How China is Winning the Oil War

By Jon D. Markman
TheStreet.com

Is America too ethical to have cheap gasoline?

That is the inescapable question presented to US investors and policy makers as pump prices soar after a state visit by Chinese President Hu Jintao.

The US is the world's greatest consumer of energy at present, but China is the world's fastest-growing consumer. That puts us in direct competition for any new sources of crude oil, natural gas, coal and uranium that materialize through exploration and discovery, not to mention any current sources that profit-seeking producers decide to put up for grabs.

Increasingly, new energy sources that China is acquiring are in countries that Americans find distasteful. Many of them are in Africa, in countries with horrific human-rights records such as Sudan, Chad and the Republic of the Congo. And much of the energy is controlled by rapacious despots in the Central Asian republic of Kazakhstan and in Southeast Asia's Myanmar.

Energy acquisition is a zero-sum game in which there are winners and losers. Any new energy that China obtains for its fast-growing economy is unavailable to us forever. So you just have to wonder whether the US's antipathy for dealing with the worst of the world's rogue states has led inexorably to $4-a-gallon gasoline this spring.

The New Colonial Power
Dan Zhou, chief analyst at CEB Monitor Group in Beijing, points out that China has emerged as an attractive partner in Africa and Central Asia in four ways. Its intensifying demand drives up prices for its products, which are largely raw materials such as oil, zinc and copper. It sets virtually no standards for political transparency or economic reform to get deals done. It ignores internal human-rights abuses as an impediment to deal-making. And it is a one-stop shop, offering not just investment, trade, skilled workers and military weapons but also diplomatic protection in the form of its United Nations Security Council veto.

China's hunt for oil in Africa has made it essentially the new colonial superpower in the region, surpassing the memories of prior imperial forces such as Belgium, Italy, the Netherlands, Great Britain and France. And it has achieved that status in record time. Trade between China and Africa, which totaled $10 billion in 2000, soared to $39.7 billion in 2005. According to research by CEB Monitor, here is a guidebook of China's assets in the region:

• Sudan: China has a $4 billion investment in the country widely believed to have the largest untapped oil reserves in Africa. The China National Petroleum Corp. has a 40% stake in Greater Nile Petroleum, which owns oil fields, a pipeline, a large refinery and a port. Last year, China purchased more than half of Sudan's oil exports. Conversely, Sudan accounted for 6% of China's oil imports, about 200,000-plus barrels a day.
  
  
• Angola: Offshore wells have made this Africa's second-largest oil producer. Through February of this year, Angola accounted for 13% of all oil imports to China - making it the country's main supplier. China has committed at least $3 billion in loans to Angola for additional oil rights, and it has supplied engineers and trained workers to develop fields. China is now Angola's largest aid donor as well.
  
  
• Nigeria: This is Africa's largest oil producer, and until recently it has not been a major supplier to China. However, China's largest publicly held oil company, Cnooc, bought a 45% stake in a Nigerian oil-and-gas field for $2.27 billion last month and has also bought 35% of an exploration license in the Niger Delta for $60 million.
  
  
• Elsewhere in Africa: Cnooc has been active in Equatorial Guinea, Chad and Gabon, it has made investments of $170 million in the mines of Zambia, and it has become a major weapons supplier and trading partner of Zimbabwe, which is run with unbounded corruption by global outcast Robert Mugabe.