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China Struggles to Cut Reliance on Mideast Oil



Here is a detailed discussion of growing Chinese needs and projections
of oil imports. Despite the title of the article, China, a net importer
of oil since 1993, is becoming ever more dependent on Middle Eastern oil
despite efforts of diversification --CH
http://www.nytimes.com/2002/09/03/business/worldbusiness/03CHIN.html?pagewanted=all&position=top
Title: China Struggles to Cut Reliance on Mideast Oil
The New York TimesThe New York Times BusinessSeptember 3, 2002  

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Today's News Past Week Past 30 Days Past 90 Days Past Year Since 1996

China Struggles to Cut Reliance on Mideast Oil

By KEITH BRADSHER

BEIJING, Aug. 30 — Alarmed by violence and political volatility in the Middle East, China's leaders are aggressively developing alternatives to oil from the region. But a booming economy and rising sales of cars may propel China, however reluctantly, into the same sticky embrace with Mideast oil producers that the United States, Japan and many other countries have accepted.

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China's transformation from a net exporter of oil as recently as 1993 to a big oil importer has made it more attuned to events in the Middle East. Even as the Bush administration steps up threats to attack Iraq, Baghdad has been wooing the Chinese. Iraq's foreign minister, Naji Sabri, has just met here with Deputy Prime Minister Qian Qichen and other high-ranking officials, and the Chinese reiterated their opposition to the use or threat of force against Iraq.

A report in July by the U.S.-China Security Review Commission, a group created by Congress, warned that China's increasing needs for imported energy had given it an incentive to become closer to countries like Iran, Iraq and Sudan that are accused by the State Department of supporting terrorism.

A "key driver in China's relations with terrorist-sponsoring governments is its dependence on foreign oil to fuel its economic development," the report said. "This dependency is expected to increase over the coming decade."

The Chinese are trying to increase the production of oil and natural gas at home and buy more energy from elsewhere in the Asia-Pacific region, with projects from Australia to Siberia, and from their continental shelf to the deserts of Xinjiang province in the west, Chinese energy company executives and diplomats here said.

But many Western experts predict that China's energy needs will grow far beyond those reserves and that recent efforts, including the increased use of natural gas, can only slow but not reverse the country's dependence on the Middle East, which now supplies three-fifths of China's oil imports. "They are going to be short such a significant amount of crude that there isn't any choice except to rely more on the Middle East," said David Pietz, a specialist on Chinese energy at Washington State University.

China accounted for a quarter of the world's growth in oil use over the last decade, during the last several years becoming the fastest-growing consumer of oil. By 2030, according to the International Energy Agency in Paris, it will import as much oil as the United States does now, an eightfold increase over its current import levels.

"This makes China's energy development critical not only for China but for the world at large," said Robert Priddle, the agency's executive director.

Energy security is a deeply sensitive subject in China, where self-sufficiency was a mantra during Mao Zedong's time. But officials now acknowledge that this is no longer realistic and are publicly worrying about the implications of this.

Rising dependence on imports, "will dramatically increase the supply-side risks of petroleum resources," China's minister for state land and resources, Tian Fengshan, said in a rare statement on the subject in July, "and that will damage the country's capacity to ensure its oil resources as well as economic and political security."

China's rising energy consumption also threatens to make it a huge contributor to global warming, by burning more fossil fuels.

In the late 1990's, even as its economy grew, China had actually reduced its emissions of the gases blamed for global warming — mainly by switching factories and homes from coal to cleaner-burning oil and natural gas, and by moving to less energy-intensive industries like the production of consumer electronics and clothing instead of steel. But emissions appear to be increasing again, with coal consumption rising 5.4 percent last year while the use of oil and natural gas also rose.

Growth in Chinese oil consumption has accelerated mainly because of a large-scale transition, still in its early stages, away from bicycles and mass transit and toward private automobiles. Car sales jumped 40 percent in the first seven months of this year compared with the similar period of 2001, although part of the gain reflected the increased affordability of cars as China's entry into the World Trade Organization forced it to reduce tariffs and increase import quotas.

In the mid-1990's, state-owned Chinese companies purchased oil fields in Iraq and the Sudan, although international sanctions on Iraq have limited the development of the fields there and Sudanese civil war has periodically slowed production.

