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April 14, 2005
China’s Thirst for Oil
“No one forecasted China’s increase in consumption,” lamented Daniel I. Fine, a Research Associate at MIT’s Mining and Mineral Resources Institute, at his April 14 talk at The Fletcher School. His talk, “China’s Wheels and the Scramble for World Oil: Fuel Politics, Security and CITGO,” was sponsored by the Fletcher School’s International Security Studies Program.
In 2005, China has held the news spotlight as the world’s second largest importer (behind the United States) of oil and industrial metals. “Suddenly,” Fine said, “the world has a second major consumer, and that consumer is China.”
“No one took China’s domestic consumption seriously. No one predicted the astonishing rate at which China produces cars and trucks.”
Only eight years ago, in 1993, China was an exporter of oil. Much has changed since then. China’s position as the supply shop of the world requires enormous amounts of energy at home, and it is now one of the biggest importers of oil in the world.
The total consumption of oil in China is 6 million barrels a day, and that amount is growing fast. Fine predicted that daily consumption would likely reach at least 9.6 million barrels by 2009. At this rate, China will be importing almost the same amount of oil as the United States.
“While all this was happening in China,” Fine noted, “the Global Green Movement in Europe and the U.S. has progressively moved to constrain oil and gas investment and production.”
This environmental lobby has generated a big following, particularly in the U.S. Supporters have been pushing for restrictions on new exploration and production.
Meanwhile, China’s bottom line, according to Fine, is energy. It is a national security issue for Beijing, “equal to or exceeding the importance of Taiwan.” This shift of Taiwan to a lower rung of consequence behind energy security is critical.
“The reality of the day is that relations with China will be generated by a recognition of its need for energy.”
China recently signed a deal with the Venezuelan government, which will open the South American country's vast oil resources to Chinese investment. This Sino-Venezuelan partnership, says Fine, is clearly an attempt by Venezuelan President Hugo Chavez to divert oil away from the United States.
Although the actual exchange of oil for money is smaller than futures and options (derivatives) trading, the high price of oil is influenced by both demand and speculation. And while China currently provides a great deal of the world’s low-cost labor and assembly plants, it is also becoming a leading manufacturer in many industries, namely, the automobile industry.
As China’s transportation industry is expanding, Beijing will have to introduce serious growth and environmental regulations.
In 2010, Fine predicted only half-jokingly, there will be a new, small hybrid car, and “China will launch this car under a joint venture.” It will be produced under the name “Great Wal-Mart” and will be sold in the discount chain.
Oil is going to generate new alliances and new partnerships and China is going to be a big part of whatever materializes. Finally, the rest of the world is taking notice.
Article by Claire Topal, MALD '05
Posted by jessica at April 14, 2005 01:02 PM
