CHINA ENERGY WATCH: What Price, Energy Supply Security?
By Yee Kai-Pin
A DOW JONES NEWSWIRES COLUMN
SINGAPORE (Dow Jones)--China is showing no sign of letting up in its push to secure more energy supplies, but the true cost of its ambitions may well go beyond dollars and yuan.
The government and state-owned energy firms have been crisscrossing the globe in recent years to find - and tie up - more oil and gas supply, the most recent tour being President Hu Jintao's visit to Latin America last month.
But such adventures come with a hefty financial, and political, price tag.
That two-week swing saw Beijing committing a whopping $5 billion to oil exploration in Argentina alone. China Petroleum & Chemical Corp. (SNP), or Sinopec, also signed on to a $1 billion natural gas pipeline partnership in Brazil with state-owned Petroleo Brasileiro S.A. (PBR).
It's not just China going out searching for oil to ship home.
This week, Venezuela's President Hugo Chavez has made the long trek to Beijing, and oil deals are likely to be signed.
For Chavez, it's not only a commercial exchange - he's got other motives. The bulk of Venezuela's oil goes to politically-hostile U.S., and Chavez is keen to line up political allies, and alternative customers for the oil, in the event that links with Washington deteriorate further.
China's determination to gain a foothold in nontraditional oil regions or markets, particularly with neighboring India also in a race for limited resources, may have resulted in it overpaying for some assets.
Angola last year was handed a $2 billion loan from China in exchange for a mere 10,000 barrels a day of crude oil supply.
"It's hard to (quantify) really," John Vautrain, vice president and director at U.S. energy consultancy Purvin & Gertz Inc., said in Singapore.
"But I guess whenever somebody tries to do something really fast they tend to overpay."
Going Out-Of-Bounds
The thrust into areas off-limits to many Western energy firms will also no doubt influence the country's foreign policy: China has been pouring money into Iran and Sudan, both subjects of unilateral U.S. economic sanctions.
This may have implications going forward, especially as China starts to gather economic clout and assume its place as a political counterweight to the U.S.
Already, Beijing's close ties with Tehran are coming under closer scrutiny. China is among the top arms suppliers to Iran, which in turn supplies about 12% of China's crude.
With China in possession of a veto on the U.N. Security Council, the U.S. may find the going tough as it seeks to put more pressure on Iran's nuclear-arms ambitions.
While it may be premature to predict a collision course between the two giants, oil politics seem likely to make the relationship an uneasy one.
But some aren't too concerned. "I wouldn't try to read too much into it," Vautrain said of China's foray into political hot zones. "If it's not China, it could easily have been France, or Britain."
It's The Demand, Silly
What is really driving this relentless global outreach is China's ravenous thirst for oil, which isn't showing any sign of being slaked as the massive domestic economy continues to power ahead.
China's GDP growth was forecast by the World Bank at 9.2% this year, slowing to a still-bullish 7.8% in 2005. Oil demand growth is anticipated at 5.7% or 360,000 b/d next year, from an expected 14.7%, according to the International Energy Agency.
Security of supply has also become an issue, with the increasingly volatile Middle East - and U.S. influence in Iraq and Central Asia - complicating China's search for oil.
Imports alone are clearly not doing enough, especially as domestic oil output isn't matching demand growth.
China's crude import bill has already ballooned by 70.1% to $30.18 billion for the year to November, the General Administration of Customs said this week. A further $14.8 billion was forked out to import products and liquefied petroleum gas.
Oil prices are forecast to stay high next year, and it is inevitable that China's economy and export earnings will slow sometime.
That means the huge outlays required by China to keep the oil flowing will be increasingly weighty in the future.
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