China Petroleum Pipeline Bureau (CPP) has set its sight on contracts abroad worth $200 million or more to be profitable in face of rising competition from foreign counterparts, a company executive said on Friday.
A unit of China's largest energy group CNPC, CPP recently lost out in a bid to build a 500-kilometre pipeline in Malaysia to an Indian firm which quoted 23 percent or more than $200 million lower than his firm, Su Shifeng, CPP's general manager said in an interview.
CNPC, parent of Asia's largest oil and gas firm PetroChina, has in recent years become tougher negotiators in overseas deals from acquisitions to engineering, with eyes on big projects and good returns, which are hard to come by with oil prices at $100 or above and intensifying competition.
"Now it's not an issue of capability or technology. The core issue is if prices are reasonable or not," said Su. CPP controls half of China's rapidly growing domestic pipeline business and is a leader in overseas oil and gas infrastructure engineering. "We need to make decent profits. We have already made our names known. So will focus on big deals worth $200 million or more," he said.
Apart from rising costs in materials and equipment globally, China now has a much higher labour cost compared with India, Su said, adding a Chinese pipeline worker on a foreign project earns $1,000 a month while an Indian peer only $300.
Having laid thousands of miles of pipelines from Iraq, Libya, Sudan, to Kakazakhstan and India, CPP is locked in talks with Russia to build part of Russia's first oil link to Asia that has a branch to supply China.
CPP has already contracted to lay 170 km - mostly in swamp area with hostile weather conditions - of the 2,700-km line, Su said, adding negotiations for more business was tough. "Russia wants us to build more but the prices they offered are unreasonably low."