US Vice President Dick Cheney once said, “The problem is that the good Lord didn’t see fit to put oil and gas reserves where there are democratic governments.” And this explains to a very great extent the reason behind the US resolve to introduce democracy and reforms in this oil rich region, including Iraq. The US apparently wants to make amends for what the “good Lord did not see fit” to do. This week Cheney has been on a visit of three Asian countries, Japan, China and South Korea. Apparently the message Cheney took to Tokyo, Beijing and Seoul was that they need to keep their resolve firm to reform — the oil rich Middle East — the US way, so as to ensure uninterrupted energy supply.
Coincidentally, just last week, Saudi Oil Minister Ali Al-Naimi was also visiting Beijing, Seoul and Tokyo — for a completely different reason — underlining the message in all three that Saudi Arabia would ensure and take every step required to keep the energy markets adequately supplied. The three countries account for roughly 60 percent of Asia’s total daily oil consumption of almost 22 million barrels a day.
While Japan and South Korea are among Saudi Arabia’s biggest customers for crude oil, China’s dependence on imported oil is rising so it cannot remain oblivious to what is happening in the energy markets.
Beijing’s oil imports in 2003 increased almost 30 percent over the preceding year. Last year China surpassed Japan as the second largest oil consumer after the US. As a major player in the oil market, Saudi Arabia is keeping a focus on this rapidly emerging market. The visit of Naimi to these countries need to be looked against the backdrop of the emerging long-term partnership in the oil and gas sector between Saudi Arabia and the Asian countries.
It has also been reported that Russia plans to build pipelines carrying oil and gas to China, South Korea and Japan. Indications are that while Saudi Arabia is lowering crude production because of OPEC output cuts, Russia is increasing its output. The news that ExxonMobil, China Petroleum and Chemical and Saudi Aramco may be close to an agreement on a $3 billion petrochemical project is also being seen by the analysts in the backdrop of the ongoing competition by major oil producers to increase the market share. According to the details available, the consortium is close to a deal on tripling the capacity of the 80,000 barrel a day refining unit in Fujian province of China.
The deal, if it goes through, also calls for an 800,000 MT plant to produce ethylene, the basic building block for a number of petrochemicals. China is also a fast growing market for petrochemicals and the producers in the Middle East are eyeing the Chinese markets for exporting their resins to this market so as to meet the yawning gap between the burgeoning demand and the stagnating domestic production of most of these plastic resins. The Fujian project could help boost Saudi crude exports to China significantly — by as much as half, as per some estimates.
The world has much changed since the oil embargo of the seventies. If oil is a major issue in an election year in the US and as some say — the reason for invading the oil rich Iraq, the competition among the producers to increase their respective market share is also visibly there.
What more balance one could strike, with both the consumers and the producers — vying for the right slot in their respective arenas? Despite accusations to the contrary, market forces seem to be impinging on the crude markets as well. And that should be a consolation to many.
