Oil in a Week - China and Oil: Future Indicators

Recently, the media published significant petroleum-related news coming from China. This news was significant both economically and politically in what regards the relation between China and the other party concerned: According to this news item, Saudi Aramco, Sinopec and ExxonMobil held an inauguration ceremony for their rRefining joint venture complex at Fujian, in southeast China. While the refinery is the first for Saudi Aramco in China, there are many other Arab petroleum projects being developed in partnership with Chinese companies. For instance, negotiations are under way to build a joint venture refinery between the Kuwait Petroleum Corporation (KPC) and Sinopec, with a capacity of 300 thousand barrels per day. Also, another refinery is being planned by Qatar Petroleum, Shell, and PetroChina, and which will be built in Taizhou, with a capacity of 440 thousand barrels per day. Moreover, China is seeking to build new refineries to increase its refining capacity to about 11 million barrels per day by 2015, compared to its present capacity of 8.6 million barrels per day. The Chinese leadership thus seems to be aiming to achieve self-sufficiency in petroleum products, in order to meet the expected increase in oil demand by the middle of the next decade. It is worth mentioning here that China currently imports about 460 thousand barrels per day of petroleum products, while its total consumption amounts to approximately eight million barrels per day.

Since the last decade, many Arab companies have been negotiating with the aim of developing petroleum projects in partnership with Chinese companies. These negotiations have lasted for a very long time, much more time than they should usually take, and the reason behind this is clear: these were the first instances of joint Arab-Chinese petroleum projects within China. Also, the Chinese companies are involved in oil and gas exploration in all Arab countries, without exception, and have been mostly active in the Iraqi [oil] development contract tenders after 2003.

At any rate, there is nothing strange about this new relation with the Arab oil producing countries. China is a huge and promising market, and is the second largest energy consumer in the world after the United States. For this reason, Arab petroleum companies are seeking to have an active presence there. At the same time, China is trying to develop its relations with oil producing countries, in order to secure oil supplies by means of its own companies, and not through foreign companies. Furthermore, the expansion of Chinese petroleum companies covers most oil producing countries around the world, and not just the Arab countries; also, the Chinese companies are implementing new means and methods that have been hitherto unknown in the circles of the oil industry. One of these methods, for instance, is becoming partners in national oil companies, and securing massive loans for the countries concerned. In Kazakhstan, for example, the China National Petroleum Corporation (CNPC) bought a 49 percent stake in a local oil company, in addition to providing a five billion dollar loan to Kazakhstan in return for this deal. The Chinese oil companies have also followed similar approaches to obtain shares in Russian, Venezuelan, and Brazilian oil companies…

Meanwhile, the statistics released recently in Beijing regarding the purchase of private cars in China this year are particularly noteworthy, as car sales there have risen by about 25 percent compared to last year, despite the global economic crisis. The total number of cars sold this year thus amounted to 7.2 million, which means that the total number of cars in China today is 32 million.

Moreover, Chinese statistics also revealed an increase of 10.2 percent in the demand on oil last September, compared to the same month last year. Such an increase is considered to be a record rise, relative to the rise of demand in the rest of world, where this rate does not exceed 1.5-2 percent annually in normal conditions. It is worth mentioning here also that the increase in oil demand in China coincided with the global financial crisis.

In fact, Arab countries provide about half of China’s imports of crude oil, with Saudi Arabia being at the top of list of the exporting countries. The countries of West Africa, led by Angola, then come second, supplying about 20 percent of China’s imports of crude oil.

All this information indicates that there is considerable room for developing the relations between the Arab oil producing countries and China, especially given the massive economic growth being achieved in China, and the slowdown of oil demand growth in Europe and the United States. This effectively renders China an alternative market for the Arab oil, given the shrinking Western markets.

Therefore, it is important to achieve a balance in political relations to match that of the economic relations, which is something that is yet to happen.

*. Mr. Khadduri is an energy expert