Magazine article The Middle East

Fuelling the Peoples' Republic: With the Veracious Appetite of Its Booming Economy, Beijing Is Looking to Africa, Latin America and Central Asia to Diversify Its Energy Supplies, but the Middle East Remains the Target Market, Supplying 58% of China's Energy Imports According to a 2007 Report by Global Management Consulting and Technology Services Company Accenture

Magazine article The Middle East

Fuelling the Peoples' Republic: With the Veracious Appetite of Its Booming Economy, Beijing Is Looking to Africa, Latin America and Central Asia to Diversify Its Energy Supplies, but the Middle East Remains the Target Market, Supplying 58% of China's Energy Imports According to a 2007 Report by Global Management Consulting and Technology Services Company Accenture

Article excerpt

THE ATTACKS OF 11 September 2001 in the United States nailed home the urgent need to secure reliable energy flows, with China's national energy giants seeking to acquire equity stakes in overseas energy projects. While spurring the Chinese to secure energy deals in the Middle East, US intervention in the region and the resentment it has fuelled locally has played into China's hands--whether through military force in Iraq, diplomatic pressure on Iran or partiality in the Palestinian/Israeli conflict, allowing for increased cooperation in energy matters between China and Middle Eastern states.

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That Beijing's agenda is less overtly political comes in sharp contrast to that of Washington, which, as a main provider of aid and assistance to such states as Jordan and Egypt, has previously conditioned trade and commerce on political and social reform.

An increasing predictable flow of Chinese business to the region, whether in energy or commerce, could therefore blunt the commercial and political screws at Washington's disposal. Chinese energy companies also threaten to directly tap petroleum resources otherwise flowing to western markets. Former US Secretary of State Henry Kissinger believes competition over hydrocarbon resources will be the most likely cause of international conflict in the years to come.

While Beijing is undoubtedly looking to increase its regional influence, the main thrust behind energy deals with Middle Eastern states comes from the dragon's seemingly insatiable appetite for oil and gas. Securing an adequate supply of energy to meet industrial, residential and transport needs of 1.3bn consumers constitutes one pillar of China's energy security policy. Ensuring the secure delivery of energy supplies while reducing the effects of global price fluctuations constitute the other two.

In 2005, China earned the somewhat dubious honour of the largest global oil consumer after the US, according to a 2006 report prepared by the US Department of Energy. The International Energy Agency (IEA) meanwhile expects demand for oil in the Peoples' Republic to rise by 6.1% in 2007, at a consumption rate of 7.56m barrels a day. The trend shows no sign of abating either. China Petroleum & Chemical Corporation (Sinopec) executives project that the 23m cars owned by Chinese consumers in 2005 will multiply to 130m by 2030, placing a considerable burden on a country where at least 43% of oil demand is met by imports.

The Chinese government views partial ownership of foreign energy assets--that is direct acquisition of oil at the wellhead--as more secure than dependency on the world market. China's 2002 'going out' strategy was designed to this effect. No coincidence that Sinopec is involved in roughly 120 projects in the Middle East. That said, China has had modest success in obtaining oil directly through equity ownership in foreign energy development/ extraction projects. The total amount of equity oil flowing into China in 2006 was an estimated 320,000 barrels per day (b/d) from a total of 3.6bn per month in imports, energy experts say.

Still, China's energy giants are well placed to penetrate new markets thanks to the props they enjoy as government entities. State owned banks are willing to finance projects that would normally be regarded as too risky by investors, offering not enough of a guarantee by way of sizeable returns.

Chinese foreign policy in the meantime reflects domestic energy needs, with Beijing resisting international pressures to punish unsavoury but energy-rich regimes with sanctions. "China's existing projects in Sudan, as well as the preliminary agreement by Sinopec to develop the Yadavaran oilfield in Iran, illustrate these effects," says a 2006 report on China's overseas investments in oil and gas production by the political risk consultancy Eurasia Group.

This is not to say the Chinese are oblivious to the risks of nuclear proliferation in the Middle East. …

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