Oil-Hunting China Aims to Curb Appetite - Yahoo! News

BEIJING - Just days before a Chinese firm announced a $2.3 billion investment in a Nigerian oil field last month, President
Hu Jintao' name=c1> SEARCHNews News Photos Images Web' name=c3> Hu Jintao warned that China has to rein in surging energy use that has made it one of the world's biggest oil importers.

The announcements underlined the dual tracks of Beijing's energy policy. While striving to secure foreign oil and gas to fuel sizzling economic growth of more than 9 percent a year, it is struggling to limit soaring reliance on outside supplies by increasing nuclear and hydroelectric power.
China is not alone in this predicament — witness
President Bush' name=c1> SEARCHNews News Photos Images Web' name=c3> President Bush's plea to cut American dependence on Mideast oil. But the voracious appetite for energy in China and other fast-developing nations, notably neighbor India, is one factor propelling oil prices upward.
And some of China's energy deals are causing bumps on the world's political landscape. Its investments in
Iran' name=c1> SEARCHNews News Photos Images Web' name=c3> Iran and Sudan have prompted complaints it is abetting pariah nations, and Chinese pursuit of deals in Canada and other U.S. allies is causing unease in Washington.
Last year, China's state-controlled CNOOC Ltd. gave up an $18.5 billion takeover bid for Los Angeles-based oil company Unocal Corp. after critics complained the deal might jeopardize U.S. security.
The energy buying spree has taken Chinese firms as far afield as Venezuela and Australia. In the past six months, these companies have signed deals totaling $7 billion for stakes in oil fields in Kazakhstan, Nigeria and
Syria' name=c1> SEARCHNews News Photos Images Web' name=c3> Syria. A state-controlled company is reportedly considering a $2 billion bid for yet another Kazakh property.
"There is a strategic element to it," said Kevin Norrish, an energy analyst for Barclays Capital in London. "It's something that we've seen before. Japan was doing the same thing about 10 to 15 years ago, with a lot of its natural resource companies, including oil companies, buying into foreign projects."
China's oil firms began investing abroad in the late 1990s, after double-digit economic growth outstripped supplies from domestic fields that had met its needs for decades. Rising family incomes have led to an explosion in private car sales, while industry demands for plastics and other petrochemical products have soared.
The jump in imports has Chinese leaders fretting about depending on Middle Eastern oil that arrives by sea routes they don't control.
The biggest state-owned oil company, China National Petroleum Corp., agreed in August to pay $4.2 billion for an oil producer in neighboring Kazakhstan that can deliver oil to China by pipeline.
Yet China has to go where the oil is. CNOOC said in January that it was paying $2.3 billion for a share in a Nigerian offshore oil field. In December, CNPC said it would pay $576 million with an Indian partner for access to a Syrian oil field.
In a sign that Beijing plans still more acquisitions, it signed an agreement with India last month to share information on what they pay for foreign assets in an effort to avoid costly bidding wars.
Such purchases have prompted suggestions Beijing is using its state companies to lock up foreign supplies. But industry analysts say the oil market is too complex for that.
"This is definitely not about buying up oil resources in order to ship the oil into China," Norrish said.
"Basically, China's interest is in ensuring growth in energy supplies," he said. By buying stakes in foreign projects, "it can assist in ensuring that investments take place and projects go ahead."
Deals currently being signed by oil-producing countries only give foreign investors a share in output for a limited time, rather than control of the oil field, said Leo Drollas, chief economist for the Center for Global Energy Studies in London.
"If they think that by investing in Sudan and Venezuela and elsewhere they've secured oil somehow, I'm not so sure of that, from a strategic standpoint," he said.
Drollas said it might be safer to sign long-term contracts to buy oil on the open market. "Given the volatility of some regions, who is to guarantee that your assets might not be worthless one day?" he said.
China suffered just such a setback when a $1.2 billion deal signed by a state firm to develop an oil field in
Saddam Hussein' name=c1> SEARCHNews News Photos Images Web' name=c3> Saddam Hussein's
Iraq' name=c1> SEARCHNews News Photos Images Web' name=c3> Iraq became worthless after the U.S.-led invasion toppled the dictator three years ago.
Beijing has tried to curb oil imports by raising output from its own wells. It has reported modest success, saying imports in 2005 fell by 5 percent to 953.2 million barrels, while output from domestic wells rose 3.7 percent to 1.27 billion barrels.
China's booming oil needs have pushed up average long-term prices on world markets, according to financial analysts. But they say other factors are to blame for the recent price spike, noting that China's consumption stayed nearly flat last year.
"You can't blame China for $70-a-barrel oil," Norrish said.
The government is pushing conservation measures and more use of nuclear power, wind turbines, hydroelectric dams and other alternative sources. Plans call for building 30 nuclear plants by 2020.
But its goals are modest, calling for nuclear power to supply 4 percent of the country's needs by 2010, with an additional 5 percent from wind and solar generators.
And with economic growth forecast above 9 percent in coming years, China's total oil and gas imports are expected to rise sharply.
"The share of fossil fuels (in China's energy use) may fall but the absolute amounts consumed will grow," Norrish said.