Oil in China

Oil in China

China’s growing population and their ideology affects their oil situation. It highlights the current set up of the government, their relationship with surrounding states, and steps they are taking to play a positive role in the worldwide community.

China has a growing population of over 1.3 billion people; therefore they rely heavily on other states for resources, such as oil. The Chinese government is taking diplomatic action to improve their relationship with ASEAN states.

The Chinese government has to take extra strides to secure good relationships with its neighbors. Malaysia is a neighbor state that is often seen as in contention with China because of political differences. Yet, the relationship with Malaysia is symbiotic because of their large supply of oil and their need for security assurances from China. Malaysia is the number one producer of petroleum in the South China Sea, and they account for over one half of the production in the region ["South China Sea and Natural Gas." Global Security. 2 Apr. 2008 ] .


Looking to capitalize on petroleum trade and also to participate in the growing demand and marketplace for the black liquid, China pursued domestic opportunities (before the 1950’s importing all of its oil needs). Because of the relatively assembly line method behind Chinese oil exploration in the years following 1950 a bulleted, chronological presentation would better suit the information [The Library of Congress Country Studies, “China Oil and Natural Gas,” July 1987] .

• 1959: Vast reserves discovered in Songhua Jiang-Liao basin in northeast China.
• 1960: Daqing oil field in Heilongjiang Province becomes operational.
• 1963: By this Time Daqing oil field producing nearly 2.3 million tons of oil.
• 1965: As Daqing production wanes, oil fields in Shengil, Shandong, Dagang, and Tianjin yield enough oil to nearly eliminate the need of importing crude oil.
• 1973: As production rates increase, China explores exportation possibilities-- exporting of crude oil to Japan begins. Offshore drilling exploration begins as well.
• 1974: Exports increase to 6.6 million tons.
• 1978: Exports increase to 13.5 million tons.
• 1985: Exports increase to 20 million tons.
• 1993: Internal demand for oil exceeds its domestic production—exports no longer possible [King, Byron, “Investing in Oil: A History,” The Daily Reckoning, June 2005] .
As demand exceeds its production, exporting of oil to its former largest importer, Japan, became impossible. Since its first days as a modern day importer (as opposed to its oil importing days before the 1950’s) in the 1990’s it has grown to be the second-largest oil-consuming nation, next to only the United States ["Central Asia: Regional Development." State Department. United States Government. 2 Apr. 2008 ] . Much of China’s oil imports derived largely from Southeast Asia, but it’s, again, growing demand has forced it to import oil from all over the globe.

Current situation and future plans

China’s oil relationship with other countries has shifted from a world exporter to a world importer. This shift to dependence on foreign oil has changed the exploration and acquisition policies of China. China’s oil need overwhelms its internal capabilities. Oil acquisition is now a process of investment in foreign lands and a creation of an internal oil reserve in case of emergency [Goodman, Peter S. "Big Shift in China's Oil Policy." Washington Post 13 July 2005. 30 Mar. 2008] . China has taken steps to alter its security polices in places in the world that are rich in oil. China National Petroleum Corporation is invested in producing, marketing, and supplying oil in China [China National Petroleum Corporation." Business Week. 8 Apr. 2008] . This company supports internal sources of oil production and reserves. Domestic oil production supplies only two thirds of the countries oil needs and it is estimated that China will require 600 million tons of crude oil by 2020 [Goodman, Peter S. "Big Shift in China's Oil Policy." Washington Post 13 July 2005. 30 Mar. 2008] . This statistic is horrifying considering that most of the oil fields in the world are already claimed. It is a statistic that has required China to take drastic measures with its internal oil reserve programs. A purely importation driven oil plan would leave China vulnerable to market fluctuations and more susceptible to international oil conflicts due to their dependence.

To combat this dangerous position of foreign dependence China is investing in its first national oil reserve bases a program beginning in 2004. There are three different providences that they are focusing on. The first Zhoushan, Zhejiang Province, was build by Sinopec, China's largest oil refining company. The storage space is 5.2 million cubic meters says the National Development and Reform Commission [Chang, Andrei. "Analysis: China's Fuel Oil Reserves." United Press International 21 Dec. 2007] . Zhejiang was originally a commercial oil transfer base. Its coastal position makes it convenient and at the same time vulnerable to offshore violence. The next reserve of interest In Huangdao or Qingdao, Shangdong Province and the final Dalian, Liaoning Province. All of these reserves are coastal and with their creation comes an analysis of how vulnerable they are to Eastern Asian countries possible attacks. These stock piling strategies as well as international acquisition companies are state run companies to combat supply disruption. In 1993 after China became a net importer of oil. It was presented that these stockpiling sites would be filled with domestic oil yet this assumption has not been yet fulfilled these stock piles of acquired oil are attempting to create a reserve for 90 days of oil [Nieh, Daniel, comp. The People's Republic of China's Development of Strategic Petroleum Stockpiles] .

