As the United States considers attacking Iraq, pushing the oil
prices higher, China has again focused on the security of its oil
supply.
The recent two events suggest China is accelerating its plans to
prevent disruptions to its oil supplies.
The first event was the last minute decision by China National
Petroleum Corp (CNPC), the nation's largest oil company, to
withdraw from bidding for a stake in Russia's ninth largest oil
firm in December.
Analysts said China pulled out to encourage the Russian government
-- which does not want to see foreigners take over the firm -- to
push through a 2,200 kilometer Russia-China oil pipeline.
The oil link could allow China to tap into its neighbor's rich
reserves.
In
the same month, the
State Development Planning Commission, China's top planner,
held an international seminar on the country's energy security,
mainly focusing on how to build a national stockpile. Paris-based
International Energy Agency was among the sponsors.
"You could see the two events as separate," said a Beijing-based
energy analyst, who declined to be named. "I would prefer to see
them as linked, as a message that China is on track to safeguarding
its oil supplies -- that is, to build a stockpile at home and to
secure reserves abroad."
In
recent years, China has experienced an increasingly volatile
situation in terms of oil supply, as demand continuously outpaces
domestic output.
"With the rise in oil imports, the oil price hike and a sudden
change on the international market would have a great impact on
China's economy," said Han Wenxiu, a senior official with the SDPC,
in his speech to the seminar.
According to Han, China's annual domestic consumption will hit 300
million tons by 2010, while the IEA expects it to reach 523 million
tons. By then, Han said, the net imports will reach 150 million
tons. In other words, half of China's oil supplies will be
imported.
Adding to China's woes, Han said it relied too heavily on imports
from the Middle East. Oil imports from the area now account for
over half the total.
"The source and transportation route for those imports will be the
major concerns that influence China's energy security, especially
when the supply area is considered unsafe," said Han.
To
help secure its energy supplies, the government is scrutinizing its
plans for strategic reserves, and "strives to implement them soon,"
Han said.
Some officials have also been calling for a special committee to
direct the program.
Still, several uncertainties may slow down implementation of the
plan, insiders have said.
According to a senior government source, who declined to be named,
there are differing opinions about the stockpiling strategy, such
as the amount of oil needed, when to start building the reserve
and, more importantly, how to pay for it.
As
for overseas reserves, the question remains how to find a desirable
deal at a desirable price.
"We have kept track of dozens of potential deals in past years, but
few came off," said Wu Yaowen, a senior official with China
National Petroleum Corp.
Wu, who is in charge of the company's overseas business, said a
high oil price added to CNPC's profits.
But it also added to the company's risks, he said.
When prices increase, CNPC has to pay more for its overseas
supplies, and then wait for even higher prices to sell, if it is to
make a profit and not a loss.
High prices, however, will not curb China's appetite for overseas
reserves, since the country has been a net importer since 1993.
At
present, China controls more than 500 million tons of oil reserves
overseas, 5 percent of its feasible reserves at home.
The government has listed Central Asia and Russia, the Middle East
and North Africa, and South America as "three strategic regions"
for domestic companies to access.
Zhu Xingshan, an oil analyst with the Energy Research Institute of
the SDPC, said Central Asian countries and Russia are first
priorities for the expansion plan.
"These countries see the oil industry as vital for the revival of
their economies, but they need foreign companies to help tap their
rich reserves," said Zhu.
"China has been developing friendly relations with these countries,
to help Chinese companies compete favorably with Western
companies," Zhu said.
Southeast Asian countries have also become targets for China in
recent times because of their proximity which cuts down on
transportation, although their reserves will not last long.
"In the long run, the Middle East region is still our most
important import source. But we need to diversify," Zhu added.
Ma
Fucai, chairman of CNPC, said the company would be more active in
seeking opportunities to expand overseas and was exploring
possibilities of acquiring, merging, and buying shares in oil
reserves abroad.
"Overseas operations make up 60-70 percent of the total business of
a global giant like ExxonMobil," said Ma Fucai in a recent news
briefing. "Over the long-term, we are working towards that
goal."
To
that end, the company plans to produce 35 million tons of oil in
overseas reserves by 2005, of which it can obtain 18 million tons
based on its equity holdings.
Last year, its overseas output reached 21.2 million tons, with half
of it controlled by the company. The entire overseas production
represents 18 percent of the company's total production.
Han said China should also actively take part in energy cooperation
in the region, especially with neighboring countries like Japan and
South Korea which are big energy consumers.
"China and these countries have common interests in using oil
resources from the Middle East. We should establish a cooperation
mechanism to protect our interests, in resource exploitation,
offshore transportation and emergency action," said Han.
Officials said the government is developing financial and taxation
policies, including a State special fund, to encourage the
companies' overseas exploration.
(China Daily January 20, 2003)