I would not be surprised if China and the U.S. end up in a war over oil. China has less oil than we do, but they are essentially the ones pushing up the demand for it. Granted they aren't driving SUVs, but they've got a lot of people over there and they are getting more of a middle class.
Keith Addison <[EMAIL PROTECTED]> wrote:
Keith Addison <[EMAIL PROTECTED]> wrote:
http://www.latimes.com/business/la-fg-chinaoil17jul17,0,3357282.story?
coll=la-home-headlines
http://snipurl.com/gbs4
China Stakes Claim for Global Oil Access
In its quest for crude, Beijing is dangling cash and playing on
nations' discontent with the U.S. Can the two huge energy consumers
coexist?
By Mark Magnier, Times Staff Writer
07/17/05 "Los Angeles Times" - - BEIJING - When Alberta Premier Ralph
Klein toured China last year and invited business leaders to visit
the Canadian province's oil sand deposits, he didn't expect an
immediate response.
But when Klein returned home a week later, Chinese executives were
already making the rounds in Alberta, where the oil sands region is
roughly the size of Florida and is believed to contain the richest
reserves after Saudi Arabia.
The executives' quick response paid off. Three of China's state-owned
oil firms have since poured huge investments into the oil sands,
including a 40% stake in a $3.6-billion project that will be able to
send oil via a new pipeline to Canada's west coast for shipment to
China and elsewhere.
"Clearly, China has been the talk of Calgary," said Steven Paget, an
analyst for investment bank FirstEnergy Capital Corp. there.
Scenes like this are being repeated around the world. Dangling cash
and access to its huge market, China is dispatching legions of
diplomats, surveyors and engineers across the globe to help quench
the Middle Kingdom's insatiable thirst for energy.
During the last two years, President Hu Jintao and Premier Wen Jiabao
have taken oil executives on trips to oil-rich countries from Algeria
to Uzbekistan to seal major deals. The government in Beijing has
welcomed top officials from all 11 members of the Organization of the
Petroleum Exporting Countries. A major point of a trip Hu made to
Moscow this month was to secure access to Russia's vast reserves.
Chinese crews are building roads in Africa in exchange for the right
to extract oil from remote regions. Viewers in Saudi Arabia, a nation
that U.S. oil firms once had to themselves, now watch Chinese
programs on satellite TV as China drills into Saudi sands. China is
also taking advantage of tensions between the Bush administration and
Venezuelan President Hugo Chavez to wrest oil from one of the largest
U.S. suppliers.
To secure deals worth tens of billions of dollars, Beijing is cozying
up to regimes in nations, including Iran and Sudan, that Washington
labels pariahs. And it is flexing its military muscle to lay claim to
contested fields in East Asia.
China's aggressive search is putting it in growing competition with
the United States, the world's largest oil consumer. Some observers
even warn of a possible showdown between the two economic giants.
"The Bush administration's attitude toward China at the moment is to
look for ways to work with them, but I don't know how sustainable
this policy is going to be," said Gal Luft, executive director of the
Washington-based Institute for the Analysis of Global Security, a
conservative think tank. "At the end of the day, you've got two very
large consumers competing over the same sandbox. Sooner or later the
Chinese are going to run out of places they can look for oil."
China says wealthy countries need to adapt. It notes that those
countries have been the largest energy users for a century despite
accounting for just 15% of world population. It also insists that its
appetite for foreign oil does not challenge U.S. interests or global
stability.
"China was never, is not and will not pose a threat to world energy
supplies," Ma Kai, China's energy chief, said in Beijing.
Still, U.S. concerns over China's recent forays grew last month after
CNOOC Ltd., which is 71% owned by state-controlled China National
Offshore Oil Corp., made an unsolicited $18.5-billion bid for El
Segundo-based Unocal Corp. The House of Representatives passed a
nonbinding resolution two weeks ago opposing the deal on national
security grounds, prompting an angry response from Beijing.
"We demand that the U.S. Congress correct its mistaken ways of
politicizing economic and trade issues," the Foreign Ministry said in
a statement.
Before the Unocal bid, Beijing's activities had attracted relatively
little attention from a U.S. administration focused on Iraq,
Washington's war on terrorism and other foreign policy priorities.
"We're still trying to get a handle on what's happened on our watch,"
said a senior State Department official who asked not to be
identified because he was not authorized to speak on the record.
"More work needs to be done on this."
