China firms push for multi-billion dollar Iran rail and ship deals

Reza Mostafavi Tabatabaei Two Chinese firms are pushing for multi-billion dollar deals with Iran to build a high-speed railway and modernize its shipping fleet following the lifting of most sanctions against Tehran, sources with knowledge of the negotiations said.

State-run China National Transportation Equipment & Engineering Co Ltd (CTC) is close to finalizing an agreement on the $3 billion rail project to connect Tehran with the northeastern holy city of Mashhad, a Chinese source told Reuters.

Dalian Shipbuilding Industry Co, which is also controlled by Beijing, has likewise been in discussions on building container ships and oil tankers for Iran, according to two sources who declined to be identified because the talks are still continuing.

China, Iran’s largest trading partner and long-time ally, has agreed to boost bilateral trade by more than 10 times to $600 billion in the next decade. With Iran no longer subject to international sanctions since January following its nuclear deal with world powers, Beijing sees the country as part of its policy to increase trade and open new markets for its firms as the domestic Chinese economy slows.

For the 930-km (580 mile) rail project, China’s Export and Import Bank (EXIM) is expected to fund 85 percent of the cost, with CTC providing engineering, procurement and construction services, said the source.

China EXIM Bank is Beijing’s designated policy lender for large trade deals and overseas investments by Chinese firms.

Neither the bank nor CTC responded immediately to requests for comment.

Iran’s Tasnim News Agency last month reported a lower cost of $2 billion for the project, which it said would take 42 months to build.

TEHRAN VISITS

A spokesman at China Shipbuilding Industry Corp, parent of Dalian Shipbuilding, did not immediately respond to a request for comment.

However, one of the sources estimated Iran would need $8–12 billion to modernize its fleet of container, cargo and oil tanker ships by around 2022.

Top Dalian shipyard executives have visited Tehran three times since January, meeting their counterparts at the Islamic Republic of Iran Shipping Lines (IRISL) — Iran’s top container and cargo carrier — and the country’s oil shipping operator National Iranian Tanker Co (NITC), the sources said.

IRISL and NITC were not immediately available for comment.

“We’ve had lots of contact with NITC,” said a Chinese shipbuilding executive, declining to be identified because he is not authorized to speak to the media. “Advanced ship models and solid technical support make Dalian Shipping a strong suitor for Iran.”

Previously Chinese shipyards, including Dalian, had built large oil tankers for NITC in an order worth $1.2 billion between 2012 and 2013, Reuters has reported.

State financing and lower costs would make China a dominant player in the Iranian shipping industry versus Asian rivals South Korea and Singapore, said Reza Mostafavi Tabatabaei, president of London-based ENEXD, a firm involved in oil and gas equipment business between the Middle East and China.

“They (IRISL) hope to become one of the biggest shipping lines in the world,” said Tabatabaei, adding that NITC wants to double its tanker capacity within the next six years by buying new ships and overhauling existing ones.

Major international companies are also rushing to establish a position in Iran as the Islamic Republic re-opens for business.

With 80 million people and annual output of about $400 billion, Iran is the biggest economy to rejoin the global trading system since Russia did so following the breakup of the Soviet Union over two decades ago.

(Reporting by Chen Aizhu in BEIJING and Bozogmehr Sharafedin in DUBAI; additional reporting by Engen Tham in Shanghai; Editing by David Stamp)

This post was originally published on Reuters UK

How China Became a Major Producer of Oil And Gas Equipment

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China, the world’s most populous country, became the world’s largest energy producer in 2009, the largest energy consumer in 2011, and the largest net oil importer in 2014. One factor that has bolstered China’s influence in the global energy market is its emergence as a major player in manufacturing and exporting low-cost, high quality drilling equipment.

When I started my work 15 years ago, China was a very different market in the upstream division (exploration and production) of oil and gas. Because major oil-producing countries exclusively purchased equipment with American and European standards, China was barred access to the international market. These standard requirements, at the time, could simply not be met by Chinese companies.

