HONG KONG - The recent
announcement that China has begun filling the
tanks at the first of four planned sites for
strategic oil reserves comes as a reminder that
the game is on for the world's energy resources.
But China - a latecomer to the contest - has
started at a considerable disadvantage.
The worrisome question for analysts is
whether, now that Beijing is going full-throttle
to fuel its continuing economic boom and boost its
rise as a world power, the country's thirst for
oil will drive up world prices and bring it into
conflict with the United States, Japan and the
European Union.
The additional news that
China's oil imports jumped to a record
3.3
billion barrels a day last month did nothing to
calm those fears. According to preliminary data
gathered by the General Administration of Customs,
crude oil imports rose 24% from a year earlier to
13.2 metric tons.
The recent increase in
Chinese demand comes as oil prices have dropped
since their summer highs, prompting the
Organization of Petroleum Exporting Countries
(OPEC) to call a meeting this week to discuss the
possibility of cutting output by one million
barrels a day.
After hitting a high of
US$78.40 in July, the cost of crude oil has
dropped by more than 25%, and Beijing has taken
full advantage of the decline to begin filling its
first storage facility in the eastern city of
Zhenhai, located 200 miles south of Shanghai. The
Beijing Times reported that 140,000 metric tons of
Russian crude (1.03 million barrels) were put in
the Zhenhai reserve in August.
Port
sources said, however, that 3 million barrels of
Russian crude have been pumped into the Zhenhai
tanks. And other reports say China is also
stockpiling some of its domestic offshore output
there.
Beijing boasts that the Zhenhai
reserve will house 52 tanks with a storage
capacity of 5.2 million cubic meters. It will be
the largest of four separate sites that the
central government plans to complete by the end of
2008. Two of the other sites will also be built in
east China - one in Daishan and the other in
Huangdao. The fourth will be constructed in
northeastern Xingang.
China, now the
world's second-biggest consumer of oil, behind the
United States, aims to stockpile 100 million
barrels, enough to cover a month's worth of
national consumption, similar to the US emergency
reserve.
The central government regards
its plans for an emergency reserve as a key part
of its strategy to protect China's oil security
and reduce the impact of price fluctuation in the
market. China's late entry into the chase for
energy resources has put it at a disadvantage that
it hopes to mitigate by stockpiling oil when
prices are right.
Presently, industry
experts estimate that because of their late entry
into the global competition, Chinese companies pay
at least 10% more for foreign reserves than their
international counterparts such as Exxon and
Shell, who have already laid claim to the world's
best spots.
The United States, Japan and
Europe learned their lesson during the oil crisis
of the 1970s, when they started building their own
strategic oil reserves. As recently as 1992,
however, China supplied all of its own oil needs.
That is not possible anymore. For the past
28 years, the Chinese economy has grown at an
average of 9.7% annually, and in the quarter
ending last June, growth stood at 11.3%. That
sustained surge has turned China's energy equation
around.
Currently, the country is
importing 47% of the oil it needs, according to
China's Ministry of Commerce, and the US
Department of Energy predicts imports will
increase to 75% of the total by 2025.
Until 2003, China was focused primarily on
the Middle East, the source of two-thirds of the
world's oil, for its energy needs. But then,
against China's wishes and those of the United
Nations, the US invaded Iraq, erasing China's
interests there.
That sour experience
clearly redirected China's quest for oil,
sometimes leading the country to strike deals with
unsavory regimes that Western oil companies have
shunned because of small profit margins or
environmental or political concerns.
For
example, Sudan, the African nation that has been
accused by the US of sanctioning genocide in its
western Darfur region, now supplies 5% of China's
oil. And China's cozy relationship with Iran is
clearly undercutting US and EU efforts to isolate
President Mahmud Ahmadinejad and force him to give
up his nuclear ambitions.
In fact, China's
president, Hu Jintao, was one of the first world
leaders to send congratulations to Ahmadinejad
after he was elected in June of 2005, and it is
probably no coincidence that China Petrochemical,
the country's second-largest oil company, had
signed a preliminary agreement the year before to
buy 51% of an oil field located in the western
part of Iran's Kurdistan province.
If this
deal goes through, China will buy 150,000 barrels
of Iranian crude a day at market rates over 25
years. In addition, 250 million tons of liquefied
natural gas is part of the bargain. Iran could get
as much as $100 billion out of the deal, not what
the US and the EU had in mind for Ahmadinejad at
this juncture.
In the first half of this
year, China's largest supplier of oil, at 522,000
barrels a day, was Angola - a country that,
despite negotiating an end to a long and bloody
civil war, is hardly a model of national
stability. Saudi Arabia, China's second-biggest
supplier, is responsible for 460,000 barrels
daily, followed by Russia and Iran, each
delivering 338,000 barrels.
The Chinese
drive for greater energy security also led to last
year's $18.5 billion bid by CNOOC, China's
third-largest oil company, for California-based
Unocal. But the deal was nixed because US
lawmakers alleged that CNOOC, which is a
subsidiary of state-owned China National Offshore
Oil, represents the Chinese government and thus
could threaten US oil supplies. Unocal was
eventually sold to Chevron, America's
second-biggest oil company, for $17.8 billion in
cash and stock.
Ultimately, China has
learned that if it wants to sustain its economic
growth, it has little choice but to go where
Western powers will not to secure its energy
needs. Add into the mix China's ongoing dispute
with Japan over drilling rights for natural gas
and oil fields in the East China Sea as well as
increasing competition with another rising power,
India, and the game becomes more complex.
So far, China's symbiotic tango with the
US - the world's driving economic force - has kept
relationships on an even keel: With China's
phenomenal growth financing America's phenomenal
debt, the two seem to be made for each other right
now. Any major disruption in the current oil
supply, however, could upset that relationship and
start a whole new game.
Kent
Ewing is a teacher and writer at Hong Kong
International School. He can be reached at
kewing@hkis.edu.hk.
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