As China grows, so does its oil thirst
By Zhou Xin, XFN
Last Update: 12:01 AM ET Oct. 9, 2003
BEIJING (AFX) -- China's rapid economic development has a troublesome flip side: a need to slake the nation's growing thirst for energy.
As its own domestic energy production fails to keep pace with demand pumped up by annual 8 percent economic growth, China is securing overseas oil fields, building pipelines and investing heavily in supplemental sources of energy like liquefied natural gas.
"China will increasingly rely on imported oil for domestic growth as domestic consumption soars while output stagnates," said Liu Keyu, a researcher at China Petroleum Economics and Information Research Center under the state-run China National Petroleum Corp.
Once a net exporter of oil, China became a net importer in 1993 and its demand for crude has climbed steadily since. Driven by growing car ownership and a rapid expansion of industry, it consumed 232 million tons of oil last year, up 6.4 percent, with imports reaching 69.4 million tons. This year crude oil imports hit 57.4 million tons in the first eight months, up 26 percent over the same period last year.
According to the U.S. Department of Energy, China averaged 7.3 barrels of crude oil per metric ton between 1992 and 2001.
China's Daqing oilfield -- by far the nation's biggest -- produced just 50.1 million tons last year, down from a peak of 56 million tons reached in 1997. The oilfield in northeastern Heilongjiang province, developed in the late 1950s, is expected to be producing only 30 million tons a year by 2010.
That has forced China to look outwards and the central government is helping its companies in that pursuit.
"The Chinese government has offered full support for domestic companies to secure oil sources abroad and China's three oil giants are now financially capable of winning overseas bids and setting up partnerships," said Dong Xiucheng, a professor at Beijing Petroleum University. "What China lacks is the political clout to compete with some of the big foreign oil companies."
Russia's Duma, or parliament, blocked a plan to invest in a Russian oilfield just as state-run China National Petroleum Corp. (CNPC) was about to move in.
More recently, state-run oil producer and refiner China Petroleum and Chemical Corp. (SNP: news, chart, profile) and CNOOC Ltd., the big offshore explorer, were thwarted in a bid to buy a stake in the North Caspian Sea project from BG International Ltd. as a consortium that includes Shell and ExxonMobil (XOM: news, chart, profile) used its right of first refusal to keep China out.
China has scored some successes though.
CNPC (CKKHF: news, chart, profile), Shanghai Petrochemical (SHI: news, chart, profile) and CNOOC Ltd. (CEO: news, chart, profile) have all listed their shares in Hong Kong and the United States, allowing them to build up war chests for future expansion.
CNOOC is now Indonesia's largest offshore oil producer, following its $585 million takeover of Repsol Indonesia in 2002. It also purchased a 12.5 percent stake in the Tangguh gas field from BP (BP: news, chart, profile) for 7.8 billion yuan ($940 million). The company said it has plans to increase crude oil production at its overseas fields to 30 million tons in 2005 from 16.23 million tons in 2002.
CNPC's biggest overseas joint venture is in Sudan, where it has two oil fields, a pipeline, a refinery and a polyethylene plant. In April 2002, the company bought U.S. firm Devon Energy's Indonesian oil interests for $216 million.
Not to be outdone, Sinopec has its own grand plans -- the company has earmarked 10 billion yuan for acquisition of overseas oil field by the end of 2005.
And oil trading firm China National Chemical Import and Export Corp. has proposed buying stakes in two refining companies in Thailand owned by PTT Plc.
China also has several pipeline deals on the drawing board, the most prominent of which is the 2,400 km (1,450-mile) pipeline linking Angarsk in Siberia with the Daqing oil exploration and refining base. This was seen as a done deal in early 2003, but Japanese interests have lobbied hard to shift the pipeline to Nakhodka in Russia's far east for transshipment to Japan.
China is alarmed that its pipeline deal, promising 700 million tons of Russian oil over the next 25 years, could unravel. If it does lose out it will likely return to a previously inked and partially completed pipeline with Kazakhstan.
It is also building a 200 billion yuan pipeline that will snake 2,400 miles and bring natural gas from its sparsely populated Xinjiang region in the far northwest to the wealthy east coast around Shanghai.
Last year, CNOOC signed a deal with Australia's North West Shelf Project that called for supplying three million tons of liquefied natural gas (LNG) a year to a terminal in Guangdong province. Other LNG terminals have been set up in Fujian province in eastern China and Shenzhen in southern China.
Analysts said that China is likely to set its sights on neighboring countries in the immediate future to boost its energy supplies, with a focus on Russia and Central Asia.
This story was supplied by the Xinhua Financial Network.
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