World feels China’s growing thirst for oil

updated 5:06 p.m. ET June 11, 2006

ZHENHAI, China - China’s surging appetite for energy is engraved in the landscape of this gritty port city: waterfront piles of coal, gas pipes snaking along grimy roads, and tankers anchored amid islands where pirates once lurked.

Zhenhai is at the heart of a global energy revolution.

As China’s leading oil receiving center, the city provides this nation of 1.3 billion people with hundreds of thousands of barrels of crude per day to feed its galloping economy.

The shifting pattern of energy consumption is rattling Washington and aggravating an already intense rivalry with neighboring Japan over access to oil and gas supplies, adding to tensions in an already volatile region.

“The global demand for oil has been rising faster than supply because there’s new economies that are beginning to gin up, new economies growing, like China and India,” President Bush said recently.

“Oil — the dependence upon oil is a national security problem, and an economic security problem,” Bush said.

China is acutely aware of the security implications of its growing dependence on imported oil. For more than a decade, its three large state-owned companies have been scouring the globe, from Iran to Angola, to secure supplies.

In the past six months alone, China has signed deals totaling more than $7 billion for stakes in oil and gas fields in Kazakhstan, Nigeria and Syria. A state-controlled company is reportedly considering a $2 billion bid for yet another Kazakh property.

The worldwide buying spree helped net at least 3.5 million barrels per day of imported oil last year — enough to make China the world’s third-leading consumer of foreign oil.

Chinese demand is forecast to more than double by 2025, to 14.2 million barrels a day from the current 7 million a day, according to the U.S. government’s Energy Information Agency.

Although China’s imports still only constitute about one-sixth of total world oil trade — compared to 30 percent for the United States — it is already the world’s second largest oil consumer. China’s increasingly pivotal role as global manufacturer of practically everything has ensured demand will continue to grow.

The worry in Washington, Tokyo and other major oil importing centers is that competition is helping push prices to potentially destabilizing levels, and raising the risks of conflict over dwindling resources.

China has sought to diversify its energy sources, clinching exploration and production deals in Africa and Latin America to limit its dependence on Middle Eastern oil. It too recognizes the huge economic stakes for all sides.

However, those deals also have raised worries.

Earlier this year, the Bush administration published a revised National Security Strategy that accused Chinese leaders of “acting as if they can somehow ’lock up’ energy supplies around the world or seek to direct markets rather than opening them up.”

U.S. and other Western oil companies discovered during the oil crises of the 1970s show how vulnerable such deals can be, but “There is considerable rhetoric in some high places that China’s trying to monopolize or control world energy resources,” says William Overholt, director of the Center for Asia Pacific Policy at RAND Corp. in Santa Monica, Calif.

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