For a long time, it was assumed that China had vast reserves of oil,in the Gobi region and under the South China Sea. But now, the Chinese are seeking relationships with Persian Gulf nations, and are planning to build an oil pipeline from the Kazackhstan oilfields to China (expected cost $ 10 billion).
We know that Chian is booming…and car production in China is soaring…most of the production is for the domestic market.
Is demand from China the reason for high oil demand? Where will Chna be in 10-15 years, in terms of automobile ownership?
According to Chinese state media, China’s total annual demand for oil is 270 million tonnes.
The country only produces about 170 million tonnes at the moment, hence the need for imports.
The reserves are there - earlier this year China found new reserves, estimated at about 600 million tonnes, in its Shengli fields, for instance - but the financial considerations made between extraction and import often favour the latter.
British company MG Rover are close to securing a deal to set up a production plant in China that will produce 200,000 cars a year for the domestic Chinese market by 2007.
A drop in the ocean compared to the 5.7 million vehicles expected to have been built in the country this year.
They are stockpiling:
Interesting. Is there any reason for the Chinese to raise the price of oil, or are they just stockpiling incase of future shortages, similar to the US’s strategic petroleumn reserve?
Heh. Excellent question with a two-part answer. The first part is that China’s economy is the fastest-growing in the world and they’ll eventually use anything they buy which isn’t perishable. Oil does deplete, but under halfway decent storage conditions the depletion is mimimal.
The second part is that from time to time China just goes freaking nuts on a commodity. Merrill thinks it’s oil this time. There’s nothing wrong with that – heck, the U.S. is stockpiling (a little) oil like you said (and dammit I wish they’d stop).
But since China’s system is a lot less open than most other countries, they’re subject to rumors which may sometimes actually be partly true. Adding to the potential for such rumors is that this isn’t the first commodity they’ve stockpiled. They’ve previously gone nuts and overbought copper, aluminum, steel (they might be doing that again right now), and a bunch of other stuff. Whenever they do it there are all kinds of stories about how they’re gaming the commodities markets and essentially making money off of their own purchases, that there are “secret stockpiles,” that there’s a sudden shortage because of a horrible industrial accident that killed thousands which China is covering up, etc. All of these rumors have turned out to be true sometimes and not true others – though even when true the facts are never as wild as the rumors of course.
So what’s happening now? Is China buying to game the crude markets and cause harm to other economies? Was there an awful pipeline explosion in some inaccessible backwater of the country? Do they want a strategic reserve? The last is most likely, and it could be less “stragegic” than you’d think – it could be some party boss either got a bug up his ass about oil or just decided that will all that foreign currency they’ve got they should buy some crude to go along with all the T-bills.
Double heh. Here’s one of China’s many arms getting into trouble over oil trading. Though in this case, the company was going short, not long, aviation fuel and crude. Oops.
China’s use of oil is worrying. For one thing, China uses five times as much oil for each dollar of GDP it produces. So as its economy continues to grow, that’s a big problem.
Second, Chinese cars are not very fuel efficient. So far, there haven’t been that many of them, but in the next decade China is expected to sell over 100 million cars to its growing middle class.
All this adds up to a serious new strain on world oil supplies.
Well - the rumours were flying fast last week…
Every so often the stock of Husky Oil climbs upward, usually on word that the Chinese government is in talks to buy the company, again. (requires registration, though free)
Or then again - maybe not.
Deal isn’t done and a lot of press has SAIC buying a majority stake. But the auto graveyard is littered with companies that have trtied to turn around Rover. Take it from one with expereince, SAIC aren’t real strong on international business style.
I happen to be involved in the China automotive industry to a certain extent. Now, don’t have my white paper in front of me, but IIRC “real” vehicle production in 2003 was approximately 1.5 million cars. By “real” I mean those produced by foreign joint ventures and would generally qualify as “real” cars in the west. It does not include commercial vehicles nor all the rif raf tractor like vehicles that are included in the official stats.
Growth has been astronomical and unparalleled in the history of automotive. That said, the brakes came on around May with the Chinese government crackdown on loose credit.
The automotive majors like VW and GM are now predicting approximately 10% growth per annum for the forseeable future. I’ve heard this from the GM China chairman about 6 weeks ago at a Fortune dinner, and heard it on Tuesday from Nissan.
Sam Stone, the new models produced by the joint ventures are effectively the same as what is produced elsewhere in the world, so the fuel economy is the same. Notice I say the new models because there are plenty of old models still in production, but this is declining over time.
The major auto makers have approval for a combined new investment of over USD10 billion for the next 5 years. This includes DaimlerChrysler, BMW, Ford, Nissan, Honda, Toyota. VW noticeably about a month ago cancelled their multibillion dollar expansion.
Back to the OP. A good buddy of mine is the Petro dude group for the Capital group. He is of the view that the current oil imbalance is owing primarily to cyclical factors that will be resolved over the next 2 years. China is a temporary factor. China is currently building coal fired and nuclear power plants like mad to meet the energy requirements (that are currently stop gapped via petroleum fired generators).
I had a meeting today with a partner that is working with the China Power Generation and Transmission Bureau top improve the efficiency of the power transmission. The grid in China is incredibly inefficient and is being improved even as I type this.
China’s big production oil field, Daqing, has been in declining production for years. Other areas such as the Tarim basin are slow to develop. There’s also the issue of getting the oil to where it’s needed. Serious pipelines have to be built. You just can’t translate undeveloped reserves into gasoline in Shanghai overnight.
So, a long winded way to say that China demand is outstripping the current production. Any idiot can see that with GDP growth of say 8% per annum, petro demand will continue to increase. However, that will be mitigated when the power gen new capacity comes on stream. China is a consumer, but not a global black hole for petroleum.