[h2]

Rockman, you might find this read interesting, 'The Devouring Dragon - how china's rise threatens the natural world', by Craig Simons.

It kind of fills in the areas around what you cover in this thread in detail, ie, the rest of what they are buying up/consuming globally.

It's well researched and written, the guy lived there a long time and speaks the language, at least one of them anyway, so it's not your typical outsider's view, it's more refined than that.

It's not a very cheer inducing book though, but it does dovetail almost perfectly with the specifics of this thread in terms of overall general Chinese actions globally. Oil isn't an emphasis of this book, though he did mention a saudi / chinese oil refinery joint venture, but just in passing.

In many senses though it's better to just focus on the petroleum/gas/coal part of things, otherwise it's kind of depressing to follow this story as it unfolds in front of us.

[ROCKMAN]

h2 - thanks...I'll check it out. Though I tend to just dig into China's oil/NG efforts I occasionally stumble across those other enterprises they are into. Besides acquiring hard minerals and farm land one report always sticks in my mind: China is involved in building over 400 dams globally. China may be exporting a lot of finished products but the also have another surplus available to ship overseas: man power. Several years ago they took over several drilling projects in Asia. Each rig was managed by two US expat supervisors working 12 hour tours. Each probably costing around $15k to 20k per month. The Chinese replaced the nightman with a $240/month Chinese engineer. Obviously the Chinese engineer didn't have enough experience. But when he got into trouble he could wake up the day man. Along the same lines you're probably aware of the big oil field management contracts China has with Iraq. Saw a story that China had built their own small airfield in Iraq to shuttle their personnel.

Just more examples of how much more efficiently a fairly monolithic industrial machine can outcompete our traditional western business model.

[dorlomin]

Is this the right thread for this?

This is an interesting article on why China is not really reaping the benefits of its soft power efforts.

http://www.bbc.co.uk/news/blogs-echochambers-24951258

The point being that Chinas investments are simply to much to do with getting something for China, with too many strings attached.

The US and the west in general are seen as being there when the chips are down. An interesting point that the US still living of the good work done during the tsunami in 04.


America and the west remain societies most want to emulate. Not just the wealth, perhaps not even the wealth. But the freedom, openness and plurality.

When the Soviets were expanding they had a model that many people wanted to emulate. China has a growing economy but no one is marching on the streets demand Chinese style rulers and law and order.

$this->bbcode_second_pass_quote('', 'I')n a Bloomberg View column, William Pesek quotes Ian Bremmer, president of Eurasia Group in New York, regarding the challenge for China if it wants to supplant the US as the power in the region: "It's very hard to call for… de-Americanisation and then leave your wallet at home when there's a human disaster the scale of the typhoon in the Philippines."

[ROCKMAN]

Dorlomin - Perfect spot IMHO. The key word in the thread is "control". And control can be had in three primary methods IMHO: political, military and monetary. First, the US has no direct political control of any Asian country. But China does...a big one: China. Short answer about the military: the US will never fire a preemptive shot at China. But China might pull the trigger on the US IMHO. But I think both countries will do their best to avoid such a situation.

That leaves the monetary angle. And China wins that gambit hands down IMHO. "In other words, the damage to China's international reputation is significant." What do I think about such thoughts? China goes to country X and says they want to spend $10 billion on infrastructure in their country. So Country X says: "China, your reputation is damaged in our opinion." China's response: You can shove your opinion up our *ss...you want us to spend our money in your sh*t hole country or not? I have my opinion of what the answer would be. Let's turn it around: given the support the US is sending to the Philippines exactly how much will the US reputation be improved in the Middle East?

A bad reputation only hurts a country if it disrupts their relationship with the other countries it deals with. How bad would China's reputation have to get for the US to ban their imports? To refuse to borrow money from them...the many the US gov't needs to function? Will Saudi Arabia become so offended over the Chinese lack of Philippine support they'll refuse to accept tens of $billion from China for their oil? Of course the global MSM might write nasty things about China. And no doubt that will upset the Chinese gov't just as much as did the criticism of their slaughter at Tiananmen Square. I'm still constantly amazed to how much credit some folks give to WORDS over ACTIONS. Last time I looked WORDS cost very little compared to any significant ACTION.

[ROCKMAN]

Some folks have speculated that China might be digging itself into a hole by expanding refinery capacity beyond market requirements. Seems like they may have solved that potential problem: take market share away from other refiners. So China has about 50% of the oil consumption as the US but about 70% of the refining capacity. And that doesn’t include products from their overseas refinery JV’s. Looks like China has plans to export more than just all that plastic junk they’ve been shipping to the US. As pointed out before, except for the oil exporting countries, the world’s economies don’t run on oil…they run on refinery products. And following up on the prior posts: I wonder if China's "bad reputation" will cause other countries to pay more for refined products than they would pay to China?