Other analysts say the U.S. and other nations must adjust to China's
new role as a major global energy player. "The bottom line is, the
U.S. will have to make room for China," said Youssef M. Ibrahim, an
oil analyst with Strategic Energy Investment Group of Dubai, United
Arab Emirates. "If it doesn't make room for China, China will take
the room."
----------------------------------------------------------------------
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As mammoth tankers the length of three football fields line up at
Chinese ports to dump their loads, it's difficult to believe that
just a dozen years ago, China was self-sufficient in oil. The
discovery of the giant Daqing field in the late 1950s created a
windfall that turned the then-isolated communist nation into East
Asia's biggest oil exporter. While Americans were lining up for
gasoline, the largely agrarian country sailed unscathed through the
1970s oil shocks.
In 1985, Chinese newspapers gave front-page coverage to the first
farmer who bought his own truck. The country was in the early stages
of an economic boom that would see rice fields give way to bustling
factories spitting out Barbies and computers for the world's
consumers. Guangdong province alone boasts more than 60,000 factories
producing $300 million worth of goods a day.
Today the nation of 1.3 billion people has 20 million vehicles, a
figure expected to grow sevenfold in the next 15 years.
Since the early 1990s, China's oil consumption has grown 7.5% a year,
seven times America's growth rate, forcing the nation to go looking
overseas for new supply. By 2030, China is expected to need 13
million barrels of foreign oil a day, roughly equivalent to current
U.S. import levels, to fuel its cars and power its factories.
Most factories in China use state-produced electricity, which is
generated largely by coal. But the electric grid often suffers
blackouts, putting a strain on firms rushing to finish orders.
Factories in Dongguan, a gritty industrial city in the southern
province of Guangdong with little charm and lots of teenage workers,
respond to the endemic power shortages by making their own. That
helps explain why China recently surpassed the U.S. as the world's
biggest buyer of industrial generators.
Local governments across the industrial belt employ phone trees and
cellphone text-message systems to warn of impending blackouts. As the
alerts spread, industrial generators sputter to life. If the warning
arrives late, manufacturers must dump partially finished goods.
But the new machines demand fuel, spurring competition for diesel.
With legal diesel in short supply, managers such as Xia Jianhua of
trucking firm Oriental Transportation turn to the black market,
buying it for $2 a gallon, 30 cents over the official price.
Xia said high fuel costs had sliced his profits 20%. "The government
should do something as soon as possible," he said.
Some economists say authorities should cut fuel subsidies and raise
prices to limit consumption. Although the Communist Party has begun
to make industrial users pay more for their fuel, it has resisted
price hikes for farmers or residential users, fearing social upheaval.
As new jobs and exports create a burgeoning middle class, a nation
that once relied on bicycles to get around is gobbling up new cars,
which guzzle foreign oil.
Li Jia, a 24-year-old hotel clerk in Beijing, bought his white Kia
for $10,000 two years ago. Most of his colleagues, also in their 20s,
own cars. "I like the convenience and the color," Li said. "I'm
worried about high gas prices, but what can you do?"
----------------------------------------------------------------------
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In his gleaming office overlooking Beijing's traffic snarls, Yang
Hua, chief financial officer for CNOOC, fingers small vials labeled
"Light Sweet," "Synthetic Crude" and "Tailings Sand" on his
windowsill. He's focused on one objective: enabling his company to
find enough oil to strengthen its competitive position and help
satisfy China's energy needs.
As a petroleum engineer with CNOOC, Yang has searched for oil in
Iran, Kazakhstan, Qatar, Yemen, Brazil, Tunisia, Indonesia and the
roaring waters of China's Bohai Bay.
"We usually have to work in some pretty harsh environments," he said.
As CFO, Yang has had to court Wall Street. Annual reports and balance
sheets have replaced seismic charts in his office.
"China seems to have almost unlimited demand," he said. "As an energy
supplier, we feel ashamed of not having enough energy for the market.
But, of course, it's great for business."
The Unocal bid represents the largest foreign acquisition attempted
by a Chinese company. But the offer is meeting growing resistance in
Washington, raising the odds that it won't be approved.
"I think it would be terribly foolish if they just come in here and
buy Unocal," said Rep. Robert W. Ney (R-Ohio). "Overnight, they could
have gas to three bucks [a gallon] at the pump."
To secure energy for current and long-term needs, CNOOC and other
Chinese firms have pursued a bold strategy: Court oil-rich nations
Washington considers pariahs. China moves in when U.S. policy keeps
ExxonMobil, Chevron-Texaco and other American companies from drilling
in Iran, Sudan and elsewhere.
