with articles referred to FT, November 4, 2009
“Burning ambitions: China’s great oil grab– Beijing takes on the west in a 21st century race for resources”
Background: With a sustainably fast growth of economy, China is expected to desire more energy, including oil, than any other countries in the decade. As an energy that my affect most industries’ development, oil consumption and exploration have been China government’s major concerns. Currently, China is expected to consume 8m barrels oil each day, which figure will probably double in the next decade.
China’s overseas investment: Central Asia and Africa are two areas that China mostly concern. Among them, China’s energy companies performed especially well in Central Asia and have acquired large shares of energy assets for self-utilization. Kazakhstan is a good example of China’s success of overseas investment, and nowadays China’s oil output from Kazakhstan has reached the level of 300,000b/d, more than one-quarter of China’s total foreign production. Compared to firms from other western countries, China’s firms are more willing to take the risk and invest large amount of money in building pipelines in these areas.
On the contrary, China’s investment in Africa is not quite smooth. China firms’ presence is much smaller and political obstacles seem to be significant. The two sides are disputing on the process of oil-for-infrastructure, and therefore, China’s ambitions in Africa encounter problems.
Challenges and Possible Problems:
1: China’s aggressive overseas investment may be regarded as threats to local countries. Current situation is that China’s energy firms are more willing to hire Chinese labor and equipment, which causes local governments’ and citizens’ dissatisfaction.
2: Competitions are fierce. On one hand, China’s government-based firms are facing challenges with experienced international energy groups, such as Royal Dutch Shell and ExxonMobil. On the other hand, the three biggest state-owned oil companies—China National Petroleum Corporation, Sinopec and China National Offshore Oil Corporation—have their own economic interest, and internal competitions among them are getting more intensive.
3: There are increasing voices on energy independence, and China’s overseas purchase may cause further international fight on energy resources.
Chances and Suggestions to China’ energy firms:
1: Current recessions has largely decreased the price o f overseas purchase, and most of emerging countries need large amount of loans for development. It would be a great chance for China’s firms to invest larger assets, sophisticate its portfolio, and diversify the investing markets.
2: The competition relationship between western oil companies and China government-based firms can be changed to strategic cooperation. The current campaign built by BP and CNPC in Iraq has realized such relationship: BP is in charge of technological part and CNPC will keep down costs.
To sum up, current recessions create chances as well as challenges for both oil-producing countries and oil-demanding countries, also for both western energy giants and China energy firms. If all parties can find ways of utilizing energies most efficiently, it would be helpful for international trade, and further help the global economy step out of current recession.
Funny to note that Unclemilton posted the EXACT same article on our blog…Please refer to our blog for additional views on this issue. Sitting in class, gotta go. Will be back with comments. /Erik
Actually, when I wrote this article last night, I was almost sure that your group would also do sth on this news. In China, there is an old saying that can be translated like: “Great minds think alike.” /Fangming
Apart from co-operating with western giants, Beijing should well leverage on the strengthened ties with and capitalize the technological advances of Taipei in active collaboration on petroleum exploration, extraction and refinery beyond the Taiwan Strait to international domains such as Middle Asia, the Pacific and etc. in such a way to sharpen the competitive edges and present an unified front in bidding the ever-scarce petroleum resources.
Sorry for omitting the signature.
The above post is by Sunny Choi.
Thanks ~
Please see a related comment on UncleMilton, in which another aspect is considered, i.e. taking a long term perspective it would be wise to reduce reliance on non-renewable resources and go after renewable energy sources. China’s spectacular growth has come at a heavy cost to the environment.
Also, I would like to raise the recent debacle related to iron ore imports, and China’s buying up of Australian firms. A Tinto executive had been detained in China, after failure of talks. Such an attitude will not help China’s image on the international stage.
Even in Africa, the local people have started raising their voices against Chinese investments. The solution is that China should focus more on local development in such countries. And help the poor African nations develop.
I agree with UncleMilton that for China’s long term interest, she should aim at win-win by providing help in local development. The recent announcement of China’s $10 billion concession loan to Africa over the next three years is perhaps in such a spirit.
Erik: Back from 5 day trip to India….sorry for absence on forum.
I agree that China would benefit a lot long-term by building consensus with local governements/socities in which it invests. Furthermore, believe strongly that a proactive and conscious shift towards renewable energy resources is a must for China. I look very much forward to the Copenhagen summitt where the emerging markets (primarilly China and India) have a great opportunity to take the lead in renewable energy and a build consensus around long-term sustainability and preservation of our precious world. To reiterate what we stated on Unclemilton’s blog regarding the same article: beyond dealing with fiscal issues and likely inflation the key issue for the world’s decisionmakers (in my mind) is to solve the equation of finite resources and an ever increasing strain on resources as emerging markets strive to obtain the standard of living of the developed world. This goes hand-in-hand with environmental issues. Whomever solves this equation deserves the Nobel Prize in economics.