion in 2014 and a tax credit of $475 million in 2015. Britain’s Chancellor of the Exchequer George Osborne cut the overall tax bill for oil producers in the area from 50 to 40 per cent.
Analysts are at a loss to explain the reasons why China is aggressively expanding oil production as oil prices continue to crater.
“North Sea oilfields are running down and becoming increasingly expensive for oil producers,” Jeffrey Henderson, professor of international development at Bristol University, told reporters. “In narrow terms, the state overseas oil company will be pouring money into the region for no particularly obvious gain.”
Another possible reason for the expansion is that China is becoming starved for energy.
China’s foreign imports increased by 48 percent higher than in 2015, according to customs data. This enormous dependence on foreign oil increases has influenced China’s foreign policy, which now centers on attempts to acquire new oil.
The country’s National Energy Administration (NEA) posted a notice on its website in February announcing its decision to shut down the mines is part of an overarching plan to cut as much as 500 million tons of surplus coal production out of the market within the next five years.
China, the world’s top coal consumer, also plans on closing more than 5,600 of its 10,760 coal mines under a new policy banning annual capacity of less than 90,000 tons, the China National Coal Association has estimated.
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