But so have we.”18
PROPORTION
Chinese companies will likely become bigger, more prominent players; they will certainly compete; but they will also be sharing the stage with established American, European, Middle Eastern, Russian, Asian, and Latin American companies—and often in partnerships.
For all the talk about China “preempting” world supplies, its entire overseas production is less than that of just one of the supermajor companies. It’s very hard to conceive of China ever being in a position to preempt world supplies. Moreover, while some of Chinese overseas production is shipped to China, most of it is sold into world markets at the same prices as similar grades of petroleum. Destination is determined by the best price, local and international, taking into account transportation costs. And that is all the more true of oil from joint ventures, in which much of China’s international oil is produced.
There is a further critical consideration. Chinese investment and effort in bringing more barrels to the markets contribute to stability in the global market. For were those barrels not forthcoming, the growing demand from China (and elsewhere) would add more pressure and lead to higher prices. Additional investment means more supply and adds to energy security. The Chinese oil companies are committing more capital and resources to expanding Iraq’s oil output, and taking more risk, than the companies of any other nation.
Indeed, it would be quite surprising if a country in China’s position—rapidly rising demand, rapidly growing imports, a well-established domestic industry, huge holdings of dollars—did not venture out into the rest of the world to develop new resources. Indeed, were they not doing so, they would likely be roundly criticized around the world for not investing.
Moreover, “go out” is not the sole strategy of the Chinese companies. About 75 percent of the companies’ output is within China. Altogether, China’s domestic oil production makes it the fifth-largest in the world—ahead of such large producers as Canada, Mexico, Venezuela, Kuwait, and Nigeria. Within the Chinese industry itself there is talk about the “second age of Chinese oil.” This means the application of new technologies and new approaches to the discovery and development of domestic petroleum resources, as well as a much greater focus on what are increasingly seen as abundant but undeveloped domestic resources of natural gas, including shale gas.
These are the new commercial realities—China as a growing consumer of oil, China as an increasingly important participant in the world oil industry. But there is also a security dimension, which arises from growing dependence for a country for which “self-reliance” had been such a strong imperative for so many years.
10
CHINA IN THE FAST LANE
In the late 1990s, when energy security proposals were presented to the Chinese government, they were tabled. “They said there was no energy security issue,” said a senior adviser, “and that was partly right. It was a benign market.”
But that changed as oil consumption surged, increasing the reliance on imports, and prices started their upward trek. A country that had been self-sufficient in oil as a matter of policy found itself increasingly dependent upon the global market—something that was anathema in its earlier and very different stage of development. This dependence made energy security a central concern in Beijing. As one of the country’s top officials put it, “China’s energy security issue is oil supply security.”
By 2003 a new factor had further increased the anxiety about energy security—the war in Iraq. For Beijing, it was hard to believe that the promotion of democracy in the Middle East was what propelled the United States into Iraq in March 2003. If not that, it had to be something more concrete, more urgent, more critical, more threatening. In short, it had to be oil. And if the United States was worried enough about oil to launch a full-scale invasion, then, in the view of many Chinese, energy security was clearly much more important—and urgent.1
Part of the new insecurity arose from apprehension about the sea-lanes, the economic highways for the world commerce that were increasingly important as the lifelines for Chinese oil imports—and indeed for Chinese trade in general. Half of the country’s GDP depends on sea-lanes. In November 2003, seven months after the invasion of Iraq, President Hu Jintao reportedly told a Communist Party conference that the country had to solve what became known as the Malacca Dilemma. This referred to China’s reliance on the Malacca Strait, the narrow waterway connecting the Indian Ocean and the South China Sea and through which passes more than 75 percent of China’s oil