Around the world, China is investing in oil and gas resources to fuel its booming manufacturing industries and transportation sector to continue its sky-rocketing economic growth. China is not endowed with very much oil and gas resources of its own. Thus, it needs to partner with countries around the world to ensure availability of future supplies of oil and natural gas that it will need to keep up its current pace of economic growth.
The U.S., which does have oil and gas resources, is not following China’s lead in investing in these resources. Instead, the U.S. is looking toward wind and solar technologies to fuel its economy. However, wind and solar power are generating technologies and will not help where oil is needed in the transportation and industrial sectors.
Further, wind and solar power have capacity factors that cannot compete with those of fossil fuel generating technologies, and they can create instability issues with the electrical grid. They are also more expensive technologies and must have government support through tax credits to compete at all with fossil-fuel generating technologies.
China’s Investment in Oil and Gas
China has seized on the global recession to gain access to oil and gas resources and supplies. The atmosphere is ripe for Chinese firms to invest in these resources because:[i]
* Acquisitions are now more favorable than they were in early 2008, due to lower oil prices and, hence, lower asset prices.
* China is less constrained than many of its international counterparts in terms of where they can invest (e.g. Iran).
* Financing is not a problem, because Chinese banks are willing and able to provide needed funds.
* Competition for these assets in some areas has lessened.
Not only is China investing in places like Iran, Iraq, Kazakhstan, Nigeria, Venezuela, and Argentina, but it is in the U.S.’s backyard, looking towards usurping the U.S. supply of Canadian oil sands. China is a good customer for Canada, as Canada fears that the U.S. may introduce a low carbon fuel standard[ii] or other legislation that would restrict our purchases of oil sands from Canada[iii]. China is also looking at a possible purchase of leases in the Gulf of Mexico where Devon Energy is looking to sell its U.S. leases.[iv] The sale of these offshore leases requires the approval of the Mineral Management Service in the U.S. Department of Interior. China is willing and able to be at the forefront of any misstep other countries make to gain a foothold and secure oil and gas supplies, and the U.S. seems to be giving it elbow room.
China is also investing in oil and natural gas pipelines to ensure access to its investments and to divert some of its oil imports from the Middle East away from the Straits of Malacca. Oil pipelines are being built from Russia, Kazakhstan, and the coast of Myanmar. [v] A natural gas pipeline from Turkmenistan should be operating in the near future, and several liquefied natural gas terminals are either operating or are expected to be operating shortly.[vi]
While the total amount of “investment” loans made by China to oil and gas producing countries for guaranteed future supplies of oil and gas are unknown, China has clearly invested billions of dollars in their ‘loans for energy’ program. [vii] The main provider of the loans is the China Development Bank, and thus they are essentially Government loans. Just on Tuesday, December 8th, for example, Nigeria’s presidential advisor for energy announced that Chinese companies have proposed investing $50 billion to buy 6 billion barrels of oil reserves in Nigeria.[viii]
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