Largely below the media radar, China has intensified its global search for energy supplies to secure its dynamic economy.
Given the difficulties in increasing domestic output to underwrite the country’s relentless economic growth, in the last four years Chinese companies, including China National Offshore Oil Co. (CNOOC) and Sinopec have spent more than $100 billion worldwide to secure oil and gas assets.
Chinese domestic oil production peaked at roughly two percent a year in 2001, against consumption growth of 6.3 percent the same year and 4.5 percent last year, hence Beijing’s scouring the world for resources. China's largest oil fields are mature and their production has largely peaked, leading Chinese energy companies to focus on developing still untapped reserves in both Xinjiang and offshore fields. Despite the increasing global shift towards natural gas, while its use is rapidly increasing in China, as of 2009 the fuel comprised less than four percent of the country's total primary energy consumption.
According to the U.S. government’s Energy Information Administration, “the imminent emergence of China as the world's largest net oil importer has been driven by steady growth in Chinese demand, increased oil production in the United States, and a flat level of demand for oil in the U.S. market.” China holds 20.4 billion barrels of proven oil reserves as of January 2012, up over 4 billion barrels from three years ago and the highest in the Asia-Pacific region.
What does this mean for the rest of the world?
China will do whatever it takes to retain its rising global economic hegemony. According to the International Monetary Fund, China's real gross domestic product grew at an estimated 9.2 percent in 2011 and 7.8 percent in the first half of 2012, after registering an average growth rate of 10 percent between 2000 and 2011. For the past three decades China has achieved double-digit economic growth, resulting in increasing demand for fuel, not least as a rising middle class demands fuel for its autos; accordingly, the country’s energy self-sufficiency ended two decades ago, in 1993.
Since then, its oil import dependency has leapt to 58 percent in 2012 and is forecast to reach 70 percent by 2020.
Over most of the last decade China, which is already the world’s top importer of a number of commodities, has increasingly been at the forefront of rising global demand for oil, which has essentially kept oil prices elevated even as weak Western economies in the aftermath of the 2008 global recession and rising U.S. shale oil and natural gas output have reduced overall global consumption during the past five years.
Accordingly, East Asia’s increasing rise as a hydrocarbon consumer in global trade will likely further strengthen China’s position in international oil markets.
China already imports more than 50 percent of Iraqi crude, is Iran’s remaining major foreign customer despite international sanctions, and last week acquired a 49 percent share in the Russian Federation’s state-owned Rosneft oil company’s eastern Siberian Srednebotuobinsk field. Africa now supplies China with 1.2 million barrels per day.
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And on 21 October, Chinese oil companies CNOOC Ltd. and China National Petroleum Corp. were among companies registered to bid against Royal Dutch Shell Plc and France’s Total SA in Brazil’s auction for Brazil’s giant offshore Libra field, estimated to hold as much as 12 billion barrels, equivalent to three years of China’s consumption.
Petrobras took 40 percent of the field, France's Total SA and Anglo-Dutch Royal Dutch Shell Plc will each have 20 percent, CNPC and CNOOC will each have 10 percent.
The EIA forecasts, “that China's oil consumption will continue to grow during 2012 and 2013 at a moderate pace. Even so, the anticipated oil growth of over 0.8 million bbl/d between 2011 and 2013 would represent 64 percent of projected world oil demand growth during the 2-year forecast period.”
As the Petrobras auction proved, the bottom line is that for better or worse, Chinese interest in global oil reserves will be an ever-increasing part of the global struggle for hydrocarbons.
By. John C.K. Daly of Oilprice.com