A review of China's oil strategy in 2009

By Dai Bing
0 CommentsPrint E-mail China.org.cn, October 27, 2009
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China is the second largest oil importing country in the world after America. It imports 4.1 million barrels of oil every day. In 2008, China imported 200.67 million tons of oil, accounting for 52 percent of the total oil consumption. In 2009 China used the opportunity of the global recession to expand and diversify its oil supplies, and made a number of positive changes in its oil strategy.

First, China took steps to dramatically expand its supplies of African oil. China began seeking raw materials in Africa in 1996 and has invested heavily to secure oil supplies. But late entry into the market meant China was left with less promising options. A large share of the national oil companies' (NOCs) production comes from countries such as Mali and Niger which have relatively small output potential and a limited history of exploration.

China has made great efforts this year to change this unsatisfactory situation. A Chinese NOC offered Nigeria 30 billion dollars for 6 billion barrels of oil, one sixth of the country's total oil reserves. The Nigerian government refused, but although the deal failed, it showed the extent of China's ambition and its anxiety to expand its footprint in the handful of key African oil producer states. In Guinea, China had more luck, signing a major deal this month under which it will invest 7-9 billion dollars in mining and oil exploitation. In October, a Chinese company agreed a multi-billion-dollar project to improve Kenya's transport infrastructure in return for oil. The French press complained France, as the former colonial power, should have won the Guinea deal. France, the U.K. and America have begun to fear China's African oil strategy is a resource grab that will crowd out western countries.

Secondly, China has diversified its oil supplies in South America and Eurasia. In February, China signed loan deals with Venezuela and Brazil. China loaned 6-billion-dollars to Venezuela in exchange for 380,000 barrels of oil per day rising to 1 million barrels before 2015. Brazil has agreed to provide China with 100,000 barrels per day. During Russian Prime Minister Vladimir Putin's visit to Beijing in October, he signed a 100-billion-dollar oil export contract that will guarantee stable oil supplies for twenty years, starting next year with 300,000 barrels per day. Through such deals, China has diversified its sources of oil and reduced its dependence on the Middle-East. China has also bought oil rights in the Gulf of Mexico Bay, a consolation prize after failing to buy the American Union oil company four years ago.

Thirdly, China has created a new model of loans-for-oil deals. Direct investment in foreign oil companies in return for oil is costly and provides low rewards. Better deals are available by offering loans to oil producing countries in need of financial assistance. China has shrewdly taken advantage of the current international economic crisis to expand its sources of oil in Russia, Latin America and Central Asia.

Finally, China is paying more attention to the security of its oil-importing routes. In March, China signed an agreement with Burma to build an oil pipeline from Burma to Yunnan Province in southwest China. The Burma route will reduce China's dependence on the Strait of Malacca. Every year about 80 percent of Chinese oil tankers pass through the Strait of Malacca which leaves them vulnerable to naval blockade. Moreover, the dispatch of a Chinese naval patrol to protect merchant ships off the Horn of Africa has demonstrated China's ability to protect its oil tankers from attack.


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