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China's Ever-Growing Oil Needs
May Result in a Global Shortage
Tuesday January 25, 7:00 pm ET
Doug Tsuruoka, Investor's Business Daily
It's nice to have a red-hot economy like China's that's
hitting on all cylinders. But where will it keep getting the
gas to fill its tank? And will there be enough to go around?
On Tuesday, China said its GDP rose a faster-than-expected
9.5% in 2004 to a record $1.65 trillion.
|Traffic reaches a standtill
in Beijing in July 2004. China's economy is growing faster
than expected and could import as much oil as the U.S.
within 20 years. (AFP/File/Frederic J. Brown)
China's demand for crude has grown even faster. Its oil imports
hit a record 12.1 million tons in December. For 2004, they
soared nearly 35% to 122.7 million tons.
China will consume 8 million barrels of oil daily by the
end of 2006, the U.S. Energy Information Administration estimates.
Chinese demand has been a big factor, pushing oil prices
to record levels last year.
As China guzzles crude to feed its breakneck economy, it
could trigger a global shortage. China is striking deals with
oil exporters around the world to secure its supply.
That could leave other nations dry. The U.S., which is the
world's largest consumer of oil, would be the most affected.
"The Chinese are on an aggressive quest to increase
their supply of oil all around the world; whether Iran, Sudan
or Venezuela, you name it, they are after it," said James
Lilley, an ambassador to China under President George H.W.
Saudi Arabia, Oman, Sudan and Yemen already supply over 39%
of China's crude, according to China's Customs General Administration.
The Institute for Analysis of Global Security, a Washington
think tank, predicts in 20 years China will import as much
oil as the U.S., or about 10 million barrels a day.
The U.S. uses about 20 million bpd. China could top that
in 2030 when it has more cars on the road.
"It's a hard issue to ignore if one contemplates a billion
Chinese driving gas-hogging SUVs," said John Pike, who
heads GlobalSecurity.org, a Washington-based policy research
The hard fact is that there's only so much oil in the world,
said Anne Korin, the IAGS director of policy and strategic
"Demand for oil in China is growing at a blistering
rate, about 30% to 40% a year," Korin said. "Demand
is coming not just from China, but also from India and the
rest of the developing world. To meet that demand, there's
going to have to be four to five Saudi Arabias out there.
If not, there's going to be a huge crunch."
Not Enough Oil?
There aren't four more Saudi Arabia's out there, Korin said.
That's why, she said, industrial nations like the U.S. will
end up competing with China for shrinking supplies.
Recent reports say Chinese firms are striking long-term deals
in Canada to tap North America's biggest oil reserves. Until
now, Canada sent almost all its exports here.
Lilley stresses it's unclear if China will seriously challenge
the U.S. for future sources of oil. "The (oil) picture
is complex, and you can't make a prediction at this point."
Large oil reserves are being developed in the Caspian Sea,
Siberia and South China Sea, but Korin said current data show
there aren't enough to meet everyone's demand for oil later
this century. New reserves could be found, but the oil might
not be easy to extract.
There's also concern about how China's thirst for oil might
merge with larger Chinese political aims.
China, which already sells arms to Sudan and Iran, could
use these sales to push producer nations to divert more output
Tension with the West also might spur Muslim oil-exporting
nations to divert more oil to China. The Arab oil embargoes
of the 1970s showed how politics can roil oil markets.
But the oil business has historically been ruled by a world
market in which all nations participate, despite periodic
Pike said the issue is if China would break with this precedent
if oil becomes scarce.
"The question is whether China would take the oil coming
out of their concessions in Canada or elsewhere and withdraw
it from the world market for their own use. Would they do
that? I don't know," Pike said.
Analysts say there's hope China won't engage in an "oil
race" with the U.S. Chinese energy officials said at
an Asian oil conference last year that if world oil prices
get too high, they'll step up efforts to generate power from
nuclear plants or from agricultural waste and coal.
Bryant Tong, a managing director of Nth Power, a San Francisco-based
energy-tech venture capital firm, said China is serious. Tong
is part of a nonprofit, the China/U.S. Energy Efficiency Alliance,
which advises Chinese officials.
"We bring in U.S. experts and advise Chinese politicians,"
he said. "With (U.S.) help, China can leapfrog into the
21st century and use energy efficiencies that help them lessen
dependence on foreign oil."
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