The Brookings Institution, Washington, D'C'www'brookings'edu

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Chinas Global Search for OilImplications for
the US

• Erica Downs
• Security for a New Century Study Group
• Washington, DC
• 8 June 2007

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Summary

• Congress shouldnt worry about Chinas foreign
  oil investments harming global energy security
• Congress should be concerned about
• Foreign policy implications of Chinas overseas
  oil investments
• Impact on of unfair competition from Chinas oil
  companies on US companies

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Outline

• Chinas dependence on energy imports
• Drivers of Chinas global search for oil
• Government-company relations
• Foreign investments
• Policy recommendations

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Modest Dependence on Imported Energy
Coal is King Chinas Energy Demand, 2004

• China meets most of its energy needs with
  domestic supplies
• 85 self-sufficient
• Abundant coal
• Small amounts of liquefied natural gas and coal
  imported
• Oil only fuel imported in large quantities

Oil 23
Coal 71
Gas 3
Nuclear 1
Hydro 2
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China 50 dependent on oil imports
Demand
Net Imports
Domestic Supply

• Worlds 2nd largest oil consumer
• 2006 7.0 million b/d (1/3 of US level)
• Worlds 3rd largest oil importer
• 2006 3.3 million b/d (¼ of US level)
• Projected imports of 6-11 million b/d in 2020
• About 60-80 of projected total consumption

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Goals of Chinas Global Oil Search Its Not Just
About Energy Security!

• Energy security is a motivation for the Chinese
  government
• Fairly widespread but not universal
  preference for oil obtained through investment
  rather than trade
• But Chinas national oil companies (NOCs) have
  their own objectives
• Replace reserves
• Increase profits
• Enhance global competitiveness

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NOCs drive foreign investments

• NOCs are state-owned but not merely puppets of
  the state
• Corporate interests sometimes run counter to
  national interests
• Power and autonomy of NOCs has grown
  substantially in recent years
• NOCs often have considerable influence on
  policies and projects
• Initial push for foreign oil investment

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but the government is involved

• Approves projects, at least in theory
• Tries to limit head-to-head competition
• Provides diplomatic support
• Government-to-government negotiations often
  effective
• Provides financial support
• Cheap loans from policy banks
• Package deals for host countries

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Foreign Investments (1) NOCs invested around
the globe
Includes buyback and extended service contracts
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Foreign Investments (2) Output concentrated in
a few countries
Equity Production by Country, 2004
Indonesia, 13
Other, 21
Kazakhstan, 30
Sudan, 36
Total 372,370 b/d
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Foreign Oil Investments (3)Where is Chinas
production sold?

• Some sold locally
• Kazakhstan (2005)
• Chinese oil production 194,000 b/d
• Chinas crude imports 26,000 b/d
• Some sent to China
• Sudan (2005)
• Chinese oil production 163,000 b/d
• Chinas crude imports 133,000 b/d

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What Congress shoudnt worry about

• Fears of Chinas oil investments threatening
  global energy security are misplaced
• 77 of worlds oil reserves are closed to foreign
  investment
• Any foreign oil production sent back to China
  displaces oil China would have to buy elsewhere
• Chinese investments help to increase global
  energy supplies

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What Congress should worry about (1)

• Chinas foreign oil investments prompt Beijing to
  take actions counter to US interests
• Oil a factor behind Beijings reluctance to
  increase pressure on Sudan and Iran
• Aid with no strings attached undermining
  promotion of good governance

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What Congress should worry about (2)

• State financial support for Chinas NOCs is a
  source of unfair competition for US oil
  companies
• CNOOC Ltds bid for Unocal CNOOC had access to
  credit on terms unavailable to Chevron
• Economic packages for host countries drive up
  costs for all investors

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Policy recommendations

• Practice what we preach
• allow Chinese FDI in US energy sector
• Persuade Beijing to use influence acquired
  through NOC investments to shape policy outcomes
  (Sudan, Iran)
• Engage with Beijing on the benefits of a level
  playing field for energy investment
• Carrots work better than sticks

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Extra Slides
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Chinas Crude Oil Imports by Region, 2005
Americas 3
FSU Europe 12
Asia Pacific 8
Persian Gulf 46
Africa 31
Total 2.5 million b/d
The Brookings Institution, Washington,
D.C. www.brookings.edu
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Chinas Crude Oil Imports by Country, 2005
Total 2.5 million b/d
The Brookings Institution, Washington,
D.C. www.brookings.edu