China's Last-Second Move to Grab Global Energy Supplies

China Gorges on Europe's Energy Assets

China's deep pockets and Europe's deep distress always made two likely partners. Now the deals have started to roll out, and there will be more to come.

Wall Street Journal, 

24 December, 2011

China Three Gorges scored a major win this week by beating off German and Brazilian competitors for a 21% stake in EDP-Energias de Portugal. The $3.5 billion investment in the Portuguese power producer follows two deals by China Petrochemical, known as Sinopec, for stakes in Spain's Repsol and Portugal's Galp.

Backed by cheap credit from state-owned banks, Chinese companies have shown they are willing and able to pay top dollar for energy assets. Europe's debt crisis means qualms about Chinese investment have disappeared, and deals that weren't previously available are coming to the table.

The Three Gorges dam was once a focus for controversy about China's brutal governance, with international criticism of the high environmental and social costs of flooding a massive agricultural area and relocating its residents. Now, the company that runs it is being welcomed as a white-knight investor.

The success of Three Gorges and Sinopec in tying up their deals—apparently with no hint of disapproval from European regulators—will embolden other Chinese firms to look for investment opportunities in the Old World. With many European governments looking to raise cash, there should be no shortage of opportunities. Italy, for example, could reduce its 30% stake in Italian oil major Eni, which owns significant assets in Africa.

With energy the focus of China's acquisitions, and Europe's indigenous energy resources thin on the ground, it is the overseas assets owned by European companies that are the real target. For Three Gorges, EDP's big lure is its significant ownership of Brazilian wind and hydropower resources. For Sinopec, it is deep-water oil and gas projects that Galp and Repsol have in Brazil.

Expect China's companies to continue their global shopping spree, via Europe's discount store.