China on global hunt to quench its thirst for oil
By ROBERT COLLIER
June 26, 2005
Move over, Big Oil. There's a new oilman on the world stage - China.
China's takeover bid for Unocal Corp. makes clear to sticker-shocked Americans that the 1.3 billion Chinese people are demanding an ever-larger supply of the world's energy to fuel their booming economy and are willing to get it wherever necessary.
From Central Asia to Latin America, Africa, the Middle East and even Canada, Chinese firms are pumping oil and natural gas in many areas that the United States was counting on to meet its own record-high demand.
"We need to supply our people, and like every country we need to buy oil from around the world," said Zhou Dadi, director general of the Energy Research Institute, the central government's main policy agency on the subject. "This is part of globalization. It is a strategy of sustainable development. It is part of a historical process."
While China's supply network does not yet rival the global clout of U.S.-based oil corporations, the shift raises concerns of politicians and analysts in the United States and Southeast Asia who see China as a future global giant motivated by the same powerful self-interest as American Big Oil.
China's thirst for energy has been a major factor driving up the international price of oil.
Chinese petroleum imports are expected to rise by about 8 percent this year - accounting for about one-third the total worldwide consumption increase, as it has in recent years. Because China's domestic oil production is in a long-term decline, its imports are expected to surpass the U.S. import levels within two decades.
U.S. officials have been increasingly uneasy as China has signed major deals with Iran, Sudan, Burma and Venezuela, all countries that have strained relations with the United States.
While the Bush administration tries to build international pressure against Iran over its nuclear aspirations, China has signed a $70 billion long-term oil and gas supply deal with the Tehran government. China has also signed agreements to develop heavy oil reserves in Venezuela, where President Hugo Chavez has emerged as one of Washington's most vocal opponents.
Even in Canada, the top U.S. oil supplier, Chinese firms have signed three deals this year to tap Alberta's vast oil-sands reserves and to join a pipeline venture to bring crude to the Pacific coast, where it can be shipped to China.
In many of these new deals, the webs of alliances and rivalries are overlapping. CNOOC Ltd., the 70 percent state-owned company that last week offered $18.5 billion for Unocal, is scheduled to begin imports of liquefied natural gas next year from Australia, in a project that CNOOC co-owns with Chevron, its rival suitor for Unocal. CNOOC also is involved with Chevron in offshore oil production in the Bohai Bay of northeast China.
Western energy analysts in Beijing say that as the government-owned Chinese oil firms scour the globe for deals, they often have a leg up on the likes of Chevron and ExxonMobil, which are privately owned.
Because about 80 percent of the world's oil reserves are in the hands of governments, which usually prefer to deal with other state-owned enterprises, Chinese firms can gain favor, said Gavin Thompson, China country manager for Wood Mackenzie, a British energy consulting firm. Although Chinese companies cannot offer the same high-tech methods for exploration, drilling and extraction as the U.S. majors, they gain a negotiating edge by being willing to assume unprofitable side deals that function basically as development aid.
In 2003 and 2004, for example, the Chinese firm Sinopec signed a series of deals with Saudi Arabia to develop natural-gas fields. Sinopec's investment, which ultimately could be worth $4 billion, commits the firm to a wide variety of welfare-state activities, such as building sewage treatment plants and schools.
Some analysts say this broad brush has served Beijing's foreign-policy needs rather than the companies' bottom line.
"China's acquisition strategy is that it can go anywhere and buy almost anything," Thompson said. "But as a consequence, its asset portfolio has become quite random and scattered."
Throughout East Asia, even close allies of Beijing show nervousness about its energy appetites.
China has been wrangling with Japan over natural-gas reserves in the East China Sea, and with Vietnam over suspected oil deposits near the Spratly Islands in the South China Sea, setting off worries that such conflicts could turn violent.
"Throughout all of East Asia, there is a rising new concern about energy security," said Chin Kin Wah, deputy director of the Institute of Southeast Asian Studies, a government-backed think tank in Singapore. "From Russia to China down to Indonesia, there is a new generation of possible conflicts."
However, Chinese officials say that no matter how rich and powerful their country becomes, their need for oil will never turn into U.S.-style gunboat diplomacy.
(Distributed by Scripps Howard News Service, shns.com.)
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