CHINA AND THE WORLD OIL MARKET

1
CHINA AND THE WORLD OIL MARKET

• How China is dealing with the need to fuel
  economic growth

2
Chinas oil production levels

• China produced 175 mln tons of crude oil in 2004,
  up by 2.9.
• Consumption rose to 288 mln tons, up 16.8.
• Crude imports in 2004 reached a record level of
  115 mln tons, making China the second largest
  importer after the US.

3
Per capita consumption

• Chinas per capita oil consumption is far lower
  than the United States and Japan - an average US
  citizen consumes 25 barrels a year, compared to
  1.3 in China. If it is to fulfil its economic
  growth targets, worldwide production might not be
  capable of sustaining the oil consumption
  increase.

4
Some worrying trends

• Chinas traditional oil fields, such as Daqing,
  are depleting.
• The oil bonanza of Xinjiang has so far been
  disappointing, even though production is inching
  up and expected to overtake Daqing in a years.

5
Future predictions

• CNPC predicts 320 mln ton consumption level this
  year, up 12. Increase will be met mainly by
  imports, which will reach 140 mln tons.
• Sinopec predicts that China will require 350 mln
  tons of crude by 2010 and 500 mln tons by 2020,
  mainly for transportation and petrochemicals.

6
Future predictions

• The US Energy Information Administration predicts
  consumption to grow from 4.78 mln barrels in 2000
  to 10.5 mln barrels a day in 2020.

7
Future predictions

• The IEA says that China will invest USD 119 bln
  in its oil industry from 2000-2030.
• It also predicts that the share of imports in
  Chinas overall energy consumption will reach 80
  by 2030

8
China on the international market

• US-China Commission criticized China for having
  no reserve system and failing to participate in
  international stabilizing arrangements
• Officials have refuted Chinas impact on world
  prices, comparing their share in the market to
  US.
• The impact will obviously continue to grow as
  consumption and imports increase.

9
Chinas dependence on Middle East

• Three fifths of Chinas imports come from the
  Middle East, all passing through Malacca Strait.
  
• In 2004, Saudi Arabia was the biggest exporter to
  China
• Asian premium on oil prices

10
Chinas imports by country, 2004
11
Chinas import channels
12
Oil and Chinas Foreign Policy

• Chinas foreign policy is increasingly dominated
  by energy concerns, and by the need to diversify
  supply channels.
• Oil companies urged by government to go abroad
  (zou chu qu) for resources.
• Chinas senior leaders have been touring African
  and Asian nations to sign oil cooperation deals.

13
Oil and Chinas Foreign Policy

• China tends to pursue bilateral deals with
  international partners, and does not use
  international mechanisms, the US China Commission
  said
• China strategy to gain control of overseas oil
  at the source
• China accuses the US of politicizing the energy
  issue.

14
Oil and Chinas Foreign Policy

• China currently has assets and interests in more
  than 20 countries through its major state-owned
  oil firms, CNPC, Sinopec and CNOOC. CNPC
  currently produces around 25 mln tons per year
  from overseas interests.
• Transportation problems remain, and most of
  Chinas overseas production does not reach
  domestic market.

15
Oil and Chinas Foreign Policy
16
China come lately

• Many of the more promising development regions
  seem to have been carved up already between the
  multinationals. China is left with several bits
  and pieces, including aging fields in the Middle
  East and Africa, and concessions in countries of
  concern like Sudan

17
Russias Far East Pipeline
18
The Far East Pipeline

• Russia didnt want to be too dependent on China
• Japans intervention indicates Japans own
  concerns about energy security, and its
  apprehensions about Chinas growing role on the
  regional energy market. China also suspects US
  involvement

19
The Far East Pipeline

• China had underestimated the political opposition
  within Russia. It had negotiated on the issue
  since 1994, and seemed to take the deal for
  granted.
• Even Kazakhstan suggested that pipeline
  negotiations with them were a bargaining tactic
  with Russia.

20
The problem with Japan

• Cooperation would be effective, not only on
  Russian issue, but also on securing Middle East
  imports. However, history between the two
  countries gets in the way.
• China worried about Japanese activities in
  central Asia.

21
China and Russia

• More to the relationship than just the pipeline.
• China involved in the Yukos firesale.
• China seeking to get hold of other Russian
  assets, but faces opposition

22
The Caspian Sea
23
Kazakhstan

• China bought the aging Aktobe oilfields with the
  view to feeding a pipeline. However, production
  from the fields proved to be insufficient. This
  was followed by disputes over promised investment
  by China.

24
The Sino-Kazakh pipeline

• Phase 1 from Kenkiyak to Atyrau began in Spring
  2003, and delivers 6 mln tons a year
• Phase 2 from Atasu to Alashankou on the Chinese
  border is due to be completed by the end of this
  year, delivering 10 mln tons and 20 mln tons at a
  later stage
• Phase 3 from Kenyikak to Kumkol will boost the
  reserves feeding the Chinese pipeline

25
The Caspian Sea

• China certainly wants to be involved in one of
  the biggest discoveries in recent years at
  Kashagan, but efforts by CNOOC and Sinopec were
  blocked in 2003.

26
The Caspian Sea

• China wants its pipeline route to the Caspian Sea
  to connect with pipelines in Iran, where its
  presence is strong.
• US opposition to the Iran route is significant

27
The Caspian Sea

• Kazakhstan, one of the major players in the
  international oil scene, is hedging its bets.
• While seeking to avoid dependence on the Russian
  pipeline network, it does not want to become too
  dependent on its eastern neighbour, China.

28
Kazakhstans pipeline plans

• The route to Xinjiang remains just one of three
  major exporting routes for the country.
• China, like Russia, is worried by the pipeline
  running through Georgia to Ceylan on Turkeys
  Mediterranean Coast.

29
Venezuela

• Venezuela has been keen to boost imports to China
  in order to ease dependence on the US.
• Deals were signed by Hugo Chavez during his visit
  to China in December last year regarding imports
  and offshore exploration.
• A project to build a pipeline to the Columbian
  coast will allow Venezuela to bypass the Panama
  Canal and ship across the Pacific.

30
Africa

• Sudan is Chinas biggest overseas production
  base. 16 mln tons were produced by CNPC in the
  country last year.
• The project is controversial, violating US
  sanctions on Sudan