China: Quest for Crude

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Yang Hua's passport is stamped with visas that would alarm immigration clerks around the world. He showed up in Indonesia two days after the Bali disco bombing in 2002. He has logged trips on a moment's notice to Iran, Yemen and Qatar as well as the U.S., Australia, Canada, England and Brazil. And Yang doesn't try to hide the substances contained in little glass vials that he brings home from his travels. In fact, they're lined up on the windowsill of his Beijing office, affixed with labels like SAUDI SWEET. Yang, it turns out, works for the China National Offshore Oil Corp. (CNOOC) and is responsible for the state-owned company's efforts to secure oil and gas supplies all over the globe. The samples of crude are souvenirs that testify to how far he must roam in his search. "I'd like it if there was oil under Paris," he says, "but I spend my time in less comfortable places."

Yang's globe trotting reflects just how powerful China's thirst for fossil fuels has become. A booming but energy-inefficient economy and an emerging middle class in love with cars and other modern conveniences have caused energy demand in China to soar. The nation's oil imports have doubled over the past three years and surged nearly 40% in the first half of 2004 alone, pushing the country past Japan to become the world's second largest oil consumer, behind the U.S.

Today numerous factors are driving up the price of crude, from chaos in Iraq to turmoil in Nigeria to hurricanes in the Gulf of Mexico. "It is neither fair nor accurate to blame China for most of the rise in oil prices," says Jeffrey Logan of the Paris-based International Energy Agency. But China's impact should not be ignored. Even if China's blazing GDP growth of 9.1% in the first three quarters of this year (compared with the same period the previous year) slows to 8% in 2005, as the Chinese Academy of Social Sciences predicts, the country has become a permanent player in the global competition for oil. "More than a billion Chinese are joining the oil market," says Bo Lin, an energy specialist at the Asian Development Bank. "How can prices go down?"

China has not always been so dependent on imported oil. The discovery in 1959 of the Daqing oil fields under the Manchurian grasslands meant that the once largely agrarian country was for decades able to produce more crude than it required, a circumstance that the government celebrated as a political victory. ("Study Daqing!" chanted legions of Red Guards during the 1966-76 Cultural Revolution.) Oil and gas discoveries in the South China Sea and the Bohai Gulf, where drilling began in 1979, made China seem all the more invulnerable to oil shocks, and the country remained an oil exporter until 1993. Today, however, output from China's top four oil fields is in decline. By some estimates, the country's current proven reserves will be depleted in as little as 14 years. Meanwhile, it is not economically feasible to drill largely untapped petroleum pools believed to lie beneath western China's desolate Tarim Basin, even with prices at $50 a barrel.