BOSTON--China is taking advantage of the worldwide recession to stock up on foreign oil, experts say.
In rapid succession last month, Chinese state-backed banks offered billions of dollars in loans to foreign oil companies in Brazil, Venezuela, and Russia to secure future oil supplies.
On Feb. 17, China Development Bank agreed, after two years of talks, to lend $25 billion to Russia's state-owned Rosneft oil company and pipeline operator Transneft. In return, China will get guaranteed oil deliveries of 15 million tons per year (300,000 barrels per day) for 20 years at an undisclosed price, Russian and Chinese news agencies said.
One day later, during a visit by Vice President Xi Jinping, China contributed $8 billion to a joint investment fund in Venezuela, prompting the country's PDVSA oil company to pledge additional supplies of 80,000 to 200,000 barrels of oil per day.
On Xi's next stop, one day after that, Brazil's Petrobras oil company agreed to sell China 100,000 to 160,000 barrels of oil per day to China National Petroleum Corp. (CNPC) and refiner Sinopec at market prices, the official China Daily reported. Petrobras said it expects China Development Bank to lend it $10 billion in May to exploit a new oilfield off Brazil's southern coast.
Taken together, the deals represent $43 billion in Chinese government loans for foreign oil.
Adding to reserves
The flurry of deals comes despite the global recession and a worldwide decline in oil demand. China has viewed those conditions as an opportunity rather than a reason to cut back its investment plans.
"China's oil companies are trying to fill up reserves by targeting foreign crude oil and oilfields, taking advantage of international prices that have plummeted to around $40 a barrel," the China Daily said. World oil prices have dropped by some 70 percent from their highs of $147 per barrel last July.
China appears to be banking on its nearly $2 trillion in foreign currency reserves to deal with its growing reliance on foreign oil.
Last year, China's imports of crude oil rose 9.6 percent to 3.6 million barrels per day, according to customs data. China also consumed 7.2 million barrels per day, according to preliminary figures from the National Bureau of Statistics, making the country dependent on imports for half of its oil use.
In the past, China has faced criticism for buying up overseas oilfields and companies under the government's "go out policy," which was launched in 1997 with investments in neighboring Kazakhstan.
When oil prices were high, some competitors complained that China was driving up costs by bidding too much for foreign holdings instead of relying on the world oil market.
But in interviews with Radio Free Asia, analysts said China now seems to be seeking commitments for oil supplies rather than the companies themselves.
'A new approach'
Philip Andrews-Speed, an energy expert at Scotland's University of Dundee, said that 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 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 say 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 percent to their lowest level in fourteen 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 it's money well-spent," said Ebel.
Economic recovery also means that China will become increasingly dependent on foreign oil, Ebel said.
"I think that trend is going to continue. They might pass the United States in terms of reliance on foreign oil," he said.
Promo Box target not set
