DownsChinaOil

China’s Global Search for Oil:Implications for the US: 

China’s Global Search for Oil: Implications for the US Erica Downs Security for a New Century Study Group Washington, DC 8 June 2007

Summary: 

Summary Congress shouldn’t worry about China’s foreign oil investments harming global energy security Congress should be concerned about: Foreign policy implications of China’s overseas oil investments Impact on of unfair competition from China’s oil companies on US companies

Outline: 

Outline China’s dependence on energy imports Drivers of China’s global search for oil Government-company relations Foreign investments Policy recommendations

Modest Dependence on Imported Energy: 

Modest Dependence on Imported Energy 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 Coal 71% Nuclear 1% Hydro 2% Gas 3% Oil 23% Coal is King: China’s Energy Demand, 2004

China 50% dependent on oil imports: 

China 50% dependent on oil imports World’s 2nd largest oil consumer 2006: 7.0 million b/d (1/3 of US level) World’s 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 Demand Domestic Supply Net Imports

Goals of China’s Global Oil Search: It’s Not Just About Energy Security!: 

Goals of China’s Global Oil Search: It’s 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 China’s national oil companies (NOCs) have their own objectives: Replace reserves Increase profits Enhance global competitiveness

NOCs drive foreign investments…: 

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

…but the government is involved: 

…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

Foreign Investments (1): NOCs invested around the globe: 

Foreign Investments (1): NOCs invested around the globe Includes buyback and extended service contracts

Foreign Investments (2): Output concentrated in a few countries: 

Foreign Investments (2): Output concentrated in a few countries Equity Production by Country, 2004 Other, 21% Indonesia, 13% Sudan, 36% Kazakhstan, 30% Total = 372,370 b/d

Foreign Oil Investments (3):Where is China’s production sold?: 

Foreign Oil Investments (3): Where is China’s production sold? Some sold locally Kazakhstan (2005) Chinese oil production: 194,000 b/d China’s crude imports: 26,000 b/d Some sent to China Sudan (2005) Chinese oil production: 163,000 b/d China’s crude imports: 133,000 b/d

What Congress shoudn’t worry about: 

What Congress shoudn’t worry about Fears of China’s oil investments threatening global energy security are misplaced 77% of world’s 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

What Congress should worry about (1): 

What Congress should worry about (1) China’s foreign oil investments prompt Beijing to take actions counter to US interests: Oil a factor behind Beijing’s reluctance to increase pressure on Sudan and Iran Aid with “no strings attached” undermining promotion of good governance

What Congress should worry about (2): 

What Congress should worry about (2) State financial support for China’s NOCs is a source of unfair competition for US oil companies: CNOOC Ltd’s bid for Unocal: CNOOC had access to credit on terms unavailable to Chevron Economic packages for host countries drive up costs for all investors

Policy recommendations: 

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

Extra Slides: 

Extra Slides

China’s Crude Oil Imports by Region, 2005: 

The Brookings Institution, Washington, D.C. www.brookings.edu China’s Crude Oil Imports by Region, 2005 Persian Gulf 46% Africa 31% Asia Pacific 8% FSU & Europe 12% Americas 3% Total = 2.5 million b/d

China’s Crude Oil Imports by Country, 2005: 

The Brookings Institution, Washington, D.C. www.brookings.edu China’s Crude Oil Imports by Country, 2005 Total = 2.5 million b/d