Fueling Global Energy Finance: The Emergence of China in Global Energy Investment

Joshua Pitts,Zhongshu Li,William Kring,Kevin Gallagher,James Baldwin,Sucharita Gopal

doi:10.3390/en11102804

Abstract

Global financial investments in energy production and consumption are significant since all aspects of a country’s economic activity and development require energy resources. In this paper, we assess the investment trends in the global energy sector during, before, and after the financial crisis of 2008 using two data sources: (1) The Dealogic database providing cross-border mergers and acquisitions (M&As); and (2) The “fDi Intelligence fDi Markets” database providing Greenfield (GF) foreign direct investments (FDIs). We highlight the changing role of China and compare its M&A and GF FDI activities to those of the United States, Germany, UK, Japan, and others during this period. We analyze the investments along each segment of the energy supply chain of these countries to highlight the geographical origin and destination, sectoral distribution, and cross-border M&As and GF FDI activities. Our paper shows that while energy accounts for nearly 25% of all GF FDI, it only accounts for 4.82% of total M&A FDI activity in the period 1996–2016. China’s outbound FDI in the energy sector started its ascent around the time of the global recession and accelerated in the post-recession phase. In the energy sector, China’s outbound cross-border M&As are similar to the USA or UK, located mostly in the developed countries of the West, while their outbound GF investments are spread across many countries around the world. Also, China’s outbound energy M&As are concentrated in certain segments of the energy supply chain (extraction, and electricity generation) while their GF FDI covers other segments (electricity generation and power/pipeline transmission) of the energy supply chain.

Highlights

Energy is the lifeblood of the global economy since it is a critical input to all sectors of the economy including agriculture, transportation, waste collection, information technology, and communications sources
We analyze the differences in the energy sectors of various countries by examining the pattern of mergers and acquisitions (M&As) and GF foreign direct investments (FDIs) investment
Origin and Destination of Energy FDI: We describe the energy outbound investment originating in countries such as China, UK, Japan, and the US to their destinations such as China, Vietnam, and India

Summary

Introduction

Energy is the lifeblood of the global economy since it is a critical input to all sectors of the economy including agriculture, transportation, waste collection, information technology, and communications sources. The energy sector creates jobs and value by extracting, transforming and distributing energy goods and services throughout the economy. The energy sector is relevant in any discussion of a country’s economy in two additional ways. Energy security is vital to the country’s economic growth on both the demand side (e.g., population growth, effects of globalization, and the aspirations of less-developed countries) and the supply side (e.g., known and likely reserves of fossil fuels). In 2011, energy expenditures amounted to approximately 10% of the world gross domestic product (GDP), in which North America accounts for 20%, Europe for 25%, and Japan for 6% of the total. About 81.4% of the world’s primary energy supply [1] consists of Energies 2018, 11, 2804; doi:10.3390/en11102804 www.mdpi.com/journal/energies

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