"They have to go where Western oil companies aren't," said Michael
Lelyveld, senior analyst for PFC Energy, a Washington-based
consulting firm.
China trades on an asset these countries value: its veto power as a
permanent member of the United Nations Security Council.
Beijing has reportedly threatened to veto any U.S. attempt to impose
sanctions on Iran for pursuing uranium enrichment technology in what
Washington alleges is a nuclear arms program. China has also sold
Iran weapons, including long-range missile technology, that could
threaten shipping in the Strait of Hormuz, through which 40% of the
world's oil exports flow.
In October, Beijing used its friendship with Tehran to seal a
$70-billion agreement giving Chinese companies a 51% stake in the
huge Yadavaran oil field, Iran's largest onshore field, along with a
promise to help develop the largely untapped area.
"With the current U.S. threat to refer Iran's nuclear case to the
U.N., Iran needs friends in high places," said Reza Zandi, an energy
expert and journalist for Iran's Sharq newspaper. "We want to be
friends with 'big China,' and they want to be friends with us."
Deputy Iranian Oil Minister Seyed Mohammed Hadi Nejad Hosseinian said
U.S. pressure had driven Iran into China's arms.
The U.S. Energy Department recently opened an office in Beijing,
partly to discuss conservation and China's oil quest. U.S. officials
also hope high-level dialogue will address Beijing's dealings with
Tehran.
Friction between Washington and Beijing has also surfaced in Sudan,
where state-held China National Petroleum Corp. has a 41% stake in
Petrodar, a major Sudanese oil consortium. Sudan's relatively small
production is expected to reach 500,000 barrels a day this year.
In September, Beijing frustrated a U.S.-led bid to impose tough U.N.
sanctions against Sudan after government-backed militias committed
atrocities against the non-Arab population in the Darfur region.
Sudanese Information Minister Abdel Basit Sabdarat said the U.S. had
pushed Khartoum to limit its ties with Chinese oil companies. "But we
refuse such pressures," he said. "Our partnership with China is
strategic. We can't just disband them because the Americans asked us
to do so."
When Uzbek President Islam Karimov arrived in Beijing nearly two
months ago, Chinese greeters handed him a lavish bouquet and guided
him across a bright red carpet as Chinese oil executives waited in
the wings to sign a $600-million joint venture.
"This is an important step for energy cooperation," Karimov told the
People's Daily, the Communist Party's newspaper.
Weeks before Karimov's visit, Uzbek troops fired on protesters in
Uzbekistan's Andijon area, resulting in 700 deaths, according to
human rights groups. The government disputed that figure, saying only
187 people died, most of whom were "lawbreakers."
After the clashes, Beijing promptly said it would oppose any U.S. or
European calls for a U.N. inquiry, describing the Uzbek crackdown as
a justifiable move against "terrorism, separatism and extremism."
In many parts of the developing world, China has made friends by
avoiding the sort of finger-wagging of which Washington is sometimes
accused.
"The Chinese don't get involved with religion, they don't get
involved with political democracy arguments," said Hassan Husseini, a
longtime oil consultant in Saudi Arabia.
"On the subject of women, they accept, and we accept, that we're
different," he said. "They're very technically competent and they
stay out of politics."
Han Wenke, deputy director-general of the Chinese
government-supported Energy Research Institute, said Beijing did not
need to apologize for striking deals with governments out of favor
with Washington.
"This is just an economic relationship, not political or military
cooperation," he said. "Another thing, I don't think China needs to
follow the U.S. policy."
Other observers note that the U.S. does business with nations such as
Saudi Arabia, which is often cited for torture and other human rights
abuses. Human rights groups have criticized some U.S. oil companies
for dealing with leaders who repress their people and siphon oil
revenue into foreign bank accounts.
Drew Thompson, a China analyst at the Center for Strategic and
International Studies in Washington, said that "in some ways China is
being held to a different standard than other countries."
"If there's a military dictatorship in Nigeria or less than free and
fair elections, does that mean that ExxonMobil or Shell do not do
business with them?" Thompson asked.
----------------------------------------------------------------------
----------
Besides diplomatic clout, China offers low-interest loans and
promises of better roads and other aid that Western oil companies
typically don't.
Beijing has won friends in Africa with big gestures, including a
$1.2-billion, continentwide debt-forgiveness program.
It has also addressed the needs of individual countries.