Nov 13 (Reuters) - From Africa to Australia, Chinese refiners are exploring new markets to ship surplus oil products such as jet fuel and diesel, putting them on track to compete with global trading houses and refining centres such as Singapore. The switch to being a growing exporter of fuel comes despite China recently becoming the world's largest net oil importer. The opening of more refineries to process oil has emerged just as the world's second-biggest economy shifts down a gear so there is less demand for some transport and industrial fuels, which are more sensitive to the pace of growth.

This has driven China's biggest refiner Sinopec Corp and its domestic rivals to look outside traditional markets, such as Vietnam and Hong Kong, to sell surplus cargoes, sources close to the matter said. Chinese diesel exports could reach 3.7 million barrels a month by next year, traders said, more than double the average so far in 2013. The increased shipments come just as new refineries are also coming on stream in the Middle East next year and with higher U.S. exports. China's refining capacity was close to 12 million barrels per day by the end of 2012 and is set to grow by about 3 million bpd between 2013 and 2015, more than double India's capacity. US refinery capacity is around 18 million bbls/day. Overall fuel demand in China was about 9.79 million bpd last month.

[ROCKMAN]

Again one can read the implications as they chose. In addition to the refining expansion noted below the last I heard China still had plans to build the largest refinery ever in Egypt’s history. All this in a country where for the first time consumption exceeded production around 2008. But as pointed out before between 2 and 4 million bbls/day of Persian Gulf oil moves through Egypt on the way to EU refineries. It seems as though the plan is for Egypt to become a major refining center for products. If this happens IMHO it would present a dramatic shift in oil politics by a country that doesn’t export any oil. Cracking processes are widely used in the chemical industry to convert heavy oil fractions into light liquid hydrocarbons (C5 to C15). Several cracking processes exist, each having its own typical product composition.

Reuters - General Electric Co and Egyptian private company Carbon Holdings signed a $500 million dollar agreement on Monday to provide support in the building of THE WORLD’S LARGEST LIQUID CRACKER at a petrochemicals complex on the Gulf of Suez. The naptha cracker project is part of the Tahrir Petrochemicals Complex worth $4.8 billion dollars. They said the new plant would have an annual production capacity of 1,360,000 tonnes of ethylene and polyethylene and significant quantities of propylene, benzene, butadiene and linear alpha olefins.

[pwallmann]

http://usa.chinadaily.com.cn/business/2013-11/19/content_17114277.htm

$this->bbcode_second_pass_quote('', '&')quot;[The refining industry is] moving from smaller refineries that used to be very close to the immediate market to very large refineries that are increasingly export driven and have the global reach that no longer cater to their immediate surroundings," Halff said. "Most of this growth is forecast to come from China."

[ROCKMAN]

p - Interesting...thanks. And about "I think they are well positioned to continue their growth." There was a small unimportant piece so I didn't post it. But they pointed out the "weak economic position" China had reached with just a 7.5% growth rate. LOL...how many politicians in DC would swap their mommas for such a "weak growth rate" in the US?

[pwallmann]

Rock - weak indeed. And in terms of resource consumption I think alot of commentary misses the fact that in 2005 China's 11.3% RGDP increase resulted in $400B more NGDP. In 2012 China's 7.8% RGDP growth produced $910B (it is worth noting that this is the equivalent of adding a Canadian sized economy every two years) worth of NGDP. Since Oil is purchased in nominal terms, (not to mention the difference is nearly as stark in real terms), does 2005's 11.3% have a greater impact then 2012's 7.8%? Of course not.

This is similar to your point about OPEC revenues. It is determined by P X Q, not simply Q! The growth rate of GDP is an important comparison over time, but it should seem rather obvious that we also need to consider the amount of GDP added.

[ROCKMAN]

And when China was running at that crazy high rate there was a constant beat from almost every quarter that it was certain to cause China to implode. Now some of the same folks are taking shots at China for their "low" growth rate.

