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Tuesday, November 09, 2004


PRC a tough new competitor for global oil resources

The Peoples Republic of China’s growing appetite for energy has stressed the global oil and gas industry and is posing the threat of new armed conflicts over limited resources. The PRC’s oil imports have doubled over the past five years, surging nearly 40% in the first half of 2004 alone, and the country is now second only to the USA as the world's biggest oil consumer.

“The country's industrial base is gobbling up vast amounts of petrochemicals to make everything from fertilizer to Barbie dolls. The number of cars on mainland roads - about 20 million -i s expected to increase by 2.5 million this year alone. Even if China's blazing GDP growth of 9.4% this year moderates to 8% in 2005 … the country is now a permanent major player in the global competition for oil,” Time Asia reported.

And just as oil is seen driving American foreign policy, the PRC's geopolitical strategies are "increasingly influenced by the country's inability to meet its energy needs solely through domestic production".

For instance, news of the discovery of a new offshore oilfield in northern Vietnam last month was warmly welcomed by Vietnam and fellow South East Asian nations but harshly criticised the by PRC which claims "indisputable" sovereignty in the South China Sea. "China is seriously concerned and strongly dissatisfied," PRC Foreign Ministry spokeswoman Zhang Qiyue said.

The two Communist Party-ruled neighbours fought a significant land war in 1979, which Vietnam was considered to have won, and their forces clashed in the South China Sea in 1988 and 1992 when the Chinese emerged victorious.

The oil find, announced by a partnership of Petronas Carigali Overseas of Malaysia, American Technology Inc Petroleum, Singapore Petroleum Co and PetroVietnam's Petroleum Investment and Development Co, is at the Yen Tu field, about 70 km east of Vietnam's Hai Phong seaport. It is the "first oil strike" in the waters off northern Vietnam with estimated preliminary reserves at 181 million barrels.

The PRC’s territorial claims cover 80% of the South China Sea, sections of which are also claimed by the Republic of China, Vietnam, the Philippines, Brunei and Malaysia. In the mid-1990s, the Chinese put up what it called shelters for fishermen on islets claimed by the Philippines, fueling concerns in the Association of Southeast Asian Nations about increased aggression by China and "prompting increased diplomacy to engage Beijing".

The PRC is also disputing Japan’s sovereignty over natural gas reserves in the East China Sea and is preparing to begin exploiting large gas reserves in the Xibu Trough, just west of the line Japan claims as the boundary of its exclusive economic zone.

The trough, which lies 400 km east of Shanghai, contains the Chunxiao gas fields, the largest gas deposit yet discovered in the East China Sea, with reserves estimated at about 300 billion cubic metres.

Beijing rejects Tokyo's claim as an infringement of sovereignty, and has signalled it will not jointly explore the Chunxiao gas field with the Japanese. "Why should we consider a demarcation border when there wasn't one in the first place?'' asks a spokesman from the Ministry of Foreign Affairs in China. Some Chinese officials have talked of military conflict with Japan over the rights to the gas.

No doubt leaders in Beijing want to avoid numerous military confrontations and, where possible are looking to invest in exploration and development in countries that have oil fields but lack the capital or technology to exploit them. Once PRC state-woned companies have a stake in oil coming out of the ground, even if it originates abroad, they'll have secured long-term supplies.

The PRC’s state-owned CNOOC and CNPC, for example, now control over 12% of Indonesia’s own oil production, acquired from exiting US and European companies.

In North Asia, the PRC is trying to entice the Russian Federation to build a 1,500-mile pipeline from Russia's Angarsk, near Lake Baikal in Siberia, to China's Daqing to ship up to 700 million tonnes of oil between 2005 and 2030. However, the Japanese also know how to play hardball.

The PRC project has been slowed by environmental worries and is now threatened by a competing plan to route a pipeline to Japan. Russian President Putin says he prefers Russia to build a pipeline to the Pacific coast near Japan rather than the proposed link to China. Japan, keen to become a major Russian oil buyer, is offering Moscow up to 900 billion yen to develop an associated oil field in Eastern Siberia.

Elsewhere the scope of the PRC’s energy diplomacy is extensive:

Two weeks ago Iran and China signed an MOU to award development of the Yadavaran oil field to China's state-owned Sinopec. The countries also decided to form a joint oil and gas committee to follow up strategic cooperation in the area of energy including joint investment in construction of an LNG refinery in Iran.

Iran also spoke of it's readiness to cooperate with Chinese companies in oil-related activities in Central Asia. In June, PRC's President Hu led a delegation to Uzbekistan to start building relations with the oil-and-gas-rich, ex-Soviet republics.

Other reported Asian projects include a 600-mile, $2 billion pipeline from Burma's deepwater port of Sittwe, which will follow a projected railway line to China's south-western province of Yunnan. Another is the development of Gwadar Port in Pakistan, which China hopes to use to ship oil and gas from the Gulf. A pipeline to Xinjiang over the Karakoram Pass will follow.

The PRC is investing in West Africa's oil fields in the Gulf of Guinea, and to Central Africa, where oil production in several countries is also coming on line, VOA reports. In recent interviews, China's deputy foreign minister Zhou Wenzhong said the PRC will pursue its oil interests in Africa without political restrictions or concerns. He has been quoted as saying China tries "to separate business from politics."

The state-owned China National Petroleum Corporation, for instance, is developing oil projects in Chad, which has diplomatic ties with Taiwan.

West Africa's oil currently comes mainly from Nigeria, Equatorial-Guinea, Congo-Brazaville and Gabon. Other countries like Ivory Coast, Mauritania and Niger are also trying to develop oil production. PRC companies are reportedly signing oil contracts in many of these countries, even though few of the deals are getting much publicity.

During President Hu's visit to Gabon, though, one new arrangement was made public. The China Petroleum and Chemical Corporation refinery, Gabon and France's Total Gabon signed agreements guaranteeing China a steady flow of Gabonese oil.

Most controversial is the PRC’s efforts to prevent the United Nations’ Security Council imposing sanctions on Sudan over the crisis in the Darfur region to protect its oil imports from the country. For the past six years Beijing has been the Sudanese government's main backer, buying 70% of its exports, servicing its $20 billion debt and supplying the Khartoum government with most of its weapons.

The PRC was identified by diplomats as the member responsible for watering down September’s Security Council resolution which threatened to halt Sudan's oil exports if it did not stop atrocities in the Darfur region, where Arab militias are terrorising African villagers.

Sudan is the largest recipient of PRC overseas investment and some 10,000 Chinese are working in the country. Since 1999 China has poured up to $3 billion into developing several oil fields and building a 930-mile pipeline, refinery and port.

Sudan's attraction to the PRC, "other than its pariah status," the Independent reported, " is that it holds Africa's greatest unexploited oil resources, even greater than those of the Gulf of Guinea. China has helped to boost Sudan's crude oil production from 150,000 barrels per day in 2000 to an expected 500,000 bpd in 2005. All this comes from oil fields in central and south-central regions which may hold only 15 per cent of Sudan's total reserves".

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