WUKONG China aims to diversify oil
sources By Wu Zhong, China
HONG KONG - Diversification is a
golden rule of doing business, hence the saying:
"Don't put all your eggs in one basket."
In recent years, China has been making
aggressive efforts to diversify its sources of oil
imports, in an apparent move to reduce the risk of
increasing reliance on oil from the Middle East.
But in China 's oil-security strategy,
such variegation is not only
reduce business risks but also for geopolitical
China was self-sufficient in oil
consumption until 1993. Since then, the country
has become increasingly reliant on imported oil to
fuel its rapid economic expansion. This situation
is unlikely to change in the future as proven oil
reserves in the country are not nearly enough to
meet expected demand.
In 2006, China
produced 183.68 million tons of crude oil, up 1.7%
from the previous year. Its net oil imports
amounted to 162.87 million tons, up 19.6%. The
total net imports included 138.84 million tons of
crude oil, up 16.9%, and 24.03 million tons of oil
products, up 37.9%, according to the Ministry of
Thus last year China 's
dependence on imported oil rose to 47% of annual
demand, or an increase of 4.1% over the previous
Industry analysts have predicted
that in 2007, China's crude-oil output will grow
by less than 2%, while the country's demand for
both crude and oil products will rise about 6%.
That means its dependency on imported oil will
further increase this year.
for example, China imported 13.69 million tons of
crude oil, an increase of 3.5% year on year, and
2.77 million tons of oil products, up 5.7%,
according to statistics from the General
Administration of Customs.
worried Chinese oil-security strategists in recent
years is that most of the imported oil comes from
the Middle East. Despite China's efforts to
diversify sources of imports, it still relies
heavily on Middle Eastern oil. In 2005, China's
imports of crude oil from the Middle East
accounted for 61.1% of its total crude-oil
imports, making it the most import link in the
country's oil-supply chain.
to putting most, if not all, the eggs in one
basket, which is too fraught with risks for such a
big country like China, analysts in Beijing say.
If the supply of oil from the Middle East were
interrupted, for any reason, the outcome for China
would be disastrous beyond imagination.
And the danger of China's Middle Eastern
oil supply being interrupted is very real. This
could happen when oil reserves in the region are
exhausted, although that is a long way off. But
the region is well known as a powder keg, and a
large-scale war there would seriously affect world
Moreover, the Middle East is
in the United States' sphere of influence, and
many Chinese strategists see Uncle Sam's military
occupation of Iraq and its threat to attack Iran
as part of its ambition to monopolize oil supply
in the region. It is beyond China's capability to
contend with the world's sole superpower in the
Middle East, analysts say. Nor will China want to
contend with the US there under its current
diplomatic strategy of "keeping its head down".
However, given its position, the US could
easily use Middle Eastern oil as a weapon against
China if the two countries were to run into
conflict, for example because of the Taiwan issue.
The US could easily impose sanctions to blockade
oil supply to China.
In 2005, the US
Congress successfully blocked the attempted
takeover of the US oil company Unocal Corp by
CNOOC Ltd, a subsidiary of China National Offshore
Oil Corp, one of China's three largest state-owned
energy firms, despite CNOOC's offer of a higher
price. This has intensified Chinese strategists'
suspicion that Washington wants to use oil supply
to contain China's development. And it could
easily do so if China relied heavily on supply
from one region such as the Middle East, analysts
Niu Li, a researcher with the State
Council's Information Center, put it
straightforwardly: "To reduce reliance on the
Middle East is mainly out of geopolitical
However, China is stepping
up its efforts to diversify its sources of oil
imports. Li Xiangyang, deputy director of the
Institute of World Economy and Politics under the
Chinese Academy of Social Sciences, said: "China
is formulating a plural energy strategy."
China's sources of oil imports have
gradually extended to regions other than the
Middle East, such as Africa, Central Asia, Russia
and Latin America. According to official
statistics, in the first half of last year,
China's top sources of oil imports were Angola,
Saudi Arabia, Iran, Russia, Oman, Equatorial
Guinea, Yemen, Libya and Venezuela.
According to customs statistics, in the
first half of 2006 China imported 73.33 million
tons of crude oil, up 15.6% from a year ago, while
its imports from Africa grew 22% to reach 23.4
Niu Li said he expected
China would increase its oil imports from Russia.
The potential of China's cooperation with Russia
has yet to be cultivated, he said. Statistics show
China's oil imports from Russia and the former
Soviet states have steadily increased in recent
years. China's oil imports from the former Soviet
states accounted for about 10% of the country's
total imports in 2004, up sharply from the 3.1% in
2000. Imports from Russia alone accounted for 8.8%
of total imports in 2004, up from 2.1% in 2000.
In 2005, China imported 12.78 million tons
of oil from Russia, accounting for 10.1% of the
country's total oil imports. Vice Minister of
Commerce Yu Guangzhou said China's oil imports
from Russia in 2006 could reach 15 million tons.
There is still huge room for the growth of China's
oil imports from Russia, Niu said, citing the fact
that it is the world's second-largest oil producer
and is in close proximity to China.
Xiangyang predicted that China would significantly
increase its oil imports from Latin American
countries such as Venezuela, in addition to buying
more oil from Russia and former Soviet Union
states in central Asia.
To turn Africa
into China's largest source of oil imports is key
to China's new energy strategy. "Our country has
already taken Africa into its strategic
consideration, regarding the continent as an
independent oil source,'' said Xia Yishan, a
researcher with China Institute of International
Studies, in an interview with the Chinese media.
Xia said Beijing maintains friendly
relations with African countries, which are in
favor of Chinese investment in the continent to
explore and produce oil for China. He expects that
in a few years Africa will replace Russia and
Central Asia to become China's second-largest
source of foreign oil, with African oil accounting
for 30% of the country's total oil imports.
However, Li Xiangyang said that despite
aggressive diversification efforts, the Middle
East would remain dominant in China's oil imports
for the foreseeable future. Although Angola
replaced Saudi Arabia as China's largest oil
supplier in 2002, the Middle East as a whole is
still China's largest oil supplier, he said.
Diversification would reduce China's reliance on
the Middle East, but it does not mean the region
no longer dominates China's oil imports.
"It is hard to change the dominance of the
Middle East" in China's oil imports, Li Xiangyang