Posts tagged “China”
Can Oil Supplies Grow Fast Enough to Keep Prices in Check?
I, along with my editor Sam Avro, recently conducted a broad-ranging interview with John Hofmeister, former President of Shell Oil and currently the head of Citizens for Affordable Energy, a non-profit group whose aim is to promote sound U.S. energy security solutions for the nation. In the first part of this interview Mr. Hofmeister spoke of A Difficult Decade Ahead For Oil Prices and Supplies. In the second, he set forth an Energy Plan for America. In the current installment, he discusses the events responsible for the explosion in the price of oil over the past decade.
Developing Demand and Depleting Supplies
I prefaced my question with my own view that the explosive growth in oil prices mostly boiled down to new demand outstripping new supplies, which resulted in loss of spare capacity. Some have suggested that the real culprit is a massive influx of financial players into the oil markets, so I was curious to get Mr. Hofmeister’s views on the factors behind the escalation in oil prices over the past decade. CONTINUE»
In a word – yes.
Last week the President issued an order requiring Ralls Corporation, which is owned by Chinese nationals (and is closely associated with the Chinese wind turbine manufacturer Sany), to cease development activities and divest its interest in four wind farms in Oregon. The order was issued based on recommendations from the Committee on Foreign Investment in the United States (CFIUS). CFIUS is responsible for reviewing foreign investments in the U.S. to ensure that foreign ownership of U.S. assets will not present a national security risk.
President Barack Obama has blocked a Chinese company from owning interests in four northern Oregon wind farms, citing national security risks given their close proximity to a United States military base where unmanned drones and electronic-warfare planes are tested.
The decision marks the first time in more than 22 years that an American president has vetoed a foreign business deal in the interest of American security. While every American president has the power to void foreign transactions involving United States-based businesses under the Defense Production Act, the ability has not been exercised since President George H.W. Bush preempted the sale of Mamco Manufacturing to a Chinese-owned agency in 1990. (See more: Wind Power Layoffs Abound as Industry Threatened by Tax Credit Expiration)
During her visit to the Asia Pacific last week, Secretary of State Hillary Rodham Clinton spoke to the dispute over the South China Sea, arguably one of the region’s most intractable challenges that, left unmanaged, could uproot stability in East Asia. Those countries at the heart of the dispute — particularly China, Vietnam and the Philippines — need to “establish rules of the road and clear procedures for peacefully addressing disagreements,” Secretary Clinton urged.
High Stakes at Sea
The dispute is complex. States ringing the sea are becoming increasingly assertive in their claims, driven by concerns of nationalism, sovereignty, and even the need to stake claims to the region’s lucrative (but dwindling) fish stocks. And then there are the potential petroleum resources. Estimates of the region’s energy potential ranges widely, according to the independent U.S. Energy Information Agency: U.S. estimates suggest the region could contain roughly 28 billion barrels of oil; while Chinese estimates are much more optimistic, projecting more than 200 billion barrels of oil beneath the sea.
Despite much uncertainty about the size of the region’s oil and natural gas resources, countries in the region are increasingly behaving as though access to those potential petroleum reserves is zero-sum — a winner take all and leave none for the loser approach — that is pitting countries against each other to tap into those resources first. Indeed, China, Vietnam and the Philippines are actively soliciting bids from petroleum companies to explore for oil and gas in contested waters, escalating tensions and reinforcing this zero-sum perspective. This continued competition is destabilizing and countries in the region need to take efforts to tilt the balance of behavior toward cooperation so that countries across the region can benefit from the sea’s potential resource wealth.
This post continues a theme I covered in my book Power Plays. Part 1 covered the impact on oil price and supply in Petroleum Demand in Developing Countries. Here I discuss some of the climate change implications.
Climate Change Implications
Regardless of one’s beliefs on climate change, it is a fact that the atmospheric carbon dioxide concentration has been increasing since coal began to be burned in large quantities during the Industrial Revolution around 1750. Since then, the atmospheric carbon dioxide concentration has increased from about 285 ppm to the present value of about 390 ppm (See Figure 1). Based on our scientific understanding of the greenhouse effect, we would expect that the increase should cause the average surface temperature of the earth to climb, and this has the potential to cause serious environmental damage. CONTINUE»
In last week’s Energy Trends Insider our featured stories were Why China is Dipping Their Feet in the Canadian Oil Sands, CNOOC’s Purchase of Nexen May Signal New Wave of Consolidation, and Subscriber Questions on Lanzatech and Butanol. As we have done previously, we would like to share one of those stories with regular readers of this column. Interested readers can find more information on the newsletter and subscribe at Energy Trends Insider.
Why China is Getting their Feet Wet in the Oil Sands
Over the past two decades, Chinese oil consumption has quadrupled to nearly 10 million barrels per day. For the past decade they have been on a growth trajectory which has shown signs of slowing, but could nevertheless see them overtake the U.S. as the world’s top oil consumer by the end of the decade. As I have written before, I believe China’s economy will be the single-biggest long-term driver of oil prices over at least the next 5-10 years. CONTINUE»
Note: I am still traveling, and my posting schedule won’t return to normal until after August 11th. This article was originally written for World Business Magazine in Singapore, and explores one of the themes I covered in my book Power Plays. I am breaking it up into two parts. The first deals with petroleum demand in developing countries, and the second explores the climate change implications.
Oil Prices Rise, But Demand Growth Remains Strong
Access to affordable, stable energy supplies is critical for economies throughout the world. For developing countries, affordable energy can offer a pathway to a better quality of life. But between 2000 and 2010, world oil prices became much less affordable. The average global oil price advanced from approximately $25 per barrel to more than $100 per barrel – far outpacing rates of inflation in most countries.
Many books and articles have been published that argued that the increase in prices has been due to oil speculation, the restriction of supplies by OPEC, growth in developing countries, peak oil, or various geopolitical factors. Regardless of the cause, the response to higher prices in developed and developing countries may be surprising. CONTINUE»
Different Situation Than Attempted Takeover of Unocal in 2005
Last week, the China National Offshore Oil Corporation (CNOOC) tendered an offer to buy Nexen, a smaller, independent Canadian oil company for $15.1 billion. The deal has been approved by Nexen’s board, and the price premium of 61% above the previously-traded share price should be enough to win-over Nexen’s shareholders. It still must pass scrutiny from the government of Canada, and of the United Kingdom and the United States, where Nexen has many reserves.
CNOOC had attempted a takeover of the American oil company Unocal in 2005. Then, a hostile response from the public and Members of Congress forced them to pull-back. Now, however, regardless of some opposition from within the U.S. Congress, the betting is that this deal will pass muster. The opposition in Congress is mostly from the usual suspects like Senator Schumer and Congressmen Markey and Forbes, who are using this as an opportunity to push other issues they have, like market access to China for American exporters or lease rates in the Gulf of Mexico.
Beijing is flexing some more muscle to protect its energy interests in the South China Sea.
Last week, China began combat-ready patrols in the waters around the potentially resource rich Spratly Islands that both China and Vietnam have disputed claims to. And on Friday, China Daily reported that Beijing may develop a military presence in Sansha – a newly incorporated city located on one of the disputed Paracel Islands that was stood up to administer Chinese authority over the country’s South China Sea territories. (The city was established in response to a recent Vietnamese law that claimed sovereignty over the Paracel and Spratly Islands.)
Since I first started writing about energy in 2005, I have said many times that my view on oil prices is long-term, and that if I projected five years into the future, I foresaw oil prices being higher than they were in the present.
The chart below — using spot prices from the Energy Information Administration (EIA) for both Brent and West Texas Intermediate (WTI) crudes — shows that this has held true since 2001.