China's huge oil search

The Straits Times ^ | Oct 6 2004

[hedgetrimmer]

CHINA'S huge appetite for oil to power industry and its electricity generation is a commodity-market tectonic shift whose outcome and strategic implications are unclear. What is clear is that China is in a great hurry to close deals on long-term supply, including that of gas. There is also the trickier corollary to consider: Pipeline construction across international borders to reduce dependence on ocean supply routes that Beijing calculates can only get less secure. China is the second largest oil consumer after the United States, accounting for 40 per cent of the global increase in consumption since 2000. For a random supply comparison, its Three Gorges Dam will add 10 per cent to its electricity output. An energy return that modest for an infrastructural investment that will run to US$25 billion (S$42 billion) when the dam becomes operational in 2009 shows the enormous supply margin that China will have to make up for, if its economic expansion is not to falter. The oil industry - from Opec producers to modern variations of the Seven Sisters and hedge-makers in oil trading hubs such as Singapore and Rotterdam - are crunching permutations to see how they could be affected. The truth is that nobody can be certain how Beijing's frenetic deal-making will shape out.

Chinese Prime Minister Wen Jiabao received no clear word on his recent Moscow trip on whether Russia will favour a Japanese pipeline plan or China's decade-old offer to draw on the Siberian oil reserves by using Daqing in the north-east as the terminal. It is not a simple matter of Russia settling on the China pipeline, which is shorter and cheaper to build. Acceding to China's entreaties would restrict Russia to one customer. It would not seem an astute commercial move. The rival Japanese line, using the Russian Pacific port of Nakhodka as the terminal, is much longer but Japan has offered US$7 billion in lolly to pay for the construction and Siberian oil-field development. Russia could then sell oil not only to Japan, the main beneficiary, but also to China and South Korea. Here, politics intrudes. If Japanese Prime Minister Junichiro Koizumi attaches as a condition the settlement of its claim to the Kuril islands, which Russia considers its territory, the deal could be as good as dead. The Kurils is an issue that tests notions of nationhood and honour in both countries. Industry analysts think that, strategically, Russian President Vladimir Putin will call for China, especially since he has gained the upper hand in his power-play with the founder of the oil company Yukos, which had been a major China supplier. If Japan wants the deal, can Mr Koizumi survive not bringing up the Kurils issue? The dispute has been the one factor that has kept the two countries technically in a state of war since 1945.

China also has designs on Myanmar and Thailand in its oil supply search. This will have ramifications in the region, not to mention Singapore's position as an oil centre. A China-Myanmar pipeline that will load supplies at the Myanmar port of Sittwe in the Bay of Bengal to Yunnan province will remove some of the uncertainty of carrying supplies through the Malacca Straits. The same thinking is behind persistent talk of Thailand opening oil terminals on the Isthmus of Kra - with Chinese collaboration - so that East Asian customers can avoid making the straits loop. At present, 60 per cent of China's oil imports come through the straits. What are the implications of a Myanmar that gravitates to the China orbit? How might these developments and hard-headed Thai calculations affect Singapore?

[hedgetrimmer]

"China is the second largest oil consumer after the United States, accounting for 40 per cent of the global increase in consumption since 2000."

Which goes a long way to explain the short supply and high prices, and why the president has been filling the strategic reserves.

One wonders why Vice President Al Gore sold off the Navy's Elk Hills Reserve a few years ago. As VP he and Clinton both had to be privy to information that China would need to boost its energy purchases substantially as part of their development as a "least developed country". Under what authority did Gore do this, anyway?

[DSBull]

Here is the sound of me, turning the valve that shuts down the oil and gas entering that country..

Here is the sound of Chinese everything coming to a halt,"silence"...

could not happen to a greater bunch of morons...

[hedgetrimmer]

China is a busy little bee collecting long term oil contracts all over the world.

[Fast1]

Look who he sold it too!! Armand Hammer his old Communist lackey mentor.

[Citizen Tom Paine]

IMHO The US should start constructing a number of nuclear power plants to reduce our petroleum requirements with the next 10 years.

The US should also ramp up its fusion research efforts for the long term solution to our power requirements.

[endthematrix]

I'd add that citizens should pressure US industry to create products that consume less energy throughout the "life cycle" cycle. From design to dump, there should be every effort to save that waste and put it back into further production. This is where America can have an advantage over China's cheap wages. US industry wastes too much...and we PAY for it.

[struwwelpeter]

Related story from a Kazakhstan weekly Noviy Vestnik

Wednesday, October 6th, 2004

Pipeline construction begins in the Karaganda district

Last week they began work on an oil pipeline to China. The pipe, through which the liquid black gold will flow, starts near the village of Atasu in the Zhanarkinskiy region and will end in the PRC at Alashan'kou station, a few kilometers past the border.

A month ago 'Noviy Vestnik' wrote about a joint project of these governments, but back then the discussion only dealt with intentions. Now the first kilometer sign of the future main is up - there are another 961 to go - and the first joint has been welded. The pipeline is being built by the Kazakhstan company KazTransOil and the Chinese national oil and gas corporation. Each side has invested 400 million Tenge each ($2,857,000). To the opening ceremony came Vladimir Shkol'nik, minister of energy and mineral resources, Chinese ambassador Chzhou Syao Pey, and Iyen Chen' Gen', president of the Chinese gas and oil corporation. Several dozen Chinese workers also attended, and they demonstrated to the journalists the superiority of our neighbors' communist system. Before the ceremonies had gotten underway, our workers were strolling around, looking at the new construction machinery and casting indifferent glances at their fussing leaders. The Chinese, however, could not sit still. They formed up into platoons, briskly marched across the contruction site and shouted some slogans.

It was soon explained that this was rehearsal for greeting the high-ranking Chinese delegation, while the text could be translated as: 'Be in good health our leaders, the most leading leaders in all the world!' Besides this synchronous ennunciation of good wishes, the Chinese workers expressed their enthusiasm at the presence of these highly respected personas by waving flags and setting off firecrackers. It would have been interesting to see if the Chinese were going to work the same way, in formation and in song, but alas. In order to observe this, one must travel to Alashan'kou, since the foreign workers had only come to the Karaganda region for the mass demonstration. Contruction here will be performed by our locals.

Our workers' conditions are rather decent, though they are railroad. Their home, their kitchen, their showers - are all rail cars. The visiting authorities also have their VIP-cars. The most important object of this moving working settlement is another rail car, with a special laboratory for checking the quality of the fitting work. Indeed, the most vulnerable point of a pipeline are the welds joining two pipes. If they were to break, and oil were to pour out, an econologic catastrophy would ensue, not to mention the multimillion dollar losses the pipeline operator would suffer. Therefore, the closest possible attention is paid to the welds. After welding, a remote-controlled machine is sent into the pipe. It carries a special xray film over the weld, where it is exposed from the other side. The film is developed later in the laboratory, and inspected to find out if the welders made any errors.

Completion of this construction work is planned for the end of next year, and then oil from our Kumkol'skiy field will gush into China. Besides this pipeline, the Russians are planning to build their own for use in pumping the liquid gold of Western Siberia. During its first stage of development, our main will be able handle 10 million tons of oil a year, but after 2010, the transport volume is planned to double. That should make one especially happy, since each ton that the oil companies pump would bring some money to the Karaganda region, since the pipe passes through our terrories.

Sergey Tereshchenko