China Seeks Oil Alternative — But for Now, Growing Economy Needs Energy From Wherever It Can Be Found

BEIJING – Just days before a Chinese firm announced a $2.3 billion investment in a Nigerian oil field last month, President Hu Jintao warned that China has to rein in surging energy use that has made it one of the world’s biggest oil importers.

The announcements underlined the dual tracks of Beijing’s energy policy. While striving to secure foreign oil and gas to fuel sizzling economic growth of more than 9 percent a year, it is struggling to limit soaring reliance on outside supplies by increasing nuclear and hydroelectric power.

China is not alone in this predicament – witness President Bush’s plea to cut American dependence on Mideast oil. But the voracious appetite for energy in China and other fast-developing nations, notably neighbor India, is one factor propelling oil prices upward.

Some of China’s energy deals are causing bumps on the world’s political landscape. Its investments in Iran and Sudan have prompted complaints it is abetting pariah nations, and Chinese pursuit of deals in Canada and other U.S. allies is causing unease in Washington.

Last year, China’s state-controlled CNOOC Ltd. gave up an $18.5 billion takeover bid for Los Angeles-based oil company Unocal Corp. after critics complained the deal might jeopardize U.S. security.

The energy buying spree has taken Chinese firms as far afield as Venezuela and Australia. In the past six months, these companies have signed deals totaling $7 billion for stakes in oil fields in Kazakhstan, Nigeria and Syria.

“There is a strategic element to it,” said Kevin Norrish, an energy analyst for Barclays Capital in London. “It’s something that we’ve seen before. Japan was doing the same thing about 10 to 15 years ago … .”

China’s oil firms began investing abroad in the late 1990s, after double-digit economic growth outstripped supplies from domestic fields that had met its needs for decades. Rising family incomes have led to an explosion in private car sales, while industry demands for plastics and other petrochemical products have soared.

The jump in imports has Chinese leaders fretting about depending on Middle Eastern oil that arrives by sea routes they don’t control.

China’s purchases have prompted suggestions Beijing is using its state companies to lock up foreign supplies. But industry analysts say the oil market is too complex for that.

“This is definitely not about buying up oil resources in order to ship the oil into China,” Norrish said. “Basically, China’s interest is in ensuring growth in energy supplies,” he said. By buying stakes in foreign projects, “it can assist in ensuring that investments take place and projects go ahead.”

Deals currently being signed by oil-producing countries only give foreign investors a share in output for a limited time, rather than control of the oil field, said Leo Drollas of the Center for Global Energy Studies in London.

“If they think that by investing in Sudan and Venezuela and elsewhere they’ve secured oil somehow, I’m not so sure of that, from a strategic standpoint,” he said.