PEAK OIL - The New Y2K or The Beginning of the Real End? Message Board

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Gold/Mining/Energy : PEAK OIL - The New Y2K or The Beginning of the Real End?

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From: Doug R	4/24/2005 10:52:08 AM
	of 1183

Oil Wars [...] China like the US views any shortages of oil as a threat to national security and to social stability. China currently imports at least 3 million barrels of oil a day while consuming upwards of 6 million barrels per day. China has been scouring the world seeking to secure deals that will ensure it has some control on its supply and secure its needs. And it is here that they are and will come in direct conflict with the US. While there is no stated conflict currently existing between the US and China it is clear that the growing China economic power is a threat to US economic power. China is a major financier of the US’s huge and unsustainable trade deficits. While China may import heavily to the US, Chinese investment in US bonds far exceeds current trade flows. But the Chinese economy for all its huge growth is one that is built on an unstable financial system where lending practices come no where near Western lending practices. This makes for considerable vulnerability in the Chinese financial system and a collapse could lead to significant selling of US bonds. As well any serious conflict between the US and China could also lead to selling of US bonds. China, despite the progress made over the past decade plus in joining the world economic system and in opening up its economy remains essentially a police state. Conflicts are clearly apparent over Taiwan and they have threatened invasion if Taiwan were to separate. China has also allowed major protests against Japan over Japanese atrocities in WW2. These protests are allowed to take place although clearly protests for example over Tiananmen Square would be crushed. But the protests towards Japan may be more than just WW2 atrocities. Japan is a major economic power and its lead role in Asia is in the way of China’s economic ambitions. As well there are disputes over offshore oil and gas reserves. In seeking to obtain secure sources of oil, China is signing major deals with Saudi Arabia, Iran and Venezuela amongst others. Its involvement with Venezuela is made more fascinating because of the animosity between the democratically elected government of Hugo Chavez and the US. It is believed that the US has been behind coup attempts. Venezuela supplies upwards of 11% of US oil and any major diversion of oil away from the US to China could bring on a serious conflict. In neighbouring Colombia there are US troops patrolling pipelines. As well China’s deals with Iran add an edge to the ongoing war of words and conflict between Iran and the US over alleged WMD. And the US is not the only one with troops in foreign countries. China’s insatiable need for resources finds them in particular in numerous African countries including Nigeria (oil), Zambia (copper) , Equatorial Guinea (wood) and others particularly for oil and gas reserves and wood (which China has a shortage of). Besides engineers and technicians there are also Chinese troops protecting facilities. One country that China is making overtures to for major investments is Canada. China has attempted to purchase Husky Oil owned by Hong Kong billionaire Li Ka-shing and is looking at significant investments in Canada’s oil sands. But here their need to secure supplies of oil comes in direct conflict with the US’s needs to secure supplies and under the terms of the North America Free Trade Agreement (NAFTA) the US is guaranteed a percentage of Canada’s oil. Any deals between Canada and China could cause problems with US interests. It is a growing problem not only for the Chinese and the Americans it is a problem for Canada in determining where it wants its business and exports to go. For Canada a diversified market for its oil and gas is positive as it also means more competition and more foreign investment. But it is in direct conflict to the US’s need to secure supplies. But to extract from the oil sands is very expensive and for China cost is less of an issue. If the US decides that cost is not an issue either the boom that started years ago in the Canadian oil patch will heat up even further. But the potential for international conflict adds an edge to the debate that would not be present if not for China’s own insatiable needs. The potential for a major conflict between China and the US at this stage remains low. But as we move forward and demand keeps rising (and not only China as India, Brazil, Russia and Japan are right behind with demand growing faster than in the US) and discoveries and refining capabilities lag coupled with rising costs because of the cost of extraction in oil sands or deep sea plus the ongoing potential for supply disruptions in the volatile Middle East the potential for a military clash of some significance grows with it. We are always fascinated with pundits who believe that oil prices are going to fall to levels of $40, $30 and even $20. Oil prices are high and will go higher for good reason. Supply disruptions, growing shortages, sharply rising demand and the potential for global conflict over a commodity that drives the world economy. And at the centre of it are China and the US. 321energy.com

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