OPEC Tries to Compete With Russia Over China’s Oil Needs
Officials of OPEC are stepping up efforts to secure their market share in China as they compete with Russia to supply the country.
Sheik Ahmad Fahd al-Ahmad al-Sabah, Kuwait’s energy and oil minister and the president of the Organization of the Petroleum Exporting Countries, is scheduled to lead the group’s first talks with China on Thursday as members like Saudi Arabia and Kuwait plan investments in Chinese refinery projects worth more than $8 billion. Saudi Arabia has used oil refinery investments to ensure sales in Japan and South Korea.
Oil prices have tripled since 2001 as the Chinese economy has expanded at more than 9 percent a year, straining global supply. Russia, China’s largest non-OPEC supplier, is studying a proposal to build a pipeline to feed Siberian oil to China and plans to raise rail shipments 50 percent next year. OPEC, whose members produce 40 percent of the world’s oil, is pumping at its fastest pace for 25 years to keep up with demand.
“China is the elephant in the room and by far the fastest- growing energy consumer,” said Gal Luft, co-director of the Institute for Analysis of Global Security in Washington.
“This makes it an important client for OPEC. For political and market reasons, OPEC would like to strengthen relations with China.”
China imported about 800,000 barrels a day from Saudi Arabia, Iran and Indonesia, its largest OPEC suppliers, according to the Customs General Administration in Beijing. Russia, Angola, Oman and Sudan are the biggest non-OPEC exporters for China.
China, the world’s second-largest energy market, is forecast to require more than three million barrels of imported oil each day in 2006. The United States, the world’s largest energy user, imports more than 10 million barrels a day.
“The relationship between China and OPEC is still weak,” said A.F. Alhajji, oil economist and associate professor at Ohio Northern University.
He said OPEC members could invest more in China and circulate some of the revenue they earned in recent years. “China should allow OPEC members to invest in downstream operations and refineries within China,” Alhajji said. But he added: “China has to make structural changes to attract such investment. This includes the removal of price controls on all petroleum products.”
Saudi Aramco, the world’s largest oil company by production, agreed in 2001 to expand a refinery in Fujian Province jointly owned with China Petroleum & Chemical, or Sinopec, and Exxon Mobil at a cost of $3.5 billion.
In turn, Sinopec was among companies awarded contracts in 2003 when Saudi Arabia allowed international companies to explore for gas on its territory for the first time in decades.
Kuwait and China have agreed to develop a refinery complex near Guangzhou, with the capacity to produce 200,000 to 400,000 barrels a day of gasoline and other fuels, Ahmad, the OPEC president, said in Kuwait on Dec. 12. That project, which would use Kuwait oil supplies, may cost as much as $5 billion, he said.