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The World

China Stakes a Claim for Major Access to Oil Around the World

In its quest for crude, Beijing is dangling cash and playing on nations' discontent with the U.S. Can the two huge energy consumers coexist?

July 17, 2005|Mark Magnier | Times Staff Writer

BEIJING — When Alberta Premier Ralph Klein toured China last year and invited business leaders to visit the Canadian province's oil sand deposits, he didn't expect an immediate response.

But when Klein returned home a week later, Chinese executives were already making the rounds in Alberta, where the oil sands region is roughly the size of Florida and is believed to contain the richest reserves after Saudi Arabia.

The executives' quick response paid off. Three of China's state-owned oil firms have since poured huge investments into the oil sands, including a 40% stake in a $3.6-billion project that will be able to send oil via a new pipeline to Canada's west coast for shipment to China and elsewhere.

"Clearly, China has been the talk of Calgary," said Steven Paget, an analyst for investment bank FirstEnergy Capital Corp. there.

Scenes like this are being repeated around the world. Dangling cash and access to its huge market, China is dispatching legions of diplomats, surveyors and engineers across the globe to help quench the Middle Kingdom's insatiable thirst for energy.

During the last two years, President Hu Jintao and Premier Wen Jiabao have taken oil executives on trips to oil-rich countries from Algeria to Uzbekistan to seal major deals. The government in Beijing has welcomed top officials from all 11 members of the Organization of the Petroleum Exporting Countries. A major point of a trip Hu made to Moscow this month was to secure access to Russia's vast reserves.

Chinese crews are building roads in Africa in exchange for the right to extract oil from remote regions. Viewers in Saudi Arabia, a nation that U.S. oil firms once had to themselves, now watch Chinese programs on satellite TV as China drills into Saudi sands. China is also taking advantage of tensions between the Bush administration and Venezuelan President Hugo Chavez to wrest oil from one of the largest U.S. suppliers.

To secure deals worth tens of billions of dollars, Beijing is cozying up to regimes in nations, including Iran and Sudan, that Washington labels pariahs. And it is flexing its military muscle to lay claim to contested fields in East Asia.

China's aggressive search is putting it in growing competition with the United States, the world's largest oil consumer. Some observers even warn of a possible showdown between the two economic giants.

"The Bush administration's attitude toward China at the moment is to look for ways to work with them, but I don't know how sustainable this policy is going to be," said Gal Luft, executive director of the Washington-based Institute for the Analysis of Global Security, a conservative think tank. "At the end of the day, you've got two very large consumers competing over the same sandbox. Sooner or later the Chinese are going to run out of places they can look for oil."

China says wealthy countries need to adapt. It notes that those countries have been the largest energy users for a century despite accounting for just 15% of world population. It also insists that its appetite for foreign oil does not challenge U.S. interests or global stability.

"China was never, is not and will not pose a threat to world energy supplies," Ma Kai, China's energy chief, said in Beijing.

Still, U.S. concerns over China's recent forays grew last month after CNOOC Ltd., which is 71% owned by state-controlled China National Offshore Oil Corp., made an unsolicited $18.5-billion bid for El Segundo-based Unocal Corp. The House of Representatives passed a nonbinding resolution two weeks ago opposing the deal on national security grounds, prompting an angry response from Beijing.

"We demand that the U.S. Congress correct its mistaken ways of politicizing economic and trade issues," the Foreign Ministry said in a statement.

Before the Unocal bid, Beijing's activities had attracted relatively little attention from a U.S. administration focused on Iraq, Washington's war on terrorism and other foreign policy priorities.

"We're still trying to get a handle on what's happened on our watch," said a senior State Department official who asked not to be identified because he was not authorized to speak on the record. "More work needs to be done on this."

Other analysts say the U.S. and other nations must adjust to China's new role as a major global energy player. "The bottom line is, the U.S. will have to make room for China," said Youssef M. Ibrahim, an oil analyst with Strategic Energy Investment Group of Dubai, United Arab Emirates. "If it doesn't make room for China, China will take the room."

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