Posted on 04/26/2006 2:40:20 PM PDT by dennisw
China's global hunt for oil By Mary Hennock BBC News business reporter
China's craving for oil to drive its industrial boom and, to a lesser extent, satisfy its love affair with the motorcar, has helped to push up global crude oil prices.
In 2003, China raced past Japan to become the world's second biggest consumer of petroleum products after the US.
In 2004, its thirst grew by 15%, while its output only rose 2%.
"They have a problem," says Philip Andrews-Speed, an energy analyst at Dundee University and former BP China executive.
China accounted for 40% of the growth in oil demand over the last four years, says the US Energy Information Administration (EIA).
To slake its seemingly insatiable thirst, Chinese oil firms are trying to squeeze more out of their wells using smarter technology and they are rumoured to be considering buying parts of Western oil majors.
China has also embarked on a frenzy of oil hunting diplomacy. China's rulers seldom go anywhere these days without talking oil, while at home in the last year they have unrolled the red carpet in Beijing to dignitaries from all 11 countries in the Opec cartel.
They got results.
China clinched deals to develop fields in Iran.
The red flag came out too, as China opted for a bit of anti-imperialist bonding. Cuba agreed to let China explore its coastal oil fields.
And eyebrows were raised in Washington when left-wing Venezuelan president Hugo Chavez offered Chinese firms operating rights to mature oil fields.
As the world's fifth biggest oil exporter, Venezuela is vitally important to the US, though relations between the White House and President Chavez are strained.
Venezuela's output has been poor since a political tussle led to the sacking of senior managers at national oil group Petroleos de Venezuela.
President Chavez may hope Chinese engineers can help "revive Venezuela's oil fields on the cheap", says Leo Drollas, Deputy Director of the UK-based Centre for Global Energy Studies.
'Aggressive quest'
None of this has gone unnoticed by Western oil majors, and it risks getting up some powerful US noses.
CHINA'S THIRST FOR OIL 2005 - 7.2 million barrels a day 2004 - 6.6 million barrels a day 2005 demand seen up 9% 2004 demand up 15% 43% of oil used by industry 34% used by cars Sources: US EIA, IEA
James Lilley, ex-US ambassador to Beijing, has said "the Chinese are on an aggressive quest to increase their supply of oil all around the world", according to remarks quoted on industry website Alexander's Gas and Oil Connections.
ChevronTexaco chief Dave O'Reilly has warned of a "bidding war for Middle Eastern oil between east and west".
In December Asian industrialised powers swallowed their rivalries to invite Opec oil ministers to India in an attempt - albeit unsuccessful so far - to renegotiate long-term supply contracts to run for up to five years, says Mr Drollas.
China has also been "building strategic relationships" with states "along the sea lanes from the Middle East", according to Alexander's, quoting a briefing paper written for US Defence Secretary Donald Rumsfeld.
Pumping up technology
China is not fussy where its oil comes from, whether Kazakhstan, Sudan or Angola. Its main concern is having enough of it, and the quest is driven from the very top.
China has plenty of oil of its own, but the onshore fields in particular are old and running dry. Offshore, the situation is rosier.
Technologically, China's big four oil groups lag behind Western majors, particularly at deep sea drilling - unfortunate, given the future importance of offshore finds.
But government backing could help.
"They're less liable to put projects through the same rigorous commercial evaluation that multinationals would do," says Mr Andrews-Speed.
They are also "making great strides" with advanced seismic imaging techniques that can pinpoint oil reservoirs to save time and money, says Jeffrey Logan, China researcher at the International Energy Agency (IEA).
Acquisition trail?
Internationally, a strategy has been mooted whereby Chinese oil firms would be buying chunks of Western ones .
China National Offshore Oil Corporation (CNOOC) has asked its bankers to price up a takeover of mid-sized US oil company Unocal, which drills in Indonesia and Thailand.
This raises two questions: Could China's main offshore explorer afford to buy Unocal, ranked ninth among US oil producers? And do Chinese firms have the management skills to run such an acquisition?
The answer to both is 'Maybe'.
Running a Chinese oil company is a highly political business, and successful oil mandarins tend to have their eye on plum government jobs.
"Their attention is divided, let's say," is how one analyst puts it.
But CNOOC bosses have impressed. They talk fluent industry jargon, wooed Henry Kissinger onto their advisory board, and have a $4.3bn petrochemical project with Shell that is China's biggest joint venture investment.
If CNOOC does bid, it is expected to keep Unocal's Asian assets and sell everything else right away. CNOOC is cash rich, but faces a lot of calls on its money to meet development plans.
Although high oil prices have boosted profits, any shopping trip is likely to prove expensive in such a tight market. Bargains are non-existent, and China's thirst is perhaps the main reason
Given the nature of the Red Chinese totalitarian regime, and their ongoing massive military buildup, it is something we should be keenly aware of, doing all in our power to avert (ala a Ronald Reagan approach to them), and be prepared for.
The Dragon's Fury Series, postulates the results if we fail in this regard.
China-Cuba-Venezuela-Iran-Russia and the quest for energy dominance. The quest for using oil and gas as a tool of foreign policy.
China is LOCKING UP OIL SUPPLIES, getting them under contract while we will be depending on the free market for our oil supplies. CHINA is also signing oil development deals with impoverished 3rd world nations that cannot afford to explore and don't have the know how.
We simply MUST drill off our coasts, drill in Alaska, open up nuclear energy, etc. If we made it a national priority (ala the moon landing) we would be energy independent within 5-7 years. We need to start NOW.
Great article! Here's another just posted
http://www.freerepublic.com/focus/f-news/1622078/posts
All that tar sands and oil shale in North America is looking pretty good.
Codeword: C
China drilling in waters between Cuba and Key West, I heard today.
Russians there too....
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