[ROCKMAN]

One more component of the power shift in the world of fossil fuels. IMHO the shift in refining from the centers of the industrialized economies to areas dominated by the oil exporters will have as much impact, if not more, then future oil production levels. China is certainly doing its part to facilitate the shift by investing hundreds of $billions. As pointed out before: the world is NOT dependent upon oil…it is dependent upon refined products. For some time the conversation was dominated by who controlled the oil flow. It now appears that conversation will include consideration of who controls the flow of products:

Reuters - European refiners are battling to salvage what is poised to be one of their worst years on record, slashing production, running down crude oil stocks and idling loss-making plants as a new raft of closures loom. Middle East unrest means the price of crude oil, which refiners convert into motor and heating fuel, has remained stubbornly high this year, squeezing profit margins amid weak demand as European economies struggle to maintain growth. At the same time, larger, state-of-the-art refiners in the United States, Middle East and Asia also enjoy cheaper feedstock, giving them a head start in the race for markets.

The flurry of challenges is likely to prompt more closures, with top traders and analysts saying they expect up to two million barrels per day of European refining capacity or around 15 percent to disappear by 2020. "The outlook is grim and we don't see 2014 getting much better," said Jonathan Leitch, senior oil analyst at resources industry consultancy Wood Mackenzie. "You cannot afford to keep operating refineries at these levels. We are going to have to see more closures of European refineries in 2014."

[ROCKMAN]

pstarr - For sure. In fact part of China's motivation was probably seeing the developing weakness in the EU refineries. So something of a chicken/egg thing: weak EU = China's economic advantage = China refinery JV's pulling some market share away from the EU = EU refiners become weaker = China takes more control of the supply stream. I suspect as bad as it may be for EU refiners now it's only going to get worse as those new Chinese refineries go online.

[pwallmann]

Rock, Great article on China and Ecuador's relatoinship.

http://business.financialpost.com/2013/11/26/how-china-took-control-of-ecuadors-oil/?__lsa=f1c6-f502

$this->bbcode_second_pass_quote('', 'I')n reality, Calvopiña had little choice but to wait. Shunned by most lenders since a US$3.2-billion debt default in 2008, Ecuador now relies heavily on Chinese funds, which are expected to cover 61% of the government’s US$6.2-billion in financing needs this year. In return, China can claim as much as 90% of Ecuador’s oil shipments in coming years, a rare feat in today’s diversified oil market.

[ROCKMAN]

P - Thanks...saw that piece on the other thread. The Chinese refinery moves probably won't have much impact on the US until when/if China makes a big move into México. We get what looks like a lot of Mexican oil today but about 25% of that value is shipped back to them as products thanks to the poor refining capabilities of PEMEX. IOW a fair bit less net Mexican imported oil. I suspect the biggest hurdle for China doing a big refinery JV in México is dealing with the Mexican constitution which stiffles foreign investments...apparently unlike Ecuador. One of strangest statements I've heard was from one Mexican official speculating on the possibility of China building a refinery in his country designed to crack Eagle Ford oil...a fair bit of which is currently being exported to Canadian refiners. Wouldn't take a very expensive pipeline depending on where they built the refinery. This would allow China to import some of the Mexican oil currently coming to the US. China and México have already begun a rather small pilot project doing just that. BTW if you didn't see the post: Venezuela and Columbia are trying to cut a deal to lay a pipeline from V. across C. to their coast so oil could be shipped to China bypassing the Panama Canal. Just one more little dot that 99.9% of Americans aren't aware of.

[ROCKMAN]

Just one more very smallō dot but follows the trend of foreign oil producers exercising more direct control over their resources.

Reuters - Indonesia's energy ministry will not renew Chevron Corp's oil contract at a small oilfield in Sumatra and will hand over management to state-owned oil firm Pertamina, industry officials said. The transfer of the Siak oilfield, which produces around 4,000 barrels per day, is part of a government effort to curb foreign ownership and grab more revenue from its natural resources. Similar to Iraq signing management contracts to handle their oil development instead of granting oil concessions to foreign oil companies.

[ROCKMAN]

And another gov't learns that seizing the assets of a foreign company feels good at first. And then the bill shows up. And they end up controlling all of their resources but lack the capex to develop them. And at the same time discouraging other foreign investors. I'm sure the seizure earned some initial political bennies from the locals. Not so much from the future electorate as the county's economy declines.

Reuters - "The board of Spain's Repsol unanimously agreed on Wednesday to start formal talks with Argentina over a compensation offer for assets Buenos Aires seized last year that could end an 18-month standoff between the two countries. Sources have told Reuters that the deal is worth $5 billion. Argentina seized its majority stake in energy company YPF in 2012. "With the aim of developing a preliminary agreement, Repsol has decided to start talks soon between its teams and the Argentine government " Repsol said in a statement. It has hired an international investment bank to oversee the process. Bilateral ties between Spain and Argentina have been on ice since the nationalisation in April 2012, so any deal has significance beyond Repsol's own interests, particularly for Argentina as it seeks to restore investor confidence. Argentine President Cristina Fernandez is trying to attract the billions of dollars needed to exploit the Vaca Muerta (Dead Cow) shale formation to help bolster central bank reserves drained in part by costly oil and gas imports. "Signing a deal between Repsol and the Argentine state will provide the confidence necessary to form new alliances with potential investors and drive non-conventional exploration," YPF chief Miguel Galuccio told Reuters."

