China's rising foreign energy acquisitions

BEIJING, Oct. 27 (UPI) -- China's role in the global energy market is on the rise, with its purchase of oil and gas supplies worldwide totaling an estimated $15 billion so far this year, double the amount of 2008, National Public Radio reported Tuesday.

In early October Russia agreed to sell about 2.5 trillion cubic feet of natural gas annually to China. That's almost the same amount that Russia sells to Europe. In September China's state-owned oil giant PetroChina made a $1.9 billion venture into Canada's oil sands. And in August China acquired access to oil in northern Iraq and West Africa through its $8.9 billion purchase of Swiss company Addax.

China's state oil firms are paying top dollar for their energy purchases, Wu Kang, an energy expert at the East-West Center in Hawaii, told National Public Radio.

"They are cash-rich, which is why they can offer better terms to the host country or company," Wu said.

Wu noted that China has been able to reap the benefits of low oil prices. Because China has been able to store billions of barrels of oil in strategic reserves, it has insulated itself somewhat from market fluctuations. And the worldwide recession lessens the need for government subsidies that artificially keep gasoline prices low in China.

But China's foreign energy acquisitions have raised concerns that it is pushing ahead of other countries in the competition for resources that are not unlimited. There have been security concerns as well.

Experts note, however, that it has been just 16 years since China became a net oil importer.

As a newcomer in the oil market, China has had to rely on unconventional sources including war-torn areas and oil reserves that are difficult to extract. Philip Andrews-Speed, an energy expert at the University of Dundee in Scotland, says that in doing so, China in turn is actually increasing the global supply of oil.

"They're going in and producing in countries that otherwise people might not be producing in. So actually, at the margins, they are producing more oil to market than would be if nobody was going into those countries," Andrews-Speed told NPR.

Oil producers, he said, have various motives for doing business with China. Some poorer countries are attracted by the infrastructure investment that China often pledges to boost an oil deal. Other countries, such as Venezuela, view China as a political counterbalance to the United States. But many countries see the possibility that the global focus of political and economic power will shift towards China.

"Very oil-rich countries, particularly in the Middle East, see China and East Asia as becoming the major demand center, and therefore they want to build diplomatic and commercial links with future major customers," Andrews-Speed said.