Fwd: China's growing thirst for oil remakes the world market

Joseph S. Barrera III joe at barrera.org
Fri Dec 5 08:21:04 PST 2003

I sure hope Eugene is right about solar cells plummeting in price....

-------- Original Message --------
Subject: 	[cdn-nucl-l] " China's growing thirst for oil remakes the 
world market "
Date: 	Wed, 3 Dec 2003 21:29:27 -0500
From: 	Jaro <jaro-10kbq at sympatico.ca>
To: 	multiple cdn <cdn-nucl-l at informer2.cis.McMaster.CA>

Interesting article on energy in China. 
Not one single mention of the N-word. 
But the need for displacing oil use to the largest extent possible by other
energy sources is plain as day.


China's growing thirst for oil remakes the world market
By Peter Wonacott, Jeanne Whalen and Bhushan Bahree 
Wall Street Journal, December 3 2003

With its factories working overtime, and its consumers on course to buy
almost two million cars this year, China is developing a world-class thirst
for oil. And its hunt for steady supplies is reshaping the global energy
market, the environment and world politics.

China -- which this year surpassed Japan as the No. 2 petroleum user after
the U.S. -- is increasing its oil purchases even faster than it is pumping
up its brawny economy. Imports for the first 10 months of 2003 are up 30%
from the year-earlier period. The International Energy Agency expects
imports to double to some four million barrels a day by 2010. By 2030, the
IEA expects China to be importing about 10 million barrels a day, roughly
what the U.S. brings in now. Domestic oil output, meanwhile, is flat.

>From Houston to London to Moscow, oil companies are looking to secure market
share in China, as China roams the world looking for oil fields to develop.
Some fear that China, which doesn't have large strategic reserves of fuel,
might grow so desperate for oil that it would battle the U.S. for influence
in the Middle East or even trade weapons technology to terrorist states.
Others are more optimistic, and think China will realize it has a vital
interest in keeping the region stable.

"China is having an incredible influence on energy flows, not just in Asia
but on a world-wide basis," Peter Davies, chief economist at BP PLC, told
reporters on a recent trip to Russia, from where BP hopes to supply China
with Siberian gas. "The whole center of gravity of the world energy market
is changing."

So far, the most obvious impact has been on prices. In recent years, China
has drawn fire in the U.S. and Japan for exporting deflation, as its
factories pump out low-price T-shirts, sneakers, radios and other goods. In
the $1 trillion-a-year market for oil, the opposite is happening. This year
and next, China is expected to account for about a third of the increase in
global oil demand. China's purchases are an important reason OPEC, whose
members regulate output to prop up oil prices, has been able to keep oil at
or above $30 a barrel for much of this year.

Chinese demand is also making geopolitical waves in the U.S. Last month, the
U.S.-China Economic and Security Review Commission, a committee of
congressional appointees, debated how China's thirst for oil would affect
U.S. access to energy supplies. Last year, the Pentagon reviewed a report on
what it would mean for U.S. national security if the Chinese and Saudis grew
closer. Saudi Arabia, the world's largest exporter, is negotiating to build
a huge refinery in China with Exxon Mobil Corp. The desert kingdom's state
oil company has even begun sending students to Chinese universities to get
undergraduate degrees and learn the language.

Meanwhile, China's mushrooming fleet of cars is adding to worries about this
smokestack nation's impact on the environment. In the next decade, the
number of cars on Chinese roads is expected to grow fivefold to 100 million,
approaching half of the U.S. total, according to the Development Research
Center, a government think tank. China is set to tighten its emission
standards by 2005, and in 2008 it plans to introduce standards that could be
even tougher than those in the U.S.

"If all our bicycles turn into our cars, that's a horrible figure," says
Zhai Guangming, retired director of oil exploration at state-run China
National Petroleum Corp. "It would scare the world."

Flip Side

The flip side of growing Chinese oil imports is increasing vulnerability.
Used to having leverage over foreign multinationals seeking access to its
market, China finds the shoe on the other foot as it is forced to compete
with Japan and other buyers for oil. Chinese oil companies -- starting
decades behind U.S. and European giants -- are struggling with limited
success to acquire stakes in oil ventures overseas.

China is particularly exposed in the Middle East, the source of half its
imports, pointing up a little-noted twist: China's energy lifeline is
increasingly dependent on the U.S. fleets that guard the world's shipping
lanes. Like Washington, Beijing will increasingly need stability in the
Middle East to ensure reliable oil supplies at moderate prices. In the long
run, this confluence of interests might tug Beijing closer to the U.S. But
several analysts warn that China's thirst could lead to Beijing's emergence
as a competitor for influence in the Middle East.

"Saudi Arabia could possibly begin looking to the Chinese for those
economic, security and political needs it now garners from the U.S.," last
year's Pentagon study noted.

Energy security has been gripping Chinese economic planners for years.
Government economists long warned about the danger of importing growing
amounts of oil because of the foreign exchange it sucked out of the country,
and because of the dependence it created on volatile overseas markets.
Importing oil stabbed at the heart of Communist Party notions of
In the past decade, technocrats concluded China couldn't go it alone.
Domestic oil output peaked as demand soared.

China's factories were gobbling up huge amounts of oil. The fuel is the key
feed stock for petrochemicals, which the factories use to crank out
plastics, mobile phones, toys and computer parts.

