Mon, Feb 06, 2006 page10

• China battling to kick the oil habit

  TWO-TRACK APPROACH Although President Hu Jintao preaches energy efficiency and alternative fuels, China continues to scour the planet in search of oil

  • AP
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  Days before a Chinese firm announced a US$2.3 billion investment in a Nigerian oil field last month, Chinese President Hu Jintao (胡錦濤) warned that China has to rein in surging energy use that has made it one of the world's biggest oil importers.

  China must create an "energy-efficient, environmentally friendly society," Hu said in a New Year's Day speech at a Communist Party reception, according to state media.

  The twin announcements highlight the dual tracks of Beijing's energy policy as it tries to secure foreign oil and gas to fuel sizzling economic growth of more than 9 percent a year while struggling to limit its soaring reliance on them by increasing use of nuclear and hydroelectric power.

  Of course, China is not alone in this predicament -- witness US President George W. Bush's plea to cut the US dependence on Mideast oil. But the voracious appetite for energy by China and other nations with fast developing economies, notably neighbor India, also is one factor propelling the upward trend in oil prices.

  And some of China's energy deals are causing bumps on the world's political landscape. Its investments in Iran and Sudan have prompted complaints it is abetting pariah nations, and Chinese pursuit of deals in Canada and other US allies have been met with unease in Washington.

  Last year, China's state-controlled CNOOC Ltd (中國海洋石油) gave up an US$18.5 billion takeover bid for Los Angeles-based oil company Unocal Corp after critics complained the deal might jeopardize US security.

  The energy buying spree has taken Chinese firms as far afield as Venezuela and Australia. In the past six months, these companies have signed deals totaling US$7 billion for stakes in oil fields in Kazakhstan, Nigeria and Syria. A state-controlled company is reportedly considering a US$2 billion bid for yet another Kazakh property.

  "There is a strategic element to it," said Kevin Norrish, an energy analyst for Barclays Capital in London. "It's something that we've seen before. Japan was doing the same thing about 10 to 15 years ago, with a lot of its natural resource companies, including oil companies, buying into foreign projects."

  China's oil firms began investing abroad in the late 1990s, after double-digit economic growth outstripped supplies from domestic fields that had met its needs for decades. Rising family incomes have led to an explosion in private car sales, while industry demands for plastics and other petrochemical products have soared.

  Growing traffic has worsened eye-searing smog in Beijing and other cities, while Chinese leaders fret about depending on Middle Eastern oil that arrives by sea routes that they don't control.

  In the latest round of deals, the biggest state-owned oil company, China National Petroleum Corp (中國石油天然氣), agreed in August to pay US$4.2 billion for an oil producer in neighboring Kazakhstan, which can deliver oil directly to China by pipeline. CNOOC said last month it was paying US$2.3 billion for a share in a Nigerian offshore oil field. In December, CNPC said it would pay US$576 million with an Indian partner for access to a Syrian oil field.

  In a sign that Beijing plans still more acquisitions, it signed an agreement with India last month to share information on what they pay for foreign assets in an effort to avoid costly bidding wars.

  Such purchases have prompted suggestions that Beijing is using its state companies to lock up foreign supplies. But industry analysts say the oil market is too complex for most deals to work that way.

  "This is definitely not about buying up oil resources in order to ship the oil into China," Norrish said.

  "Basically, China's interest is in ensuring growth in energy supplies," he said.

  By buying stakes in foreign projects, "it can assist in ensuring that investments take place and projects go ahead," he said.

  And deals currently being signed by oil-producing countries only give foreign investors a share in output for a limited time, rather than control of the oil field, said Leo Drollas, chief economist for the Center for Global Energy Studies in London.

  "If they think that by investing in Sudan and Venezuela and elsewhere they've secured oil somehow, I'm not so sure of that, from a strategic standpoint," he said.

  Drollas said that in some cases, it might be cheaper and safer for China to sign long-term contracts to buy oil on the open market.

  "Given the volatility of some regions, who is to guarantee that your assets might not be worthless one day?" he said.

  China suffered just such a setback when a US$1.2 billion deal signed by a state firm to develop an oil field in Saddam Hussein's Iraq became worthless after his government was toppled.

  Beijing has tried to curb oil imports by raising output from its own wells.

  The government reported modest success last month, announcing that imports last year fell by 5 percent to 953.2 million barrels, while output from domestic wells rose 3.7 percent to 1.27 billion barrels.

  China's booming oil needs have pushed up average long-term prices on world markets, according to financial analysts. But they say other factors are to blame for the recent price spike, noting that China's consumption stayed nearly flat last year.

  "You can't blame China for US$70-a-barrel oil," Norrish said.

  Beijing launched a Cabinet-level commission last year headed by Premier Wen Jiabao (溫家寶) to coordinate energy policy.

  It has announced plans to start building a petroleum reserve to cushion against interruptions in foreign supplies. Similar to one operated by the US, it is to stockpile 100 million barrels of fuel -- the equivalent of almost a month's consumption -- in four tank farms scattered throughout the country.

  The government also is pushing conservation measures and more use of nuclear power, wind turbines, hydroelectric dams and other alternative sources. Plans call for building 30 nuclear plants by 2020.

  But its goals are modest, calling for nuclear power to supply 4 percent of the country's needs by 2010, with another 5 percent from wind and solar generators.

  And with economic growth forecast above 9 percent in coming years, China's total oil and gas imports are expected to rise sharply.
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