|China Barrels Ahead in Oil Market
The country's hunt for the energy it needs to fuel its economy has led to
deals in political hotspots, riling the U.S.
By Don Lee
LA Times Staff Writer
November 14, 2004
SHANGHAI ? About a three-hour drive south of Shanghai, along the East
China Sea, workers are building 52 gigantic tanks, each capable of holding
more than 25 million gallons of oil ? enough to supply every driver in
China with gasoline for a month.
The storage tanks will help accommodate China's thirst for oil as it looks
to fuel its booming economy. And it has plans to stockpile much, much
China, the world's second-largest consumer of oil after the United States,
has plenty of cash to secure sources of petroleum and natural gas. But as
aggressively as any nation, it is also cutting deals and forging alliances
to get the energy it needs.
In South America and Africa, the Chinese government is helping build roads
and ports in exchange for oil supply contracts. Beijing pledged to support
oil-rich Russia in its bid to join the World Trade Organization as the two
countries agreed that Russia would boost its exports of crude by rail to
And after a Chinese company's deal to develop an oil field in Iran,
Beijing tacitly offered political support for Tehran's budding nuclear
program. That put China in direct cross hairs of the Bush administration.
The hunt for energy in the former Soviet Union and political hotspots such
as Sudan is making China few friends in Washington.
China is "throwing around its economic muscle like crazy," said David
Lampton, head of China studies at Johns Hopkins University's School of
Advanced International Studies. "The Chinese are throwing incredible
amounts of money to lock up long-term [energy] contracts. ? It's going to
be a real topic of U.S.-China relations."
Some Chinese officials dismiss the threat of increased friction over
"Although oil trade plays an important role in every field, it has a
limited influence in Sino-American relations," said Han Wenke, vice
director of the energy institute affiliated with the National Development
and Reform Commission, an important regulatory agency of the Chinese
Beijing's pursuit of energy is all about maintaining the nation's strong
economic growth, which Communist Party leaders believe is the linchpin to
social stability and ultimately their legitimacy. Oil and natural gas, and
lots of both, are needed to keep factories running and to power all the
new cars hitting freshly paved streets.
Only a decade ago, China shipped out more crude than it imported. This
year it has sharply reduced exports to meet domestic needs ? and it is now
the world's second-largest importer of oil after the U.S.
Surging Chinese demand, which has helped drive up oil prices to record
levels in the last year, is expected to rise by double-digit growth rates
annually for the next 15 years.
Although crude prices have settled back in recent days to less than $50 a
barrel, China's rapid economic expansion is almost certain to add pricing
pressure over the long haul. The country accounts for about 6% of world
consumption; that's projected to rise to more than 9% in 2020, as Chinese
oil fields dry up. (One-fifth of global oil demand comes from the United
Wary of its increasing reliance on a few foreign oil suppliers, China has
formulated a "go-out" strategy to diversify and expand its energy
capabilities. The plan involves cooperating with 27 countries for oil
Beijing also is pouring money into developing its own pipelines and liquid
natural gas terminals and launching an array of energy conservation
programs at home, including imposing fuel economy standards on new cars.
One of China's biggest and latest energy ventures involves Iran, which the
United States has sought to isolate for its alleged development of a
covert nuclear arms program.
Late last month, Chinese and Iranian officials signed a preliminary deal
in which China's Sinopec Group would develop Iran's Yadavarn oil field in
exchange for Sinopec agreeing to buy millions of tons of Iranian liquefied
natural gas. The Chinese government media valued the deal at $70 billion.
A few days later, Chinese Foreign Minister Li Zhaoxing gave Iran important
political support in the standoff over the Islamic republic's nuclear
program. Li said Beijing opposed efforts to have the matter referred to
the United Nations Security Council, although he stopped short of saying
China would use its veto power if the case were sent there.
U.S. diplomatic sources have been reluctant to comment on the deal. Some
analysts said it was unlikely that Beijing would jeopardize U.S. relations
over an energy pact with Iran.
But others aren't so sure.
"There is a rationale from Beijing that is very dominant: If you can
supply oil and do business, we would like to sign a deal," said Wenran
Jiang, a political scientist at the University of Alberta in Canada.
"China is very non-ideological in that sense. They will think about it,
but they're not driven by the strategic interest in Washington."
Sudan is another example. Among China's African energy partners, which
together provide about 20% of the country's oil and natural gas, the
single largest is Sudan. Since the late '90s, Chinese oil companies have
poured hundreds of millions of dollars into developing oil fields, a
pipeline and a refinery.
Despite long-running criticisms by the United States and international
groups about human rights abuses in Sudan, Beijing makes no apologies.
When pressed on the issue, Chinese foreign officials have been quoted as
saying simply that business is business.
In Africa, China has also signed deals to buy oil from Nigeria, Gabon,
Cameroon and Angola. Last year China extended a $2-billion loan to Angola
in exchange for 10,000 barrels of crude oil a day.
He Jun, a senior analyst at Beijing-based Anbound Strategic Consulting
Co., doesn't think China will let itself become involved too heavily in
sensitive African nations such as Sudan.
"China's main purpose is still to develop its economy under a peaceful
circumstance," he said. Others note that the U.S. and other big consumers
of oil also have bought energy supplies from unsavory governments.
For China, more promising are its efforts closer to home. In September,
construction crews began work on a 770-mile pipeline running from the
oil-abundant Caspian Sea coast in Kazakhstan to China's western border,
connecting with another trunk line all the way to China's east coast. The
pipeline's initial capacity would be about 10 million tons of crude a
year, said Matthew Cairns of Economy .com in Sydney, Australia.
Earlier, during a visit to Russia by Chinese Premier Wen Jiabao, the two
countries reached the agreement about Russia exporting more crude to
China. Cairns said it was no coincidence then that Wen promised to give
Russia support for its WTO bid.
"It's a very cunning political maneuver," Cairns said.
In Russia, China also has sought a crude oil pipeline from eastern Siberia
to Daqing in northeast China, to have ready access to supplies. But Japan
appears to have won its bid to have the pipeline routed to the Russian
port city of Nakhodka on the Sea of Japan.
Japanese and Chinese companies have clashed more openly over the
exploration of natural gas in the East China Sea. Tokyo is worried that
China would siphon gas from the Japanese side of the ocean bed, and has
insisted that China provide details about the natural gas field.
Some political analysts say the competition for energy will severely test
the relations of China and Japan in particular. But energy diplomacy also
raises new challenges for the West, as the economic and political center
in Asia shifts from the United States and Japan to China.
Heightened geopolitical tensions over China's oil imports comes as little
surprise to Jeffrey Logan, China program manager at the Paris-based
International Energy Agency.
"It's only natural," he said. "The world is struggling to learn more about
China. As China enters the world more and more, it's going to depend on
the world's resources more and more."