U.S. officials scoff at China equity oil quest
Tue Jul 26, 2005 7:18 PM ET
By Chris Baltimore
WASHINGTON (Reuters) - China's global quest to secure equity stakes in crude oil projects is not likely to shield it from the whims of the world market, U.S. administration officials said on Tuesday.
Some U.S. policymakers are concerned that China's pursuit of equity oil stakes in Venezuela, Canada and Iran could spur tighter markets as prices linger near $60 per barrel.
Because global oil markets are so interlinked, such efforts are unlikely to bear much fruit, officials told the Senate Foreign Relations Committee.
"I'm not really sure that equity oil really helps a nation enhance its energy security in a global oil market," said David Garman, an undersecretary at the Department of Energy. "We're all in the same boat."
"China will effectively pay the world market price either directly or in foregone revenues if China were to ship every barrel of equity oil back home," Anthony Wayne, an assistant secretary at the State Department, said in testimony.
The theory is that equity projects overseas give owners greater security by reducing dependence on oil from major producers.
"Frankly its a delusion -- there's no more security in an equity barrel than a contract barrel," said Mikkal Herberg at the National Bureau of Asian Research in Seattle.
China's tendency to "hoard" barrels through equity projects could contribute to tighter oil markets, Herberg said.
Chinese government-owned CNOOC Ltd's bid to buy American oil company Unocal Corp. has also raised hackles in Washington, though U.S. officials at the hearing declined to comment.
House and Senate lawmakers negotiating wide-sweeping energy legislation on Monday attached a provision that would require a 141-day delay if the Bush administration reviews the deal.
Rampant oil demand from China, the world's second-largest consumer behind the United States, caught oil market analysts off guard in 2004
According to the International Energy Agency, China in early 2005 consumed 6.4 million barrels of oil per day -- about a third of U.S. usage. But China demand is expected to double by 2030, while U.S. demand rises 30-50 percent.
Sen. Norm Coleman, Minnesota Republican, said he was concerned about China's move to ink deals in Venezuela, pointing to Venezuela president Hugo Chavez's periodic threat to cut off U.S. oil shipments.
Coleman said he met with Chavez in Caracas earlier this year, where Chavez said, "I could close down Citgo tomorrow."
Coleman said he responded -- "You could cut your left arm off tomorrow, but would that feel good?"
OPEC nation Venezuela is the world's No. 5 oil exporter and top supplier of crude to the United States, the majority of which is sold to Citgo -- the U.S. arm of Venezuela's state-owned oil company.
Chavez is a firebrand nationalist who frequently criticizes the Bush administration.
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