China may account for 40 per cent of this year's expected rebound in oil consumption and nearly 45 per cent of oil demand growth in the next five years, the latest monthly oil market report of the International Energy Agency (IEA) suggests. Total oil demand in China, the world's fastest-growing major economy, could reach 9.2 million barrels per day (bpd) this year, an 8.5 per cent increase from last year's level, predicted the IEA, which advises 28 industrialised countries on energy issues.
In its report, the IEA touched on three potentially "game-changing" events and trends that could have lasting effects on global oil markets: the robust rise in Chinese oil consumption, the European debt crisis and the BP oil spill in the Gulf of Mexico. Of those, Chinese oil consumption was the most likely to have a profound effect on the future balance of supply and demand. The IEA said it would compare two scenarios for global GDP growth that could have "very different" implications for oil market balances in its coming medium-term outlook. But a "common thread" would be the strength of oil demand in developing countries and the "predominance" of China.
"China's urgent need for energy supply to sustain economic growth and raise the well-being of its people has become a global market issue," the IEA said. "At the same time, China's domestic oil production base faces the challenge of large mature assets and with demand set to continue rising rapidly, China will remain reliant on the international oil market to meet incremental oil needs." Most of that oil would come from "a small number of countries" led by Saudi Arabia, Angola, Iran and Russia.
China's government-controlled oil companies emerged as "a significant force" in global mergers and acquisitions activity last year, spending US$18.2 billion (Dh66.84bn) on deals around the world, the agency reported. That accounted for 13 per cent of total global acquisitions, the IEA estimated. Two of the Chinese companies, China National Petroleum Corporation (CNPC) and Sinopec, were also involved in 11 loan-for-oil deals with eight countries, worth a combined $77bn.
Those companies and China National Offshore Oil Corporation (CNOOC) also entered into contracts committing them to invest a further $18bn, mostly in Iraq and Iran. The Chinese companies spent $10.9bn in the first four months of this year, with Sinopec buying 9 per cent of Canada's biggest oil sands operator Syncrude, CNPC joining Royal Dutch Shell to acquire the Australian coal-bed methane specialist Arrow Energy, and CNOOC purchasing 50 per cent of the Argentinean oil producer Bridas.
"Chinese oil companies are now operating in the upstream sector of 31 countries and have equity production in 20," the IEA said. The biggest concentrations of investment were in Kazakhstan, Sudan, Venezuela and Angola. In the 2010 edition of its Statistical Review of World Energy, released on Wednesday, BP noted an 8.7 per cent increase in total Chinese energy consumption last year, offsetting a record 5 per cent decline for members of the Organisation for Economic Co-operation and Development.
Energy consumption worldwide fell by 1.1 per cent last year, BP reported. China's oil consumption, which is the world's second largest after that of the US, increased by 6.7 per cent to 8.6 million bpd despite the economic downturn, the latest BP data show. But not everyone is convinced the growth is sustainable. Forecasters were not taking into account Beijing's determination to curb China's appetite for oil, said Fereidun Fesharaki, the chief executive of the Singaporean consultancy FACTS Global Energy.
The IEA said fuel subsidies were underpinning strong oil demand in developing countries. Subsidies artificially bolster demand by masking market signals that should encourage consumers to use energy less wastefully when international prices rise. After the downturn, most governments are finding the cost of fuel subsidies more burdensome than previously, which could lead to their gradual reduction. That is already happening in China.
tcarlisle@thenational.ae