At the same time, countries like Iran were experiencing gaps in the industry after regional warfare disrupted their oil and gas sector. After the Iranian revolution in 1979, oil and gas experts couldn’t recognize the needs of the industry and external constraints prevented expansion. Instead of purchasing equipment, Iran would rent, having no standard for ordering equipment. This weakness was left unconsidered and unresolved for decades.

As an Iranian professional in the oil and gas industry, it was my mission to standardize financing and leasing methods for countries like Iran, and create a road map to resolve these crippling issues.

After recognizing the many unsatisfied needs of the Iranian market, my company started working to address them. At the same time, we evaluated the weakness of the Chinese market in the upstream division of oil and gas. As it turned out, the solution came in linking these subjects together.

First, we helped Chinese manufacturers produce equipment based on European and American standards. This was a huge unmet need of Iran’s market at the time, and Chinese companies had very limited experience with production and the exportation of oil and gas equipment. Still at the early stages of adopting international stages, their activities were limited to China’s domestic market and several other countries.

Helping China shift focus from importation to production was a breakthrough for them as much as it was for their buyers. Costs decreased, and massive job creation led to economic growth. Joint ventures with American companies allowed Chinese manufacturers the benefit of Western technology combined with low labor costs. The record of production for Chinese companies in exportation now exceeds 1,000 rigs; Chinese yards are now building more jack-up rigs than all other yards in the world put together.

At first, many traditional countries around the Persian Gulf were skeptical about using Chinese equipment, but China built trust in the market by offering high-quality products comparable to American and European equipment, but at a much lower price. Products made in China with American quality were introduced in Saudi Arabia, Russia, Iran, Africa, Kuwait and Venezuela, which began to order from Chinese manufacturers in the upstream division.

This increased the sale in upstream along with downstream (refinement, distribution, etc), as the same Chinese manufacturers once struggling in the market started to produce more.  Due to the increase in operating activities my business created, the number of Chinese manufacturers increased tremendously. China created joint ventures with American companies, making them one of the biggest producers of equipment in the upstream division in offshore and onshore equipment.

The boom in China’s economy was helped by the many factories and jobs created to produce equipment and sub-equipment. These factories flourished thanks to China’s major economic strengths: hard working citizens, strong infrastructure and consistent methodology. One cause for concern, however, has been China’s low level of consumerism, which accounts for just 28 percent of its GDP (as opposed to the U.S. 76 percent). Lengthening vacation time was one policy introduced to remedy this.

Encouraging spending has helped the economy grow even more, and experts surmise that consumer spending could reach $67 trillion over the next decade if shopping sees a greater boom. Energy consumption has grown even faster than consumerism: In 2014, China’s oil consumption growth accounted for about 43 percent of the world’s oil consumption growth, more than one-third of the global demand.

A lot has changed in the past 15 years in China, the Middle East, United States and across the globe. The competition for market share of oil and gas equipment, which used to be between American and European companies, has shifted to competition between Chinese companies in the last five years. I contribute this success to the reverse engineering method adopted by Chinese manufacturers.

Today, China is highly invested in research and development to help create more jobs and technology in an upstream market. These investments supported China’s subsequent rise to the second largest manufacturer and exporter of oil and gas equipment and services in the onshore and offshore division. China ranked as the second greatest supplier of oil to their domestic market, a trend expected to continue up until 2025, improving both the country’s GDP and its oil consumption. Because growing demand for oil outpaces their domestic production, China is also building strategic oil reserves to ensure supply remains stable.

China is also the world’s greatest carbon emitter, so the nation has set into motion ambitious plans to diversify their energy sector with renewable energy sources like solar and wind. But as the population continues to climb, it’s unlikely this will hinder oil and gas industry’s significance. We can likely expect the mutually beneficial relationship between Chinese manufacturers, oil-producing nations and suppliers to remain strong, steady and lucrative.

Featured image: Asian Development Bank via Flickr.

Reza Mostafavi Tabatabaei is an entrepreneur, investor, activist and international businessman who specializes in the oil and gas industry. He is an admirer of Middle Eastern art, culture, and philanthropy, which you can read out more about on his adjacent website RezaMostafaviTabatabaei.org