More recently, China has been pursuing supplies of energy that are as reliable as possible, which usually means as far as possible from the Middle East. While some of the recent flurry of deals were in the works before last September's attacks, the Chinese have lent extra impetus to them lately.

On July 4, a consortium of domestic and foreign energy companies announced that it would spend $3.3 billion to develop gas fields in western China and $5.2 billion for a pipeline to carry the gas across the country to Shanghai. On Aug. 8, China concluded an agreement with Australia to buy $11 billion to $13 billion worth of liquefied natural gas over 25 years for Guangdong province, China's most prosperous region in the south, and said it had begun exclusive talks with Indonesia to buy $8 billion to $10 billion of liquefied natural gas for Fujian province.

Mark Qiu, the chief financial officer of Cnooc Ltd., a Chinese offshore drilling company, said in an interview here that planning was already under way to double Guangdong's purchases, by buying more gas from Australia or some other country, and possibly to double Fujian's purchases as well. Cnooc also bought half a dozen oil fields in Indonesia early this year and announced plans a week ago to pay $320 million for a 5 percent stake in the Northwest Shelf gas fields of Australia; it is negotiating to buy a stake in Indonesia's gas fields, too.

Energy company executives here said that China is also exploring ways to buy more energy from Siberia. An oil pipeline is already being built from near Lake Baikal in Siberia to a giant Chinese refinery in Daqing in northeastern China, and a joint Russian-Chinese study is under way to build a gas pipeline, as well, to Daqing or Beijing from the Lake Baikal area, they said.

The Chinese also invited Gazprom, the giant Russian energy company, to join a consortium developing the gas fields in western China, in a possible prelude to having the trans-China pipeline carry gas to Shanghai from far larger gas fields across the border in western Siberia.

The Chinese military remains especially leery of energy dependence on the country's northern neighbor, Russia, according to a new paper on Chinese energy from the International Institute of Strategic Studies in London. The fear of such dependence on a nominal Communist ally took hold after severe border clashes in the 1960's, and has persisted over the years, first as reformist leaders in Moscow relaxed Marxist-Leninist precepts and then with the collapse of the Soviet Union in 1991.

Deals are taking place in the context of a radically changed energy industry. In the name of deregulation, China has swung from a heavily bureaucratic, centrally planned economy to one having remarkably little energy policy planning at all.

China abolished its energy ministry in 1993, after years of bureaucratic struggles that pitted it against the coal, electricity and oil-refining industries, which were each their own ministries as well. But with the conversion of many of these para-industries into state-controlled, for-profit companies late in 1998, the result has been a near-absence of coordination.

Another result has been an emphasis on energy production instead of conservation. Chinese gasoline prices now rank with those in the United States as among the lowest in the world for oil-importing countries, and are a third of retail prices in Europe, where steep taxes push the price to $4 a gallon or more to discourage gasoline use. The National People's Congress, China's Parliament, has been discussing the imposition of steep gasoline taxes here for two years, but has taken no action.

The State Development Planning Commission is now setting China's energy policy on everything from pipeline routes to liquefied natural gas contracts with foreign nations. But the commission's energy staff numbers fewer than 20 people, who are hard pressed to address all the issues before them, said Xavier Chen, the China program manager at the International Energy Administration; the government's Energy Research Institute employs several dozen more. By comparison, the United States Energy Department has 16,000 employees, of whom at least 400 are involved in some way in the policy-making process, and hundreds more administer regulations.

While China's three main state-controlled, but publicly traded, energy companies — PetroChina, Sinopec and Cnooc — are aggressively exploring in China itself, executives at multinational companies are skeptical that they will find a lot of oil, although the executives see some potential for additional gas discoveries.

"In terms of oil exploration and development, it is fairly mature," said Tan Ek Kia, the Beijing-based chairman of Shell's subsidiaries in northeast Asia.



China Called Close to Deal To Import Natural Gas  (May 22, 2002)  $

Russia Becoming an Oil Ally  (October 19, 2001)  $

Oil Company Defends Role In Sudan  (October 17, 2001)  $

What Energy Shortage?; Falling Demand Turns the Oil Patch Upside Down  (October 3, 2001)  $



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