At a recent seminar sponsored by China Daily, researchers analyzed the influence of rising global oil prices on China, and gave their appraisals of the country's energy strategy. The following are some of their thoughts:
By Zhang Weiping
The dramatic changes in the world energy landscape are bound to have a significant impact on China, as demand for overseas oil and gas keeps growing as a result of the fast growth of the Chinese economy. A clearly defined overseas energy strategy is therefore necessary.
The price of oil on the international market has been on the rise since 1998, fluctuating between US$60 and US$70 a barrel over the past year or so. This compares to US$10-15 a barrel in 1998.
In this context, a large amount of cash has flowed into the oil market, with speculation in the stock and oil markets helping push the price still higher.
The increasing demand for oil as a result of the recovery of the world economy, sanctions against Iraq before the war and slow post-conflict re-establishment of Iraqi oil production, and the output drop in Venezuela and Nigeria caused by political upheaval, have all helped exacerbate price hikes.
Oil and natural gas output in non-OPEC oil producing countries, especially the Commonwealth of Independent States, has been rising steadily.
Russia, in particular, abounds in oil and gas resources and has therefore huge potential for growth. It is likely to become the largest oil and gas exporting country in the world. After the Yukos incident, Russia strengthened governmental control of the oil sector and sped up the process of nationalization. The principle of national interests coming first and a pluralist export strategy have been demonstrated by Russia's manoeuvring between China and Japan with regard to oil pipeline route priority.
Leading global powers are readjusting their energy strategies. The United States has managed to strengthen its strategic position in the Middle East in the wake of the Iraq War and increased threat deterrence along oil transportation passages through its military presence. At the same time, Washington has reinforced control over global strategic resources via giant multinationals' activities worldwide.
The European Union and Japan, because of their lack of resources, have long been following a pluralized import policy, relying heavily on their tremendous capital to guarantee a sufficient energy supply.
China and India, the two biggest developing countries, are becoming more dependent on energy imports because their demand for oil and natural gas has been growing continuously, thanks to quick economic development. Their energy strategies are also being readjusted in terms of access to overseas resources, strategic storage, pluralizing import sources, energy saving and development of new energy sources.
Energy, especially petroleum, has become increasingly important in geopolitics. Economic globalization is leading to the internationalization of energy sharing. Alliances between larger and smaller countries, between neighboring nations and between powerful and weak countries are based on resource availability and market calculations.
At the same time, petroleum-related technologies and research are advancing. Technical wonders that were thought impossible in the past are becoming reality - prospecting and extracting oil and gas on deep ocean floors, the discovery of combustible ice (natural gas hydrate), power generation by liquefied natural gas and hydrogen-based energy, to name just a few. Modern science and gadgetry have become vitally important tools for big oil companies, which are being transformed into mega players.
Now that China is striving to quadruple its 2000 GDP by 2010, its need for a reliable energy supply will certainly increase by leaps and bounds. Specialists estimate the demand for petroleum, among the chief energy resources along with coal, nuclear energy and electricity, will grow fastest.
International oil and gas experts forecast a rough balance between supply and demand will be realized in the next 20 years but high-quality energy resources will become more and more scarce, making oil extraction increasingly difficult and pushing up costs because prospecting and extracting activities will have to be moved to deep seas and harsh geological terrains.
Major Chinese oil companies started international operations in the 1990s and have made impressive progress. But what is more important is long-term and overall strategic planning.
I, therefore, suggest simultaneous undertakings:
Prospecting involving huge risks but potentially handsome returns and acquisitions of gas fields and oilfields should be undertaken simultaneously. Acquisitions and mergers through purchasing oil and gas shares involve high costs. By contrast, sharing products yielded by venture prospecting may bring better results.
Tapping into energy resources in countries that have backward oil and gas infrastructure and helping them establish their own energy industries should be pushed simultaneously in order to bring about a win-win situation in which both parties are able to share the benefits.
The author is an associate chief economist at CNOOC.
(China Daily November 7, 2005)