Korea losing out in the race for energy


February 27, 2006 ¤Ñ [Second in a series] Since leaping into the slot of the world's second-largest consumer of oil, outpacing Japan in 2002, China has become a major energy power on the global scene. National representatives are traveling across the globe in a search for oilfields and other natural resources such as iron ore.
With an economy that has been growing at 9 percent annually in the past few years, China has become a voracious consumer of natural resources, and could see a pronounced drop in its growth if it does not get them. According to International Energy Agency, China's oil dependency ratio, which stood at 45 percent in 2004, is expected to rise to as high as 83 percent in 2030 ¡ª in other words, only one barrel in five of the huge economy's needs will be pumped from domestic sources by then. Under the circumstances, China has little choice but to develop every possible domestic resource it has while pushing hard for the rights to develop foreign energy sources.
The Chinese government launched an east-west pipeline project in the early 1990s in a bid to carry oil and gas produced in its western Xinjang province to its east coast. About 4,000 kilometers (2,400 miles) of pipeline is already in place, and China last year began supplying natural gas from fields in the Tarim Basin of its northwestern Xinjiang Uygur Autonomous Region to the Shanghai area. The government is also planning a buried, 10,000-kilometer pipeline across the country by 2015.
China also jousted with Japan for the right to develop the Chunxiao gas field in the East China Sea, where it is drilling only about 4 kilometers from the boundary of the exclusive economic zone claimed by Japan. It has also discovered its largest undersea oil and gas resources in the Bo Hai Gulf. Thanks to those efforts, China is positioned for an increase in seabed oil and gas production of more than 15 percent annually.
China's pursuit of resources does not end there. The China National Offshore Oil Corp. recently spent $2.3 billion to buy 45 percent of the rights to the Akpo oil field in Nigeria. Another national oil corporation, China National Petroleum Corp., last August acquired Petro Kazakhstan, the third-ranking oil company in Kazakhstan. China National Petroleum Corp. later secured rights to exploit oil resources in Venezuela, Sudan, Algeria, Iraq, Iran and Indonesia. An employee at the Korean National Oil Corp. said that China has, since 1993, bought 34 oil companies in 19 countries, a spending spree that has surprised competitors because of its willingness to buy at almost any price.
China is not alone in Asia in its rush to procure as many resources as possible. Japan has an energy company that produces one-fourth of the world's coal and ranks third in the volume of liquid natural gas it produces globally. Mitsubishi Corp. had sales of 160 trillion won ($165 billion) in 2004, and 70 trillion won of those sales came from the development, production and trade of foreign energy and metals.
The company is producing crude oil and natural gas from nine fields in the Gulf of Mexico, and has invested about 2 trillion won into the development of gas fields in Sakhalin, an eastern Russian island. In addition, it is exploiting energy and mineral resources from 25 countries around the globe, including the United States, Australia, Vietnam, Brazil and Gabon. Mitsubishi has over 10,000 employees working in the field of energy resources ¡ª Korean trading companies average about 30.
Japanese trade corporations such as Mitsui Corp., Itochu Corp., Sumimoto Corp. and Marubeni Corp. are also snapping up natural resource development rights; they obtain about half of their net profits from resources trading.
The majority of Chile's copper mines, for example, are owned by Japanese trading companies. The Chilean mines in total churn out about 38 percent of the global production of copper. Mitsui and Marubeni together hold nearly 40-percent stakes in the Chilean mines ranked first, third and fourth in production. Nearly all of the production is exported for consumption in Japan.
Mistui's crude oil from overseas fields is about 2 billion barrels a year, an amount equivalent to Japan's total consumption.
And in a decidedly un-Japanese (or un-Korean, for that matter) development, Japanese companies have been increasingly going at each other hammer and tongs in competition for foreign resources. Mitsui and Sumitomo jousted for control of a natural gas field in Indonesia in 2003 and a marine oil field off Western Australia in 2004.
A senior employee at Mitsubishi's energy operations said, "We care only about us and our shareholders' earnings. So it's natural that we sometime compete with and sometimes are partners with other Japanese companies."
In fact, Japanese trading firms are getting more aggressive in the energy sector. Mitsubishi announced in 2004 that it would make resources its core business, to spur long-term revenue growth. It did not conceal its ambition to become the world's largest energy company; last year, an executive said Mitsubishi was looking for a European energy corporation to acquire.
Sumimoto also made it clear that it would make the energy sector its top priority in its mid-term management plan for 2005 to 2007.
"Compared to only several billion won that Korean companies invest into resources development every year, Japan is spending at least one trillion won a year," an employee at a Korean trading company worried. "More investments by Japanese companies will only make it harder for Korean energy firms to win the battle to get more energy."


by Special Reporting Team