LLLefty, thanks. here is the article
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China Pursues Ambitious Role In Oil Market
Energy Needs Push Beijing To Bid High for Access
By David B. Ottaway and Dan Morgan
Washington Post Staff Writers
Friday, December 26, 1997; Page A01
U.S. oil companies got an unpleasant surprise on Sept. 24 when the government of Kazakhstan unexpectedly sold a controlling interest in its second-largest oil field to a new player in the international energy game: the Chinese National Petroleum Co.
Aggressive bidding by Beijing's state oil company on the $4.4 billion deal was reinforced by repeated phone calls to Kazakhstan's president from Chinese Premier Li Peng, who more than matched extensive lobbying efforts led by Vice President Gore on behalf of U.S. bidders.
The Chinese leader's personal involvement, the use of government funds to sweeten the bidding and the offer to build two multibillion-dollar pipelines as part of the deal signaled a new determination by Beijing in pursuing its economic interests abroad -- even when that means paying top dollar and risking political fallout in other capitals, according to U.S. officials and international trade experts.
China's booming economy and rapid industrialization mean, "pure and simple, they need oil," said Ming Wan, a China-born international affairs specialist at George Mason University.
Kazakhstan is a new kind of post-Cold War battleground on which three old military rivals -- China, Russia and the United States -- vie for markets and access to resources. But the larger issue for U.S. officials is whether China's vigorous approach to securing energy supplies over the last 18 months -- in Iraq, Iran, Sudan and Venezuela, as well as Kazakhstan -- indicates a new Chinese mercantilism that will butt up against American commercial interests.
U.S. officials publicly have welcomed China's involvement in the oil-rich Caspian Sea region of Central Asia, noting that Chinese investments will help diversify the world's oil market and lessen dependence on the volatile Middle East. "The Chinese need to have access to the vast energy supplies in the [Caspian] region," Energy Secretary Federico Pena said during a recent international conference in Washington.
Yet China's tactics could pose future problems for American companies, according to Jeffrey E. Garten, undersecretary of commerce for international trade from 1993 to 1995. Chinese officials, Garten said, told him they will do what is necessary to make their auto, petrochemical and other key industries competitive in world markets.
"They want the world to make room for them at the top. They don't want to wait," said Garten, now dean of the Yale University School of Management. "In [Chinese] minds, their strategic advantage is that they can out-subsidize us. Their prices are going to be lower."
Top Chinese officials have made no bones about their intentions. "We are going to take advantage of our strength to participate in global oil and gas exploration," Zhou Yongkang, president of the Chinese oil company, told a Houston conference earlier this year.
In the Kazakh oil competition, a Chinese promise to build pipelines not only to China but also to Iran added a provision that private U.S. oil companies could not match. "This adds a new level to the game," said Sheila Heslin, a former National Security Council economic specialist.
Whether China's foray into Kazakhstan, a country long part of the Soviet Union and still regarded possessively by Russia, foreshadows contentious commercial conflict or benign economic globalization is uncertain. But Beijing has displayed an increasing willingness to use the Chinese National Petroleum Co. to challenge U.S. and European oil giants around the world.
Since becoming a net importer of oil and refined products in 1993, China has tried to tap new sources of oil and gas in several countries that the United States has sought to isolate economically. These include Iran, Iraq and Sudan, all of which are on a U.S. blacklist of countries alleged to support terrorism or to be building weapons of mass destruction.
As part of the proposal that enabled China to beat out such American companies as Amoco, Unocal, Texaco and Exxon for oil and gas fields in Kazakhstan, Beijing promised not only a $3.5 billion, 1,800-mile oil pipeline to China but also a pipeline to refineries in northern Iran. While providing a southern export outlet for the former Soviet republic, that route would collide with U.S. policy aimed at preventing the construction of new pipelines from the Caspian Sea to or through Iran.
Chinese oil officials also have agreed to form a joint venture with the National Iranian Oil Co. to explore offshore in Iran, China and other countries and to upgrade Chinese refineries for purposes of processing more Iranian oil.
In June, China signed a $1.2 billion agreement with Iraq to develop its Ahdab field once U.N. sanctions against Baghdad are lifted. And last year China replaced the the U.S. firm Occidental Petroleum Corp. in a $1 billion oil and pipeline deal in Sudan after Congress barred U.S. companies from dealing with countries accused of supporting terrorism.
China's developing commercial ties with Iran and Iraq put it on a potential collision course with Washington. In the U.N. Security Council, China has supported an early end to U.S.-backed sanctions against Iraq. And Beijing has clashed with the Clinton administration over Beijing's sale of anti-ship missiles to Iran. "Depending on Iran is no way to meet China's need for reliable energy supplies," said Commerce Department counselor Jan H. Kalicki, an administration spokesman on Caspian oil issues.
But American experts say Washington should understand China's motives. These include "the corporate ambitions of China's national oil company and the national security concerns of China's political and military leadership," Daniel Yergin, president of Cambridge Energy Research Associates, wrote recently.
China's domestic oil production peaked at about 3 million barrels a day several years ago -- about one-sixth of daily use in the United States. Hopes for finding a substantial oil patch in China's vast Western deserts so far have failed to be realized. As a result, the country's oil import needs are certain to grow steadily in the years ahead.
But depending on established international oil companies would undercut what some experts describe as the Chinese leadership's deep-rooted instinct for self-reliance, nurtured during decades of isolation.
The state oil company has invested in or conducted exploration in 23 countries. It bid more than $350 million to win rights to restore two marginal fields in Venezuela -- outbidding American firms by $100 million. It also formed a joint venture with the Italian oil company Agip and won "a production cooperation" arrangement in Kuwait. Meanwhile, its offshore drilling arm has moved into joint exploration in Southeast Asia.
The latest commercial triumph, Kazakhstan, will be one of China's main oil sources and supply 200,000 barrels a day by 2000, according to official announcements. On Oct. 21, the first trainload of oil from China's Kazakh holdings headed toward Chinese refineries across what until recently had been one of the most tightly shut borders in the world.
That oil was the first payoff from China's newly won concessions at Uzen and Aktyubinsk in western Kazakhstan, both of which had been coveted by major U.S. oil companies.
In the case of the Uzen field, bids by Amoco and Unocal were supported by phone calls to top Kazakh officials from Gore and Commerce Secretary William Daley. Although Amoco officials said their company was the front-runner, China ended up winning a 51 percent share with the Kazakh state oil company keeping the balance.
The Chinese won the Aktyubinsk field in June in a privatization deal involving a former state-owned company. In addition to a purchase price believed to be in excess of $5 billion, the Chinese agreed to assume $71 million of debts, pay $320 million in cash upfront and guarantee the pensions and housing of some 5,000 employees.
While U.S. oil company representatives arrived at the Kazakh capital after 12 hours of air travel, some Chinese oil officials drove -- a gesture emphasizing the proximity of China's western oil industry to Kazakhstan, according to an American who monitored the bidding.
California-based Chevron is still the top foreign oil firm in Kazakhstan with its 45 percent share of the consortium developing the gigantic Tengiz oil field, the country's largest. And major U.S. companies, including Texaco and Mobil, won offshore drilling rights and another concession.
But Beijing's interest in Central Asia's oil and gas riches has injected a new factor into the rush by international oil and gas companies for what is widely regarded as the largest untapped energy reservoir outside the Middle East.
"This is a strategic move on China's part," said S. Frederick Starr, director of the Central Asia Institute in Washington. "It symbolizes that Central Asia is China's new backyard." |
