Oil War US versus China?

RESOURCE WARS
China Making Big Oil Moves

The country's steps to secure reserves have prompted worries about political implications.

By Don Lee, Times Staff Writer

SHANGHAI — Anyone who thought China's global quest for oil would be slowed by its failed attempt to acquire Unocal last summer should think again.In recent months, Chinese oil companies have made a string of moves aimed at securing overseas reserves — moves that have broader economic and political implications for China and the United States, the world's two biggest consumers of crude. State-controlled CNOOC Ltd., which abandoned its bid for Unocal after it triggered political opposition in Washington, said this month that it would spend $2.3 billion for a large stake in a Nigerian oil field. Now the Hong Kong company is reportedly eyeing a possible offer for an oil producer in Kazakhstan that may be worth $2 billion. Last fall China's largest oil company, China National Petroleum Corp., took control of PetroKazakhstan for $4.2 billion. A month ago, China National Petroleum and India's Oil & Natural Gas Corp. teamed up to buy Petro-Canada's stake in Syrian oil fields for $573 million. That came after China National Petroleum led a Chinese consortium that outbid the Indian company for oil assets in Ecuador in a $1.4-billion deal. "Wherever there's oil, that's where we'll go," said Gong Jinshuang, a senior engineer at China National Petroleum.For Beijing, securing oil and other forms of energy is crucial to sustaining the nation's strong economic growth. In about a decade, China has gone from being a net exporter of crude to one that relies on imports for 40% of its oil needs. By 2030, China's dependence on foreign oil is expected to rise to 60%, which is the current level for the U.S.China's "go-out" energy strategy, formalized in the fall of 2004, has pushed its oil companies to pursue deals abroad and its political leaders to forge stronger ties with resource-rich nations, including those governments that are at odds with the U.S., such as Iran and Sudan.Energy also has been a central part of China's deepening relations with developing countries in Africa and Latin America, some of which have become disillusioned with the U.S. and the West. In a recent visit to Beijing, Bolivia's new populist president, Evo Morales, called China an ideological ally and invited the Chinese to invest in the Andean country's large natural gas reserves.Some Western analysts see these relations as signs that China and the U.S. are on a collision course over oil. Two years ago, China and Iran signed a $70-billion deal in which China's Sinopec Group would develop Iran's Yadavarn oil field in exchange for agreeing to buy millions of tons of Iranian liquefied natural gas.China's economic links with Iran are seen as a major factor in the Asian country's reluctance to support American and European calls to refer Iran's nuclear program to the United Nations Security Council. Chinese officials, for their part, have sought to dispel notions that political ambitions underlie the country's global hunt for oil. Beijing also has been highly sensitive to widespread reports last year that blamed China for the sharp run-up in global crude prices. Recently Chinese officials issued a report showing that the nation's consumption of oil actually flattened in 2005, after increasing by 15.4% in 2004.The report stumped analysts. The International Energy Agency had forecast China's oil consumption last year to have grown by 3%. Chinese analysts say the discrepancy may have been caused by a drop in oil storage in 2005, along with a greater supply of other sources of power.Still, China continues to struggle with oil and diesel shortages, and the Paris-based energy agency is projecting that China's oil demand will grow again this year, by 5.9%, in turn helping boost overall global demand by 2.2% this year, from 1.3% in 2005. The upshot is that there's likely to be more upward pressure on crude prices, especially amid tight supplies and heightened political tensions. Wenran Jiang, a China specialist at the University of Alberta in Canada, says the recent oil deals by CNOOC and China National Petroleum indicate that the "scar from Unocal was not that big…. They are not going to disengage."For CNOOC, which is publicly traded in Hong Kong and New York but majority owned by the Chinese government's China National Offshore Oil Corp., the Nigerian oil and gas deal marks its first base in Africa and the company's biggest acquisition. Still, it's just one-eighth of the $18.5 billion that CNOOC offered for Unocal, the El Segundo-based oil company that was eventually taken over by Chevron Corp. after some in Congress sought to block CNOOC's bid, citing security concerns.As with its Unocal offer, CNOOC asserted that its investment in Nigeria's Akpo field was for commercial reasons. Analysts said the company was likely to sell its share of the project's oil output to Europe and the U.S. rather than to China because of the transport costs.Although this deal won't directly increase China's oil reserves, Akpo should help boost the country's natural gas supply, said Han Xiaoping, chief information officer at Falcon Power Ltd., a consulting firm in Beijing. "The priority task of CNOOC is to be larger," he said. "That is very important to solve China's energy shortage."Fu Chengyu, the USC-trained chief executive at CNOOC, said the Nigerian acquisition was in line with the company's strategy of building its reserves and diversifying its assets. Akpo's recoverable reserves of oil have been estimated at 620 million barrels. Company executives declined to comment about reports that CNOOC was weighing a bid for Canada-based Nations Energy Co., the owner of a large oil field in Kazakhstan. Yang Fuqiang, Beijing chief of the U.S.-based Energy Foundation, said that in hindsight it was a good thing the Chinese didn't buy Unocal. The price was too high, he said. "It was trying to take too big of a bite." As for Chinese oil companies, Yang said, you'll find them continuing to prowl the globe. "With the high demand in China, they will keep going," he said. "Even if they fail many times, they will never stop to go out to the international market."*

Times researcher Cao Jun in Shanghai contributed to this report.