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Strategies & Market Trends : Asia Forum -- Ignore unavailable to you. Want to Upgrade?

To: bluesock who wrote (9536)	3/10/2000 1:00:00 AM
From: CIMA	Respond to of 9980

China's Congress Calls for National Oil Reserve Summary: This week China's National People's Congress discussed the need for a national strategic oil reserve to protect its economy from fluctuations in the world oil market. Yet China has an equally significant reason to stockpile: its reliance on foreign oil. Without a stable oil supply, China cannot sufficiently expand its forces to achieve its strategic goals. Analysis: At the National People's Congress meeting this week in Beijing, Chinese legislators discussed the need to build up a strategic oil reserve. The head of one of China's state-run oil firms presented the proposal, citing crude oil reserves as a necessary economic safeguard against fluctuations in world oil prices, reported Xinhua. The Chinese government has been a net oil importer since 1995 and is anticipating an increased dependence on foreign oil. But the threat of an erratic market is not the only reason for establishing strategic oil reserves. The Chinese have another driving concern: the potential for enemies to obstruct the flow of oil to the country. The urgency with which China is seeking to resolve its energy crunch suggests that Beijing may be anticipating a day when its agenda - for example, reunification with Taiwan - clashes with those of other international players. China understands that it cannot remain completely self-reliant. Although coal satisfies approximately 75 percent of its energy needs, oil demands have outpaced domestic supply and will continue to grow approximately 4 percent to 5 percent per year through 2015, according to the U.S. Department of Energy. Meanwhile, the country's largest domestic oil source, the Daqing field, is mature and expected to decline in production. While offshore oil sources remain promising, the grand expectations of Xinjiang production have failed to pan out. China's lack of strategic crude oil reserves could threaten its national interests. Having reunited with Hong Kong and Macao, China now appears ready to focus its attention on Taiwan. Taiwan elections are approaching, and China is once again beating the war drums to reunify with Taiwan. But this year, the Chinese People's Liberation Army took its rhetoric a step further by setting an ambitious seven-year timetable for reunification. Until Beijing has a secured reserve, countries that want to prevent an invasion could deny China its access to oil. Given China's ambitious, energy-intensive plans for military and naval expansion, the country must expand its resources extensively. Although many industries run on coal and hydropower, the machines of war - tanks, planes, trucks and ships - cannot. Creating the reserve will be no small task. At today's oil prices, a 90-day reserve to satisfy China's current demand of 4 million barrels per day would cost more than $10 billion - about the same amount as its official defense expenditure for 2000. But building up an oil stockpile scratches only the surface of the country's strategy. Beijing must also develop reliable sources of foreign oil. Some of the momentum behind the emerging strategic alliance with Russia derives from China's oil needs. By carving out a solid diplomatic relationship with a country that can supply oil over land, China helps ensure that its resources won't be jeopardized by conflicting interest. stratfor.com Currently, plans exist for several oil and natural gas pipelines. Two oil pipelines are under consideration, one originating in Russia and the other in Kazakstan. They would begin construction within the next five years and would each supply about half a million barrels per day - not enough to keep up with the projected demand. Beijing will probably have to resort to importing oil by sea, where the potential for interference makes the supply far more vulnerable. Already, there are plans to import natural gas from a port in Shenzhen, on China's southeastern coast. China's green- water naval development will become increasingly crucial as the country shifts toward reliance on the sealanes to supply its energy needs. stratfor.com Without a stable oil supply, China cannot sufficiently expand its forces to achieve its strategic goals. Yet, expanding its forces - in particular, its navy - is critical to creating that stable supply. Until China can better control the seas, it will concentrate on land sources of oil; partnerships with oil-producing nations like Russia will become essential. As China's oil needs increase, it must take on a far more assertive regional role - or at least, as assertive a role as it can afford. 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