China Energy Needs!
Since 1998, the Chinese government has reorganized state owned oil and gas assets, into two vertically integrated firms: the China National Petroleum Corporation (CNPC), and the China Petrochemical Corporation (Sinopec). CNPC primarily operates crude oil production, and Sinopec primarily is in the refining business. Also, CNPC located north and west in China, and Sinopec in the southern region. Other major oil company is China National Offshore Oil Corporation (CNOOC), which handles offshore exploration and production. The CNOOC accounts for ten percent of China’s domestic crude oil production.
In 2003, State Energy Administration (SEA) was created as an oversight regulatory, for the petroleum industry in China. Both CNPC and CNOOC are public traded companies, since 2000 and 2002. China onshore oil fields are old and running dry, and demand for offshore, and importing crude oil has been increasing. China’s top four oil fields are steadily depleting, and expected within 14 years to be empty. Billion dollar oil and gas joint ventures between China and the Russia, creates a pipeline from Russia’s oil fields to China’s main domestic distribution network. Other pipelines are planned to bring crude oil to China, from Central Asia and Burma, and future negotiations with Ecuador and Columbia.Ã?¯Ã?¿Ã?½
Last year, CNOOC reportedly offered seventeen percent more for oil field in Sudan that was under negotiations, with an India oil and gas producer. This offer was in response, to the demand for crude oil China requires. China has invested $15 billion in Sudanese oil projects, that supplies China with seven percent oil imports. In 2004, China signed largest energy deal with Iran. Both countries are bound by previous energy agreements totaling over $120 billion. In the South China Sea, China is involved in territorial disputes with Malaysia, the Philippines, Twain, Vietnam and Bruei over access to crude oil reserves in the region, and Parcel Islands. In 2005, China signed agreement with the fourth largest oil supplier Venezuela. The agreement set fourth exploration for oil, gas and building refineries in Venezuela.�¯�¿�½
Top three global oil companies British Petroleum, ExxonMobil, and Shell are planning on entering the China retail market, in partnership with CNPC and Sinopec. Furthermore, China is accumulating a strategic oil reserve that will hopefully provide crude oil for 30 days, when supplies are limited or absent. Starting in August 2005, China will reduce the amount of exported oil by the major oil companies. In September 2005, China will cancel the eleven percent rebate on oil exports for four months. This will reduce China’s export crude oil incentives. From 1993, increase demand for crude oil has changed China, from net exporter of crude to net oil importer.
Natural gas has not been consumed enormously in China, during the past years. In 2005, China natural gas availability was approximately 53.3 trillion cubic feet. Chinese largest natural gas reserves are located in western and north – central region. During the 1990s, natural gas was used primarily for feedstock fertilizer plants, and electricity generators. Natural gas accounts for three percent of usage in China, which is expected to nearly double by 2010. Important reason why natural gas, is not as popular as crude oil: In China there is no current regulatory system for natural gas. Local governments in China, have their own regulations regarding the distribution and sale of natural gas. Currently Chinese government is working on legal framework, for a regulatory system and taxation issues.Ã?¯Ã?¿Ã?½
In China, Coal is 65 percent of primary energy consumption. In 2003, coal consumption was 1.53 billion tons or 28 percent of world total. In 2002, China had a surplus of coal, and seeking to export coal to other markets in Asia. China has embarked on foreign investments in the coal sector, for the purpose of modernizing existing mines and developing new ones.
Reasons for China’s increasing demand for crude oil is based on the economic strength of their economy, which gives the Chinese consumer more money to earn. In 2004, Gross Domestic Product (GDP), increased by 9.4 percent, and expected moderate increase by eight percent, in 2005. Chinese households save about 45 percent of their income. Chinese State – owned banks provide loans: 40 – 50 percent are none – performing loans, and considered a state subsidy.Ã?¯Ã?¿Ã?½
In December 2004, China exports increased to $63.8 billion, and rural incomes from last year harvest grew by 6.8 percent. In cities, disposable income increased by seven percent and retail sales increased by 14.5 percent. In 2004, foreign direct investments into China totaled $57.0 billion (new record). Investments primarily came from Japan, South Korea, Taiwan, and United States. During 2004, China merchandise trade surplus increased to 32.6 billion from $25.3 billion in 2003. Expectation that Chinese trade surplus will increase to $53.3 billion in 2005.
Chinese citizens have been making incredible transition, from bicycle transportation to mass transit and private automobiles, especially the middle class. Average cost for a Chinese automobile: $4,000 to $7.000. In 2003, car sales in China increased by 80 percent, compared to the previous year. Total number of cars sold in 2003, was over two million. According to statistics, three of every 1000 Chinese citizen owns a car today. Currently China has over 24 million vehicles on the road. By 2010, China expected to have 90 percent more cars, than in 1990. Attributed to the increase in automobiles sales, consumers pay low price for crude oil.�¯�¿�½
Chinese authorities this past year, have attempted curb high anxiety of growth and prevent inflation from creeping into the economy, by imposing curbs on investments in steel, aluminum, cement, and refused to release land to developers. In October 2005, the central bank raised interest rates, for the first time in nine years. The price controls on crude oil by the Government of China may have to be lifted, to keep up with the rising cost of crude, and to prevent refineries in China from going bankrupt. Currently these refineries are limited to price control increases, which do not match their financial expenses, to operate a Chinese oil refinery. Raising the price control on crude oil, will certainly increase inflation in China, and may curb the economic growth.
The future for Chinese economic growth and prosperity is tenuous, if job growth increases, inflationary concerns do not become excessive, and energy supplies manages to keep even with demand, despite any increase in price. Underlining the current prospect for economic growth: In 2004, 160,000 Chinese students earned Post Graduate degrees. In 2003, the number of undergraduate, and graduate students in China universities was 19 million. Increasing demand for outsourcing jobs to China, where labor cost are substantially lower then United States. In China, the average Auto Worker earns between forty to fifty cents an hour with little or no benefits.�¯�¿�½
Compared to United Auto Workers that are paid $130,000 a year, in salary and benefits. According to researchers from Cornell University and the University of Massachusetts, during the first quarter of 2004: 8,895 manufacturing jobs in the United States where laid off, for low wage jobs in China. Chinese government goal for 2005: Add nine million jobs, and offer five million jobs to laid off workers. Since the 1990’s, poverty level in China has decreased by fifty – eight million people.
