China 'stocking up' on world oil, analysts say

China is taking advantage of the worldwide recession to stock up on foreign oil, last month offering $43 billion in loans to foreign oil companies in Brazil, Venezuela, and Russia to secure future oil supplies.

Eric Watkins
OGJ Oil Diplomacy Editor

LOS ANGELES, Mar. 10 -- China is taking advantage of the worldwide recession to stock up on foreign oil, last month offering $43 billion in loans to foreign oil companies in Brazil, Venezuela, and Russia to secure future oil supplies.

The flurry of deals comes despite the global recession and a worldwide decline in oil demand, according to a report by Radio Free Asia, which said that China views those conditions as "an opportunity" rather than a reason to cut back on its investment plans.

Philip Andrews-Speed, an energy expert at Scotland's University of Dundee, said China is still not putting its trust in the market, but that its latest overseas deals suggest a new approach.

"The balance between the government and the companies has changed, so the government now is in the lead, providing these loans in return for oil," Andrews-Speed said. "It's the same set of objectives but with a different set of cards in the hand."

Andrews-Speed sees China's new strategy as more beneficial for oil development because the state-owned oil companies of Russia, Brazil, and Venezuela all face funding problems in a declining market.

"These are state companies that don't have enough money to develop new reserves as fast as they want to. Thus the Chinese loans will allow them to move ahead faster and produce additional oil earlier than we would have expected," he said.

Experts told RFA that China's oil loans are a sign of both opportunism and confidence that its economy will recover from the worldwide recession soon.

In January, China's oil imports fell 8% to their lowest level in 14 months, the General Administration of Customs reported. But the government appears to be investing for the longer term.

"Putting aside the current economic crisis, we're looking for China's oil imports to double in only a very few years," said Andrews-Speed. "So, if you don't trust the market, you'll be doing more of these deals, and now is a very good time to be doing these deals."

Robert Ebel, senior adviser to the energy and national security program at the Washington-based Center for Strategic and International Studies, agreed that the government is betting it will need more imported oil to fuel the economic recovery.

"They want to lock in some long-term deliveries because they know they're going to need it, so I's money well-spent," said Ebel.

Contact Eric Watkins at hippalus@yahoo.com.

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