The Chinese government has reinforced an already clear message that its global quest for oil and gas supplies is a one-way proposition. It wants to own production, reserves, pipelines, and shares in foreign companies. It logically needs and surely claims access to information on which to base decisions about its aggressive investments. Yet expecting China to reciprocate transparency can get a person in trouble.
Ask Xue Feng, the American geologist sentenced on July 4 to 8 years in prison for trying to buy data about the Chinese oil industry. He was working for IHS, which manages energy databases, at the time of his first detention in November 2007. Formally arrested in April 2008, Xue was ruled guilty by a Beijing court of violating China's state secrets law. The court delivered its verdict a year ago. According to news reports, the government classified the database a state secret after Xue signed an agreement to purchase it.
Legitimate concern
Xue's treatment, including the long wait in jail and physical abuse to which he says he's been subjected, raises legitimate concern about the Chinese judiciary. The US Embassy in Beijing expressed dismay. Now that the Chinese legal system has ruled, I believe the time has come for Dr. Xue, who has already been detained for 2½ years, to be released," said Jon Huntsman, the US ambassador to China. At a press conference, Chinese Foreign Ministry spokesman Qin Gang responded to Huntsman's appeal by saying authorities handled the case according to law. It is China's internal affair, and China's judicial sovereignty brooks no foreign interference," he said. So China's government will do whatever it pleases on Chinese soil, to whomever it pleases, and expect an invocation of sovereignty to dissipate criticism.
In the oil and gas business, China is hardly the only country in which someone seeking data might encounter capricious enforcement of vague law. But China differs from other countries of its authoritarian ilk in one important respect. Its government, recognizing the enormous energy needs of a huge, rapidly industrializing population, wants its oil companies to compete aggressively for large oil and gas projects around the world.
The companies have obliged. The three largest, China National Petroleum Corp., China National Petrochemical Corp. (Sinopec), and China National Offshore Corp., have major upstream holdings in Africa, Kazakhstan, South America, Asia-Pacific, and the Middle East. CNPC and Sinopec recently have acquired interests in large oil sands projects in Alberta. This year, says a recent study by Wood Mackenzie, net overseas oil and gas production of the firms will reach a record 1 million boe/d. Just since April 2010, the consultancy says, the companies have committed to asset and corporate acquisitions worth nearly $25 billion.
Before the companies decided to invest all that money, they surely sought information about prospects and projects. They might well have purchased data. These are routine activities in the oil and gas business.
In fact, access to information is crucial to an industry whose development strongly correlates with the liberation of markets and the transfer of science and technology. While the oil and gas industry can't say that its markets work perfectly or that its operations are fully transparent, it can trace its growth and sophistication to progress in both areas. Industry professionals know the importance of information to their business.
Beyond diplomacy
Nothing indicates that the information Xue wanted to buy had either competitive value warranting trade secrecy or defense sensitivity justifying treatment as military intelligence. According to external reports, the database was of a type commonly available for sale. The Chinese just didn't want him to have it. So now he's in jail.
International diplomacy will have to sort out the large sovereignty and legal questions raised by China's heavy-handedness. The oil and gas industry, though, has an extra concern. It should treat as serious any threat to the flow of scientific, technical, and operational information essential to investment decisions. The threat compounds when it emanates from a government that's also, increasingly, a multifaceted and aggressive competitor.
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