"...provide the confidence necessary...". Oh yeah...I'm sure $billions of foreign capital will flood into Argentina after they took 1.5 years to BEGIN settlement talks with the Spaniards. Sounds like another opportunity for the Chinese. Although they are known for being that big of a pushover.

The seizure had serious side effects: When the Argentine oil company YPF announced two years ago that it had discovered some of the world's largest reserves of shale gas and oil on a barren plain in Patagonia, many began looking to the energy industry as the answer to Argentina's financial woes. The country's growing dependence on foreign fuel has been a main driver of economic instability. Oil and gas imports have drained currency reserves, and large energy subsidies have contributed to a soaring inflation rate. According to a U.S. Energy Department report touted by officials and energy analysts, tapping the hydrocarbons buried deep in the so-called Vaca Muerta formation in Patagonia could reverse Argentina's steady decline in oil and gas production, meeting domestic demand and providing enough for export.

But Argentina's path to becoming a world energy power is far from clear. More than a decade after its default on nearly $100 billion in debt in 2002 after a prolonged recession, Argentina is still considered a risky investment. That fact was highlighted this week when President Cristina Fernandez de Kirchner suggested that she would defy a U.S. appeals court's order to pay more than $1.3 billion to a small group of bond investors who refused to swap out defaulted securities for new, discounted ones, and instead have sued for the original face value. High taxes, strict currency controls and Fernandez's sudden move last year to nationalize YPF have also complicated Argentina's ability to secure the billions of dollars in foreign investment it needs to get new oil and gas wells pumping.

Argentina is a nation of dramatic booms and busts. After the 2002 crisis, which saw a wide swath of the middle class lose much of its savings, the economy grew rapidly, driven by high prices for agricultural exports, such as soybeans. But a mounting appetite for foreign energy has reduced the supply of dollars that Argentina needs to pay bondholders. Argentina's reserves dropped from $56 billion in 2011 to $37 billion in 2013, according to the International Monetary Fund. During that time, energy imports grew from $9.4 billion to an estimated $14 billion. Unable to borrow money on international markets because of past defaults, Fernandez's government has responded by printing money, fueling inflation. Officially, the inflation rate is 10.5%, but unofficial estimates put it at 25%. The government also has made it more difficult for people to withdraw foreign currency, a blow to a middle class that has traditionally saved money in foreign cash because it is more stable than the fluctuating peso.

[h2]

Part 1 of a 3 part series Billions from Beijing: Africans Divided over Chinese Presence - Der Spiegel

$this->bbcode_second_pass_quote('', 'C')hina, Asia's economic superpower, is hungry for natural resources, energy, food and markets for its products. Africa can offer all of these things: about 40 percent of global reserves of natural resources, 60 percent of uncultivated agricultural land, a billion people with rising purchasing power and a potential army of low-wage workers.
...
Tanzania is one of the focal points of the Chinese globalization strategy in Africa. In 2011, a large Chinese company invested $3 billion in coal and iron ore mines in the country. The enormous natural gas reserves off the Tanzanian coast -- an estimated 40 trillion cubic feet -- are of strategic interest. The China National Petroleum Company is currently installing a 532-kilometer (333-mile) pipeline from Mtwara, a port city in southeastern Tanzania, to Dar es Salaam.

When the pipeline is finished, supertankers docking at the new Bagamayo port will load liquefied natural gas, cooled to temperatures of minus 164 degrees Celsius (minus 263 degrees Fahrenheit), and transport it to the Far East. Mineral ores and agricultural products from Tanzania, Zambia and Congo will also be shipped from the port. The Chinese are also reportedly planning to build a naval base to protect their economic interests along the Indian Ocean.

[ROCKMAN]

h2 - I try to post snippets along the way about China's efforts to secure overseas resources by one method or another. Nice to see someone (anyone) compile a more thorough picture. One of the more telling aspects of your post isn’t just the facts but who’s writing about it…the Germans. Given how dependent the US economy is on foreign resources one might think our MSM would be all over such a story. But it’s more likely this article won’t even get much US coverage. Even when someone else does the heavy lifting they won’t take advantage.

[Quinny]

Thanks to all - I find this thread fascinating.