China: Energy Market Of The Future
Kevin Kerr - Fri 11 May, 2007
It seems like a weekly occurrence that another deal is struck between China and another key energy producing country. However, Americas once solid position as most oil exporters No. 1 customer has changed dramatically. Now the US is seen as a third-rate customer that is taking a back seat to China and others. The United States as a power is going down and China is going up, Hugo Chavez said. China is the market of the future....
It seems like a weekly occurrence that another deal is struck between China and another key energy producing country. Meanwhile, US relations with those countries continue to erode.
The list of countries that will likely be the “energy elite” in the coming 50 years certainly doesn’t include the United States. In fact, I believe that the US isn’t even on the guest list. America’s once solid position as most oil exporters’ No. 1 customer has changed dramatically. Now the US is seen as a third-rate customer that is taking a back seat to China and others.
As key deals are struck between China, Russia, Venezuela and various Middle Eastern countries, the world’s oil supply lines are being locked up.
Strange bedfellows
There is no doubt that recent statements by Hugo Chavez have been concerning to US officials, but if they thought his words were frightening, his actions are even more disturbing.
“The United States as a power is going down and China is going up,” Chavez said. “China is the market of the future.”
Chavez was speaking in Caracas when he said that Venezuela will diversify its oil exports to ease dependence on the US market. Historically, Venezuela ships about 1.5 million barrels a day. Chavez announced again that Venezuela’s goal is to boost oil exports to China to 1 million barrels a day by 2012, from about 150,000 barrels today. Guess where all that oil will come from.
Even more distressing is that as Chavez now nationalises every aspect of the country, especially projects that had significant US investment, he announces that Venezuela and China plan to form joint ventures to drill in the South American county’s heavy crude belt and even build three refineries, all for oil for export to China.
The venture was announced between the state-run oil company Petroleos de Venezuela and China National Petroleum Corp. The partnership deal may also include building tankers to ship the Venezuelan crude to China.
China’s global resource reach
China has struck similar deals with Russia in recent months, as well as Africa. All of this activity is vital to Chinese interests and an ever-increasing thirst for Western luxuries — and, in turn, oil.
It took China only about 20 years for the roads to move from ones that were clogged with bicycles and mules pulling wagons to highways that resemble Los Angeles at rush hour. Even just a decade ago, there were almost no privately owned cars in
China. Fast-forward to 2005 and there were almost 24 million.
It’s hard to imagine, but China now has more car brands than the United States. The Chinese car market has just surpassed Japan and is now the second largest market in the world, after the United States. Some analysts estimate another 20%–25% growth in 2007.
The big driver behind the growth in China is a ballooning middle class, which is fuelling demand in a big way.
US bets on the wrong horse
While China is busy striking strategic oil partnerships around the globe, the U.S. is still mired in problems with Iraq, and now even facing major conflict with Iran.
One thing that is clear is that Iraq is no solution to the US oil problem.
The war-torn nation’s infrastructure has been so decimated and neglected that any benefit of Iraqi oil the U.S. was hoping for is just a pipe dream. Iraq’s oil pipeline network has been plagued by security concerns and neglect, as well as an overall lack of investment. Since the U.S. invasion in 2003, there has been little to show for the billions of dollars spent on reconstruction of Iraqi infrastructure, especially in the oil sector.
Even though repairing the infrastructure was always listed as a high priority by the US at the start of the invasion - after all, revenues from oil exports provide the majority of Iraqi government income and are vital in helping to stabilise the economy - the problems are widespread. Many of the worst affected areas are in refining and distribution, which supply finished products like gasoline, diesel and heating fuel for use within Iraq. Refining capacity is in a critical situation.
What’s next for America?
With no clear energy policy being presented by any presidential candidate, it seems as though the US will continue to be pushed aside in the ongoing deal making and strategic oil alliances. All of this bodes very badly for energy prices going forward, as the situation is likely to get much worse before it gets any better. At a time when the U.S. should be encouraging more global partnerships and foreign investment, the opposite seems to be happening.
As these other countries’ new relationships develop, it’s almost certain the pinch from oil prices here at home will be quite painful and hard to ignore, maybe starting as soon as this summer driving season.
Regards
Kevin Kerr
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