China to buy a larger share of GCC’s exports

Updated 31 August 2014
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China to buy a larger share of GCC’s exports

The relationship between China and the Gulf countries can only go one way.
China’s future depends on the capacity of the Gulf Cooperation Council (GCC) to provide a steady flow of oil for the next decades, and the Gulf countries will not find an similar source of rising demand in the years to come.
The deal announced in mid-August between Kuwait Petroleum Corp. (KPC) and China’s Sinopec to double the amount of daily exports constitutes a clear step in this direction.
More will come in Kuwait, Saudi Arabia, Qatar and the UAE.
The new deal secures 300,000 barrels per day (bpd) of Kuwaiti oil for China over the next 10 years, almost twice the amount of the existing contract, which is about to expire.
Under the new agreement, more than 10 percent of the Kuwaiti production will be destined to China.
Additional increases are expected and the local media quoted KPC’s executives suggesting that exports would increase to between 500,000 and 800,000 bpd in three years.
Saudi Arabia is already the leading source of oil for China, exporting 1.2 million bpd, or about 20 percent of the Chinese imports of oil.
Over the last 12 months, the share of Qatar’s exports heading to China grew from 5.5 percent to 6.6 percent of the total, and also UAE saw an increase in exports to China albeit more modest.
Paradoxically, these two regions do not consider each other preferred partners. Given the large amounts that China buys from the GCC, the country has a sizable negotiating power and imposes tough conditions on its providers.
Kuwait, for instance, has been trying to gain access to the distribution business in the Chinese domestic fuel market.
With that idea in mind, an agreement between KPC and Sinopec to build a refinery in southern China was signed in 2004.
However, the process has been fraught with difficulties and at this stage there are doubts about the involvement of Kuwait in the project.
Chinese authorities are reluctant to open strategic markets to foreign investors, even to strategic partners.
Similarly, the GCC does not offer the best conditions for Chinese importers.
Traditionally, China favors agreements with oil producers that allow the country to enter in the equity structure of the oil firms, or to get involved directly in the production process.
Gulf countries, with nationalized industries, professional management and abundance of resources to invest in exploration, do not need to offer these conditions to their clients.
Furthermore, China’s energy strategy is based on diversification of suppliers, and the Gulf is already the source of a third of China’s imports.
Finally, stability is a central concern for China, and the Middle East is going through a complicated period of geopolitical instability.
However, in spite of all these caveats, the commercial links between them is bound to increase. China requires vast amounts of energy to facilitate the ongoing transition to a consumer-oriented economy.
Oil deposits are already at full capacity and the ambitious plans to tap its large shale gas deposits are proving unrealistic.
The government last month acknowledged this reality by revising down its targets of shale and coal seam gas for 2020 from 160 billion cubic meters to just 60.
So, imported oil will remain the main solution to growing energy needs.
Competition to supply China is fierce.
Saudi Arabia is expected to lose share of Chinese imports in 2014 as other exporters like Iraq, Kazakhstan and Russia have been offering better conditions.
But, as the International Energy Agency forecasts in its latest energy outlook, global supply will be weak in the next decade.
Many fields are close to exhaustion, others are becoming increasingly expensive to operate, and the geopolitical situation in a number of producers is deteriorating.
Despite China’s reluctance, no other region in the world offers the combination of spare capacity and political stability that the Gulf countries have. — Prepared by Francisco Quintana, head of research at Asiya Investments, an investment firm investing in Emerging Asia.


Once mighty US retailer Sears files for bankruptcy

Updated 57 min 40 sec ago
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Once mighty US retailer Sears files for bankruptcy

  • Sears had been drowning in debt and reportedly could not afford a $134 million repayment
  • Started in 1886, the company was a pioneer of departmental stores that catered to everyone

WASHINGTON: Sears, the venerable US chain that once dominated the retail sector but had been in decline since the advent of the Amazon era, filed for bankruptcy Monday and announced it was closing almost 150 stores.
With a history that stretches back to 1886, the company was a pioneer of departmental stores that catered to everyone and by the mid-twentieth century had built a vast empire that stretched across North America.
But it has closed hundreds of outlets in recent years amid a retail shakeout caused in part by the rise of Amazon and other e-commerce players.
“The Company and certain of its subsidiaries have filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code in the US Bankruptcy Court for the Southern District of New York,” a statement by Sears Holdings Corporation said.
Sears had been drowning in debt and reportedly could not afford a $134 million repayment that had been due on Monday.
Edward S. Lampert, Chairman of Sears Holdings, said the insolvency filing would give the company the “flexibility to strengthen its balance sheet” and enable it to accelerate a strategic transformation.
The company said it intended to reorganize around a smaller store platform, a strategy it said would help save tens of thousands of jobs.
But it announced it would close 142 unprofitable stores near the end of the year, in addition to the previously announced closure of 46 stores by November.
While retaining his chairmanship, Lampert will step down as CEO, with the role handled by other senior executives as part of a new “Office of the CEO.”
Sears added it had received commitments for $300 million in debtor-in-possession financing and was negotiating for an additional $300 million.
Sears is far from the only brick-and-mortar outlet to fall by the wayside as more consumers do the bulk of their shopping online.
In March, iconic Toys “R” Us announced it was shuttering all of its US outlets while other big names such as Macy’s and JC Penney have also been forced to close numerous locations and lay off workers.
American shopping malls in turn have been forced to turn to a new generation of stores, food and entertainment including players that began online, as well as gyms and video game bars like Dave & Buster’s.