Benefit seen in China's dependence on Mideast oil

Aug. 28, 1995
China's growing dependence on Middle East oil, a worrisome issue among U.S. policy makers, could improve international relations, says a study by East-West Center, Honolulu. The Middle East supplied about 40% of China's crude oil imports in 1994. This share will rise to about 60% in 1997, 77% in 2000, and 92% in 2005, the study predicts. "In brief, the shortage of oil in China is a reality, and the country has nowhere to turn but the Middle East," said the study's authors, Kang Wu

China's growing dependence on Middle East oil, a worrisome issue among U.S. policy makers, could improve international relations, says a study by East-West Center, Honolulu.

The Middle East supplied about 40% of China's crude oil imports in 1994. This share will rise to about 60% in 1997, 77% in 2000, and 92% in 2005, the study predicts.

"In brief, the shortage of oil in China is a reality, and the country has nowhere to turn but the Middle East," said the study's authors, Kang Wu and Fereidun Fesharaki.

China's oil imports

By 2005, the study estimates, China will need to import about 2 million b/d of oil, or about 38% of its consumption.

The country imported 309,000 b/d in 1993 and 247,000 b/d in 1994. Crude import requirements are expected to increase to 460,000 b/d in 1997, 534,000 b/d in 2000, and 1.2 million b/d in 2005.

China, second largest oil consumer in the Asia-Pacific region after Japan, became self-sufficient in oil after discovery and development of Daqing oil field in the late 1950s and early 1960s.

Domestic demand and supply declined slightly at the beginning of the 1980s. Both increased during 1982-86. Since 1987, demand has been strong. Oil production growth slowed due to the maturing of major oil fields and lack of large discoveries.

In the 1990s, oil consumption quickly caught up with domestic production. In 1993, for the first time since the early 1960s, China became a net importer of oilcrude and petroleum products combined. In 1992-94, China's oil consumption rose nearly 18%, while crude production increased by less than 3%.

Latest figures compiled by Oil & Gas Journal place China's crude oil production at 2.946 million b/d for the first 5 months of 1995, off 10,000 b/d from the same period of 1994.

Trilateral relationship

"If the U.S. and China can begin cooperating effectively at an early stage, a stable trilateral relationship among China, the U.S., and the Middle East could be ensured in the long run," East-West Center's study said.

"Because the majority of China's oil import requirements are expected to be satisfied by Mideast oil, China will increasingly find common ground with the U.S. and its allies (such as Japan and western European countries) in terms of mutual concerns about political stability in the region."

In addition, because U.S. policy toward China is one of engagement rather than containment, the Middle East could provide opportunities for Sino-American cooperation in many areas. And China is in a position to play a constructive role in the U.S.-Iran rapprochement that is likely in the future.

The researchers noted that the Chinese government has been carefully cultivating its bilateral relationships with major Middle East oil producing countries. In recent years, China has sought to attract foreign investment from Saudi Arabia, Kuwait, and Iran to form joint ventures that could help secure a significant amount of oil it needs.

China's aid in helping Iran develop its nuclear power program is part of the Chinese and Iranian government's efforts to enhance their ties. This strategy coincides with plans of Middle East countries to ensure stable international markets.

"Obviously," the study said, "China would like to satisfy all its crude oil import needs from Asian countries, or countries like Oman and Angola that produce low sulfur crude suitable for Chinese refineries.

"But the availability of such crudes, especially from the Asia-Pacific region, is declining. The only viable alternative is the Middle East." n

Iranian crude oil exports find buyers

Iran has found buyers for most of its crude oil taken out of the U.S. supply stream by an order from President Clinton.

Iranian news agency IRNA reported Tehran has found markets for all but 200,000 b/d of an estimated 600,000 b/d purchased by U.S. buyers prior to Clinton's June 6 ban on American trade with Iran. Clinton issued his executive order in response to reports the Tehran government was, among other things, supporting world terrorism (OGJ, May 15, p. 23).

Iranian crude is moving into Asia and Europe. Its price in the latter market has slipped against the benchmark Brent blend.

Agence France Presse quoted an undisclosed Iranian official as saying Iran will be able to find new buyers within the next 2 months for all its remaining oil available for export. The news agency said Tehran does not intend to cut production and will "store the crude for which there is no customer yet."

A possible storage site surfaced in South Africa, where the government was reported moving toward an agreement on Iran's use of storage capacity at Saldanha Bay. News sources pegged the volume at 15 million bbl under negotiations that began with South Africa's former apartheid government.

Middle East Economic Survey reported Iran's oil production slipped a little in July to 3.58 million b/d from 3.65 million b/d in June. About 2.5 million b/d is exported. n

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