At the same time, the Asian financial crisis of the late 1990s brought about
vast economic changes that led to increased demand for oil. Like smaller
Asian countries, China was overly dependent on exports for growth and
exposed to sudden slowdowns abroad. To stimulate the economy, Beijing began
investing billions in infrastructure, encouraging bank lending and relaxing
curbs on home purchases and auto production to get people spending. The
moves sparked explosive sales in apartments and cars -- growth that filtered
through the rest of the economy and led to quantum leaps in oil use.

"The only force that could help the economy grow at 8% is consumption," says
Ma Xiaoye, a former economic official and now director of Academy for World
Watch, a think tank in Shanghai. "We had no choice."

The challenges of fueling that growth are clear outside the capital in the
shadows of Cat Ear Mountain, the site of the Beijing Yanshan Petrochemical
Co. refinery. It was established in 1968 at the height of the Cultural
Revolution, when self-sufficiency was China's watchword. The refinery became
an island of industrial stability, expanding output even as political chaos
enveloped the nation. Movie theaters, shops, schools and eventually a town
sprang up around it. Trucks and later a pipeline solidified a supply link
with the huge Daqing field to the northeast, the refinery's lone supplier.

Turning to Russia

These days, output from the Daqing fields is declining. "They are reducing
crude-oil production every year," says Chang Jiang, a senior engineer at
Beijing Yanshan. "So we are turning to Russia."

In July, the refinery, a unit of China Petroleum & Chemical Corp., or
Sinopec, processed its first shipment of oil from Russia, the world's No. 2
exporter. In May, the Chinese and Russian presidents endorsed the idea of
building a pipeline to supply Siberian crude to Daqing, which could then be
fed to Yanshan. OAO Yukos, Russia's largest oil company, and CNPC, a Chinese
oil giant, signed supply pacts promising to send 400,000 barrels of Russian
oil a day via the pipeline, slated to be built by 2005. In eastern Siberia,
Yukos has stepped up its search for new oil reserves, setting up a camp for
surveyors in the tundra.

But Russia may be an unreliable lifeline. Yukos's main shareholder, Mikhail
Khodorkovsky, has been jailed amid a political battle with the Kremlin,
casting doubt on the company's ability to keep pushing the China pipeline
ahead. The Kremlin, meanwhile, has put the China project on hold while
President Vladimir Putin mulls an alternate pipeline to Russia's Pacific
port of Nakhodka, which has the advantage of being able to supply not only
China, but also Japan and other Asian consumers. Japanese Prime Minister
Junichiro Koizumi is lobbying hard for Nakhodka, pledging billions of
dollars to help finance the pipeline. He even brought a judo master to a St.
Petersburg summit in January to amuse Mr. Putin, himself a black belt in the

The Chinese are scurrying for other deals. They are pressing for access to
reserves in Iran, the second-largest exporter in OPEC after Saudi Arabia. In
Iraq, CNPC is hoping the new government will stick by a deal inked in 1997
under which the oil company will develop Iraq's Al-Ahdab oil field. Beijing
is pushing forward plans for a multibillion-dollar pipeline from oil-rich
Kazakhstan, even amid doubts about the feasibility of the project. During a
visit to Kazakhstan in June, Chinese President Hu Jintao signed an agreement
to revive a long-delayed pipeline project that would pump oil across the
Chinese border.

China's insecurity is making global oil czars nervous. Top on their list of
worries: China, unlike other major industrial powers, lacks a large
strategic reserve of oil to buffer the country during supply shocks. That
gap alarmed the industrial world's energy watchdog early this year. As the
U.S. and Britain prepared to invade oil-rich Iraq, officials at the
International Energy Agency say they opened a dialogue with Chinese
officials. The aim: to preclude panic buying of petroleum by China, which
might roil an already-jittery world oil market.

Chinese officials are loath to discuss the politically charged topic of
energy security. Oil czar Zhang Guobao -- the 59-year-old vice-minister of a
super-agency whose purview includes autos, high-tech and energy -- turned
down requests for an interview.

But pieces of a strategy are starting to emerge. The State Energy
Administration, which Mr. Zhang also heads, plans to create a strategic oil
reserve, but officials won't say how the agency will finance and build the
stockpile. By 2005, China plans to store 50 to 55 days' worth of oil imports
and 68 to 70 days' worth by 2010, according to Wu Kang, energy analyst at
the East West Center in Hawaii.

In Washington, national-security strategists are sorting through a welter of
possible consequences of Beijing's oil thirst. The study reviewed by the
Pentagon last year, "Sino-Saudi Energy Rapprochement: Implications for U.S.
National Security," concluded that the world oil market will be able to
accommodate China. The study also predicted that Beijing is coming to share
America's interest in ensuring the Middle East remains a reliable supplier
of oil.

"We have common strategic needs," says Amy Jaffe, senior energy analyst at
Rice University's Baker Institute for Public Policy and one of the authors
of the study.

Still, many analysts are wary of a Beijing that could begin to feel boxed in
by its energy needs. The study noted that China might emerge as a major arms
supplier to the Saudis. Other analysts fear that China might be tempted to
trade weapons technology for access to oil in countries such as Libya and

More than 60 years ago, another emerging Asian power felt squeezed on
energy: Japan. The U.S. responded to Japanese aggression in East Asia by
imposing a natural-resources embargo on Tokyo, which hit back by attacking
Pearl Harbor. Kent E. Calder of Johns Hopkins University's School of
Advanced International Studies says those events point a way forward for
China and the U.S. as they seek to head off future conflict.

"Obviously, historical parallels are never exact," Mr. Calder told the
congressional commission last month. "Yet Japan's belligerence when it was
vulnerable suggests that taking positive steps to support China's energy
security can be in America's national interest."

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