As well as an emphasis on defensive oil stocks, there is a huge push in attempting to create an offensive oil acquisition program an offshore oil drilling rig was approved by all levels of the Chinese government. Liuhua 11-1 is the largest oil field in the South China Sea. Amco and Nanhai East engineering teams experimented with finding an off shore drilling technique, a floating production system that would have drilling and production support ["Liuhua 11-1, South China Sea, China." Offshore-Technology.Com. 3o Mar. 2008] . This is the security break through that China would highly value to protect them from market fluctuations and their dependence on imports. The FPSO (floating production, storage and off-loading system) has equipment capable of handling 65,000 bbl of oil and 300,000 bbl of total fluids per day and it would be loaded and shipped by shuttle tankers ["Liuhua 11-1, South China Sea, China." Offshore-Technology.Com. 3o Mar. 2008] . Experimental possibilities like drilling in the South China sea exemplify the independent capabilities that China is reaching for its oil production and acquisition projects.

The oil stocks and offshore reserves obviously share one thing in common, their vicinity to the sea this is an asset when one considers the easy of importations and exportations. It is also a weakness because it is exposed to foreign encounters. The Taiwanese security question is exposed, how long could China sustain a cross-straight assault? All three of the stock oil bases are within range of Taiwanese cruse missile attacks [Chang, Andrei. "Analysis: China's Fuel Oil Reserves." United Press International 21 Dec. 2007] thus as the question of oil acquisition is presented the question of energy security follows close behind.

China’s oil output is far lower than its domestic need as it’s growing economy demands greater and greater amounts of crude oil every year. In 2004, China had to import 100 million tons of crude oil in order to supply its energy demand, more than half of which came from the Middle East [“China suspends crude oil exports to Japan,” www.chinadaily.com, 21 February 2004] . It seems that high oil prices will quell global economic growth in China. This is one of the reasons why it no longer exports oil to Japan who formerly depended heavily on Chinese oil. They had major disagreements on prices and an angry China has decided to cut them off. China is trying desperately to secure its future oil share and establish deals with other countries. Chinese President Hu Jintao has proposed to build a pipeline from Russian oil fields to support China’s markets as well as other billion-dollar arrangements with Russia, Central Asia, and Burma. They have recently purchased less than 1 percent of the British oil company BP, worth about $1.97 billion [Ponikelska,Lenka, Subrahmaniyan, Nesa, “China Buys Stake in BP; Investment Is ‘Welcomed’ (Update2),” Bloomberg.com, 15 April 2008] . As we can see, China is attempting to improve oil relations for the future.

A big role is played in China’s oil endowment by its state owned oil companies, comprising of three major players: China National Offshore Oil Corp, China National Petroleum Corp, and Sino-pec. These companies have decided to invest in exploration and development in countries that have oil fields but do not have funds or technology to develop them. CNOOC signed a deal to extract a million barrels of oil a day in Indonesia as well as other projects with Australia [Hoffmann, Fritz, “China’s Quest for Oil,” TIME, www.time.com, 18 October 2004] . This will secure that they have a share of that oil in the long run. In addition, an oil reserve that will theoretically fill with 30 days worth of oil has begun construction in China. However, their oil policy on the world oil market has not been completely clear as to how they will deal with the situation as a whole.

In order to obtain oil, China must import from unstable states; another factor China must consider. China’s need for oil may outweigh the costs of importing from a conflict-laden Middle East. China is striving to diversify their energy sector by seeking imports from other regions of the world and by starting programs that will provide energy: such as nuclear. China’s oil endowment is going to be a program that will require an eclectic mix of domestic oil use, imports from all over the world, and development of alternative forms of energy [Pei, Minxin. "China's Big Energy Dilemma." Carnegie Endowment for International Peace. 21 Apr. 2008 ] .


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