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Building New Silk Roads to Avert an
Energy Crisis in 2010
by James Finch 16-08-2006 |
page 4 |
Pragmatic China Resorts to Trading with Rogue Nations for Energy Security
At the mercy of a ruthless global energy market, pragmatic China has turned
to nations which are shunned by U.S. interests. One productive Silk Road leading
to China begins in Iran. More specifically, it starts in the Yadavaran oil
fields where the Chinese oil company Sinopec plans to import about 150,000
barrels of crude per day, after it has developed these oil fields. Initially,
the October 2004 deal was reportedly valued at $70 billion. However, additional
developments and China's substantial purchase of Iran's vast natural gas
reserves may increase the value of this multi-decade energy deal to more than
$200 billion. What could go wrong? Look at the daily headlines: Iran wants to
enrich its own uranium. Unless this situation is resolved, escalated political
tensions could impair China's ability to import oil and gas. Obviously, China
would take great pains to avoid an Iraqi rerun in Iran.
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Out-maneuvered by western oil companies in obtaining many of the world's
proven oil reserves, China has cultivated the Sudan as its largest oil provider.
Sudan depends upon the pragmatic Chinese for its economic and military strength.
China is also the principal source of hard currency for Africa's largest
country. Rejected by the world's community for the genocide it is committing in
West Darfur, Sudan exports its oil to China for Chinese weaponry. China finds
little competition for Sudanese oil. The Chinese are the largest single
shareholders dominating Sudan's oil company consortium. It is the largest
investor in a 1,500-kilometer pipeline delivering Sudanese oil to the Red Sea,
which is then shipped by tankers to China.
China has not limited its African oil purchases to one country. Another
blighted nation, Angola believes it could soon surpass Nigeria as Africa's
largest oil supplier. According to the World Bank, China may have recently
offered Angola about $9 billion in credits and loans. Two years ago, it was
reported that China extended a $2-billion loan to Angola for 10,000 barrels of
crude oil per day. Now, it appears China is eager to help Angola build
sufficient infrastructure in that country to develop another strong energy
source.
Hoping to create a Silk Road across the Pacific from South America, China has
continued its hunt for energy security by developing ties with Venezuela's Hugo
Chavez. This may come to naught. Venezuela's highly sulfurous crude would first
have to be refined in the United States. China lacks the refineries for handlin
g the heavy crude oil. Over the past year, China's oil imports from Venezuela
amounted to orimulsion from the Orinoco Tarbelt, mostly used for asphalt.
New refineries, however, can be built to remedy the heavy oil Venezuela might
provide. According to a recent special edition of the McKinsey Quarterly, China
will be forced to heavily invest in refineries for all the crude oil it has
committed for, "To keep up with surging demand, the country needs to build a
large, technologically world-class refinery every year for the next 15 years, at
a cost of $2 billion apiece." China lacks the refining capacity to meet its
current needs. In the first half of 2006, China's imports of refined petroleum
products jumped by nearly 50 percent, compared to the same six-month period in
the previous year.
Although Venezuela hopes to become one of China's top three oil suppliers, it
is likely more hyperbole than a realistic possibility before 2010. As China's
proven oil reserves continue to deplete, it may very well have to turn to
Venezuela at some point for this country's vast oil reserves. Outside of the
Middle East, Venezuela may have one of the last great oil resource - reportedly
at greater than 80 billion barrels of crude. The question is not if, but how
fast can,Venezuela accommodate China's ravenous appetite for its country's oil?
Venezuela also has the largest natural gas fields in all of South America.
Earlier this year, Brazil and Argentina (two of China's favorite Latin American
trade partners) discussed with Venezuela the possibility of building a gas
pipeline across the Amazon. A 5000-mile gas pipeline would need a port
destination for LNG tankers to supply China. Instead, talk of an oil pipeline
through Colombia could be replaced by a gas pipeline.
China's approach, in dealing with what the Anglo-American alliance call
"rogue nations," reflects one of reported non-interference in a country's
political affairs. It is a Chinese pragmatism, which many find amoral. By
contrast, in what way is America judged around the world by its military
invasion of Iraq? When U.S. President Bush recently criticized Vladimir Putin
about democracy in his country, the Russian President pointed out that Russia's
democracy was quite different from the one the U.S. had created in Iraq for the
Iraqis. One has to wonder how long China's laissez faire doctrine will last. And
whether China can continue developing new energy silk roads at the rate its GDP
growth commands.
Some believe China doesn't need so much oil right now. In the first half of
2006, according to Xinhua news, China's refinery output was seven percent less
than the country's domestic crude-oil production. Despite producing 85 million
tons of crude oil, China still imported 70 million tons of oil (on top of 12
million tons of refined oil). Is China hoarding to avert a future political
crisis, or does it expect its energy 'silk roads' to soon close or become
blockaded?
The McKinsey Quarterly researchers also reported if China continues at its
current pace, it would need to buy up about three percent of the world's proven
petroleum reserves. That's more than all of the reserves held by Chevron,
ExxonMobil, BP, Shell and others. As we have been reminded by energy analysts,
getting oil out of the ground costs more, the quality of oil is falling and more
water is found in the oil. All of this has registered on not only on the radar
screens of Chinese energy advisors and politicians, but also at the gasoline
pumps where filling up a tank should continue to increase every year. As Deng
advised about getting rich, it can be glorious but the furious process of
getting there has not only been taxing for China, but also for the rest of the
world.
James Finch contributes to
StockInterview and
other publications. Visit
http://www.stockinterview.com to read all of his archived articles. |
