Although the Chinese economic engine seems to have cooled down a bit resulting in comparatively lower than projected growth in energy consumption, yet 2006 could be different in many senses. Mid-July the IEA slashed its estimate of 2005 global oil demand to 83.88 barrels a day from 84.30 million forecast a month ago. For this year the agency saw Chinese and US demand for oil slowing, and revised down its 2005 demand growth estimate by 200,000 bpd to 1.58 million bpd.
The IEA’s outlook for slower growth in China makes sense given the country’s relatively inefficient use of energy, which makes its more price sensitive than, some other countries such as the United States, analysts stress.
All the pointers, however, are hinting at a rejuvenated surge in Chinese demand for 2006. In 2006 the global demand was projected by the IEA to grow by 1.75 million barrels per day or 2.1 percent to 85.62 million bpd. The US Energy Information Administration also predicts that in 2006, the global oil demand would be 300,000 bpd higher than previously forecast and the average global oil consumption would stand at 87.0 million bpd. Rising Chinese oil demand will contribute to the overall world growth in petroleum use over the next two years, the EIA emphasized. It estimated China to consume 7.8 million bpd in 2006 as compared to 7.2 million bpd in 2005.
This could have unsettling implications for the energy markets in not too distant a future. Soaring crude demand in China and other developing Asian countries is resulting in major shift. “The centre of gravity of oil is shifting,” apparently from North America to Asia, says Daniel Yergin, the chairman of Cambridge Energy Research Associates and author of the “The Prize,” an award winning history of oil.
Faced with this substantial growth in demand for oil, Chinese firms have not only been tapping more domestic oil sources, but have also been aggressively pursuing a “go-out” strategy, looking for new sources of oil in the international market. Until 1993, China had been self-reliant in oil given its relatively low domestic consumption and comparatively higher production. It is now a net crude importer, as its reserves have receded to less than 18 billion barrels now from 24 billion barrels about a decade back. Chinese firms are hence proactively going out to other parts of the world — Africa, South America, Iran and the Gulf.
China’s overseas oil and gas cooperation has extended to Russia, Azerbaijan and Kazakhstan in Central Asia, Indonesia and Myanmar in South East Asia, Iran and Oman in the nearer region, Venezuela in South America, Libya, Sudan and Nigeria in Africa and even to the far flung Canada in North America, In January 2004, Sinopec Group of China signed a contract with the Saudi Ministry of Petroleum for the exploration and production of natural gas in a 38,800-square-kilometer area in the vast Rub Al-Khali — the Empty Quarters. Initial investment in the project was projected to be around $300 million.
The attempt by the Chinese company CNOOC to bid for the US energy company UNOCAL could also be seen in the same backdrop. Along with oil market reform and the implementation of the ‘go-out’ strategy, China is also planning to create a strategic oil reserve — in line with the US Strategic Petroleum Reserve. Work has already begun on the building the strategic reserves and four of these are expected to be build in the first stage.
The race for securing energy supplies in the foreseeable future is on and could only heat up in the days to come, one could say with some sort of confidence. The Chinese are going to be a major player in this field — it has to be conceded.