In the slums of Luanda, the capital of oil-rich Angola, residents
living amid garbage and open sewers have witnessed the march of
modern electricity pylons through their neighborhood, thanks to the
Chinese. A few miles away, on the city's outskirts, a modern village
is set off from the surrounding shacks by a security fence, built to
house government officials. It too was a gift from the Chinese.
Chinese-built roads, bridges and railroad installations are on the
drawing board, part of a $2-billion infrastructure loan program
Beijing signed with the country last year in return for oil.
Angola, which is China's second-largest supplier after Saudi Arabia
and accounts for about 300,000 barrels a day, may be one of the
biggest African recipients of China's largesse, but it's hardly
alone. China's African footprint is growing - from the blue Chinese
tiles adorning autocratic Zimbabwean President Robert Mugabe's palace
roof and the smooth blacktop roads snaking across Rwanda to the new
railways in Nigeria and a high-profile port project in Gabon.
The Chinese do what it takes to "lubricate their way into foreign oil
deals," said Luft of the Washington-based think tank.
President Hu's visit to Gabon in February 2004 helped Chinese
companies secure an onshore oil exploration deal and a promise to be
sold a significant amount of crude.
Even in countries such as Nigeria where China is shut out by Western
firms, it has displayed patience, hoping over time to partner with or
replace them when drilling licenses come up for renewal. Beijing
announced this month that it would build and launch a communication
satellite for Nigeria by 2007.
Even as America has become increasingly critical of Saudi Arabia's
government on democracy and terrorism issues, China has courted the
kingdom with everything from soccer matches to tourism.
In recent years, the Saudis have opened an office of the state oil
company, Aramco, in Beijing and a consulate in Hong Kong and this
month invested in a refinery in southern China. Beijing has also
hinted at a deal to grant Aramco access to its huge retail gasoline
market in return for guaranteed supply.
Today, dishdashas, the traditional white robes worn by Saudis, are
mostly made in China, and cable channels in the kingdom broadcast
Chinese programs. "I love to watch Chinese humor subtitled in
English," said Husseini, the oil consultant. "It's so funny."
----------------------------------------------------------------------
----------
China's oil needs also mean it must venture off beaten paths.
Sometimes, that means moving into the United States' backyard.
Chinese firms have been able to capitalize on discontent with
Washington in Ottawa and Caracas.
U.S.-Canadian relations have been strained in recent years by
disagreements over the Iraq war, missile defense and U.S.
restrictions on Canadian lumber and beef. In granting China access to
its oil sands, Canada sends a message that the U.S. isn't the only
game in town. The move also helps diversify the nation's customer
base.
China's investments in Canada began slowly, with a $124-million stake
by CNOOC in MEG Energy, a small, privately held company with a
proprietary oil sand technology. PetroChina International signed a
deal to participate in the billion-dollar pipeline project that would
help bring the oil sand output to West Coast tankers.
The bitumen found in oil sand is a sticky deposit that must be
converted into crude before it can be refined into gasoline or other
fuels. Extracting the bitumen is expensive, but experts say it can be
profitable, especially with oil prices in the neighborhood of $60 a
barrel. Production is expected to jump from the current 1 million to
3 million barrels a day within a decade.
China has also benefited from dissatisfaction with the U.S. to the
south. Analysts say Venezuelan President Hugo Chavez has used his
growing partnership with Beijing as a way to poke Washington in the
eye - Caracas says China will help Venezuela diversify its customer
base.
During a visit to Beijing last year, Chavez pledged energy assistance
to China. And in a reciprocal visit in January by Chinese Vice
President Zeng Qinghong, Venezuela promised 100,000 barrels of oil a
day and 3 million metric tons of fuel oil a year. No investment
figures were given, but a competing bid valued a similar deal at $6
billion.
It's unclear, however, when the shipments will begin or if they will
affect delivery obligations to U.S. refineries. The U.S. imports 1.3
million barrels a day from Venezuela, about two-thirds of that
nation's output.
This month, China said it would boost Chavez's social programs by
using Venezuelan workers to build 10,000 houses on state-owned land
in Venezuela in the next two years.
Disillusionment with the United States has also provided China with
openings in Brazil, where Beijing and Brasilia are collaborating on
projects to develop hydroelectric power and natural gas.
"The U.S. is not giving attention to the strategic partnership with
Brazil," said Luiz Fernando Furlan, Brazil's minister of development,
industry and foreign trade. "We cannot stay free waiting for what
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