The Quest for Oil by China and the United States

On Monday, after China reported an escalation of manufacturing in May, crude oil soared to its highest level in seven months.

There seem compelling indications that China is not only strengthening economically and industrially, but that China is establishing strong footholds in oil-rich nations African that may or may not decide to sell oil to the United States in the future. For decades China and African nations have shared diplomatic and economic relations, sweetened by China in offering economic grants as well as either preferential or interest-free loans, according to an Institute for Analysis of Global Security (IAGS) report. A relationship with Africa is presumably much easier for China than it would be for the United States since China seems largely unconcerned about issues such as human rights and corruption, the report continues.

While China's connections oil-producing nations, such as the African nations, may result in a supply of oil, that in no way implies that China's dependence upon the Middle East for oil is therefore diminished. In fact, China's dependence on Middle East oil is expected to escalate.

The IAGS reports that China has acquired interests in "exploration and production in places like Kazakhstan, Russia, Venezuela, Sudan, West Africa, Iran, Saudi Arabia and Canada." And it further states that even though China has fostered connections these other nations, its "has become increasingly dependent on Middle East oil. Today, 58 percnet of China's oil imports come from the region. By 2015, the share of Middle East oil will stand on 70 percent."

The China effect on both oil consumption and oil prices cannot be denied. The country, with 1.3 billion people or about one-fifth of the world's population, is second only to the United States in oil consumption. And with its industrialization and economy flourishing and it's population expected to reach 1.5 billion by the 2030's, it seems that the country's demand for oil cannot help but surge.

And there are other factors impacting China's energy needs, including a migration of its people from rural to urban areas, massive highway construction program and movement from foot and bicycle traffic to automobiles. Where China's city streets were once bustling with bicyclists and pedestrians, today they are jammed with automobile traffic. Indeed, it is not surprising that many experts think that China's greatest need will be for light petroleum products, motor fuels and some petrochemicals.

Back in the fall of 2007, China had 120 million privately owned vehicles, according to The China Car Times. Of the country's vehicles, it was revealed that just 61.25 percent were privately owned, and another 38.75 percent were state owned. This information was reportedly derived from Chinese state news agency Xinhua and based on statistics from Chinas' Traffic Administration of Ministry of Public Security.

And six months after the publication of that article, China's Petroleum and Chemical Industry Association (CPCIA) revealed that "China's apparent consumption of oil products composed of gasoline, diesel and kerosene rose by 16.5 percent year on year to 52.73 million tonnes in the first three months, and crude oil rose by 8 percent to 91.8 million tones."

Of course, it seems that there is little question about China's growing need for energy. But less transparent are "the nature and scale of the energy and environmental challenges facing the country, the policy responses of the goverment, the existing legal and regulatory framework, and the implications of Chinese energy challenges," cites a report issued by Oil, Gas & Energy Law.

Highly interesting is China's fostering of relationships and acquiring equity in oilfields beyond the Middle East. "China is focusing its efforts ... on finding energy resources in other regions around the world, such as the Caspian, Russia, the Americas, the East an South China Sea and Africa," explains an Institute for the Analysis of Global Security (IAGS) report. "China has either established or been pursuing oil deals with 100 percent of those countries that have at least 0.5 billion barrels of proven reserves," the IAGS report states.

Given the finate supply of global oil and the growing needs of oil-hungry China and the United States, it seems critical to understand how the world's second largest oil consumer expects to meet its demands -- and how China's inroads, particularly oil-producing nations as those in Africa, will impact the United States' access to oil. What will happen if those nations decide to deal exclusively or primarily with China -- and to supply little or no oil to the United States?

So while the United States perhaps will want to keep a close eye on China's inroads into countries such as those in Africa, it seems that both China and the United States will continue to turn to the Middle East for extensive oil supplies.


Sources:

Fueling the dragon: China's race into the oil market"

China Car Times, Oct. 10, 2007

China's Oil Rush in Africa by Cindy Hurt, political-military research analyst with the Foreign Military Studies Office, for The Institute for Analysis of Global Security (IAGS), dated July 2006

Introduction to the OGEL Special Issue on 'China's Energy and Environmental challenges', Oil, Gas & Energy Law

China's Growing Demand for Oil and Its Impact on US Petroleum Markets, Congressional Budget Office, April, 2006

China's Oil Consumption hits record high in first quarter, April 2008