The country's hunt for the energy it needs to fuel its economy has led to deals in political hotspots, riling the U.S.
By Don Lee
Times Staff Writer
November 14, 2004
SHANGHAI — About a three-hour drive south of Shanghai, along the East
China Sea, workers are building 52 gigantic tanks, each capable of
holding more than 25 million gallons of oil — enough to supply every
driver in China with gasoline for a month.
The storage tanks will help accommodate China's thirst for oil as it
looks to fuel its booming economy. And it has plans to stockpile much,
much more.
China, the world's second-largest consumer of oil
after the United States, has plenty of cash to secure sources of
petroleum and natural gas. But as aggressively as any nation, it is
also cutting deals and forging alliances to get the energy it needs.
In South America and Africa, the Chinese government is helping build
roads and ports in exchange for oil supply contracts. Beijing pledged
to support oil-rich Russia in its bid to join the World Trade
Organization as the two countries agreed that Russia would boost its
exports of crude by rail to China.
And after a Chinese
company's deal to develop an oil field in Iran, Beijing tacitly offered
political support for Tehran's budding nuclear program. That put China
in direct cross hairs of the Bush administration. The hunt for energy
in the former Soviet Union and political hotspots such as Sudan is
making China few friends in Washington.
China is "throwing
around its economic muscle like crazy," said David Lampton, head of
China studies at Johns Hopkins University's School of Advanced
International Studies. "The Chinese are throwing incredible amounts of
money to lock up long-term [energy] contracts. … It's going to be a
real topic of U.S.-China relations."
Some Chinese officials dismiss the threat of increased friction over energy.
"Although oil trade plays an important role in every field, it has a
limited influence in Sino-American relations," said Han Wenke, vice
director of the energy institute affiliated with the National
Development and Reform Commission, an important regulatory agency of
the Chinese central government.
Beijing's pursuit of energy is
all about maintaining the nation's strong economic growth, which
Communist Party leaders believe is the linchpin to social stability and
ultimately their legitimacy. Oil and natural gas, and lots of both, are
needed to keep factories running and to power all the new cars hitting
freshly paved streets.
Only a decade ago, China shipped out
more crude than it imported. This year it has sharply reduced exports
to meet domestic needs — and it is now the world's second-largest
importer of oil after the U.S.
Rising Demand
Surging
Chinese demand, which has helped drive up oil prices to record levels
in the last year, is expected to rise by double-digit growth rates
annually for the next 15 years.
Although crude prices have
settled back in recent days to less than $50 a barrel, China's rapid
economic expansion is almost certain to add pricing pressure over the
long haul. The country accounts for about 6% of world consumption;
that's projected to rise to more than 9% in 2020, as Chinese oil fields
dry up. (One-fifth of global oil demand comes from the United States.)
Wary of its increasing reliance on a few foreign oil suppliers, China
has formulated a "go-out" strategy to diversify and expand its energy
capabilities. The plan involves cooperating with 27 countries for oil
exploration.
Beijing also is pouring money into developing
its own pipelines and liquid natural gas terminals and launching an
array of energy conservation programs at home, including imposing fuel
economy standards on new cars.
One of China's biggest and
latest energy ventures involves Iran, which the United States has
sought to isolate for its alleged development of a covert nuclear arms
program.
Late last month, Chinese and Iranian officials signed a preliminary deal in which China's Sinopec Group would
develop Iran's Yadavarn oil field in exchange for Sinopec agreeing to
buy millions of tons of Iranian liquefied natural gas. The Chinese
government media valued the deal at $70 billion.
A few days
later, Chinese Foreign Minister Li Zhaoxing gave Iran important
political support in the standoff over the Islamic republic's nuclear
program. Li said Beijing opposed efforts to have the matter referred to
the United Nations Security Council, although he stopped short of
saying China would use its veto power if the case were sent there.
U.S. diplomatic sources have been reluctant to comment on the deal.
Some analysts said it was unlikely that Beijing would jeopardize U.S.
relations over an energy pact with Iran.
But others aren't so sure.
"There is a rationale from Beijing that is very dominant: If you can
supply oil and do business, we would like to sign a deal," said Wenran
Jiang, a political scientist at the University of Alberta in Canada.
"China is very non-ideological in that sense. They will think about it,
but they're not driven by the strategic interest in Washington."
Sudan is another example. Among China's African energy partners, which
together provide about 20% of the country's oil and natural gas, the
single largest is Sudan. Since the late '90s, Chinese oil companies
have poured hundreds of millions of dollars into developing oil fields,
a pipeline and a refinery.
No Apologies
Despite
long-running criticisms by the United States and international groups
about human rights abuses in Sudan, Beijing makes no apologies. When
pressed on the issue, Chinese foreign officials have been quoted as
saying simply that business is business.
In Africa, China has
also signed deals to buy oil from Nigeria, Gabon, Cameroon and Angola.
Last year China extended a $2-billion loan to Angola in exchange for
10,000 barrels of crude oil a day.
He Jun, a senior analyst
at Beijing-based Anbound Strategic Consulting Co., doesn't think China
will let itself become involved too heavily in sensitive African
nations such as Sudan.
"China's main purpose is still to
develop its economy under a peaceful circumstance," he said. Others
note that the U.S. and other big consumers of oil also have bought
energy supplies from unsavory governments.
For China, more
promising are its efforts closer to home. In September, construction
crews began work on a 770-mile pipeline running from the oil-abundant
Caspian Sea coast in Kazakhstan to China's western border, connecting
with another trunk line all the way to China's east coast. The
pipeline's initial capacity would be about 10 million tons of crude a
year, said Matthew Cairns of Economy .com in Sydney, Australia.
Earlier, during a visit to Russia by Chinese Premier Wen Jiabao, the
two countries reached the agreement about Russia exporting more crude
to China. Cairns said it was no coincidence then that Wen promised to
give Russia support for its WTO bid.
"It's a very cunning political maneuver," Cairns said.
In Russia, China also has sought a crude oil pipeline from eastern
Siberia to Daqing in northeast China, to have ready access to supplies.
But Japan appears to have won its bid to have the pipeline routed to
the Russian port city of Nakhodka on the Sea of Japan.
Japanese and Chinese companies have clashed more openly over the
exploration of natural gas in the East China Sea. Tokyo is worried that
China would siphon gas from the Japanese side of the ocean bed, and has
insisted that China provide details about the natural gas field.
Some political analysts say the competition for energy will severely
test the relations of China and Japan in particular. But energy
diplomacy also raises new challenges for the West, as the economic and
political center in Asia shifts from the United States and Japan to
China.
Heightened geopolitical tensions over China's oil
imports comes as little surprise to Jeffrey Logan, China program
manager at the Paris-based International Energy Agency.
"It's
only natural," he said. "The world is struggling to learn more about
China. As China enters the world more and more, it's going to depend on
the world's resources more and more."