China Oil Security Issue In the New Map of Global Oil Geography - Term Paper Example

8th December Introduction Oil is a resource that each and every country cannot do without. If a country does not have its own oil field importation must be done to facilitate economic stability. Due to technology, sophisticated machines that require oil to make work easier are manufactured. Oil consumption has increased globally making its prices to keep on changing. Failure to import oil if a country does not have sufficient oil fields will ultimately negatively impact of industrial development and slow economic growth. In the global market, oil is one of the products that met very high demand. Similarly, oil production and consumption in the Middle East and Central Asia among other countries has resulted to political implication and increased threats of terrorism activities. US among other developed countries have taken various political stands to ensure that they dominate the regions producing oil. This is based on US and China high demand of the market, and aspect that has make them to be part and parcel of political, security and economic strategies adopted by oil producers. This paper aims at discussing China oil security issues in the new map of global oil geography, by analyzing China oil security issues, the threats that will face China government in oil security issue. Additionally, this paper seeks to address solution for China oil security issue among other aspects. China oil security issues China has high demand for oil and gas due to its need for industrial as well as economic growth. This is the reason why China has been establishing diplomatic ties with any country or a regime which is known to have abundant energy resources. The Chinese National Oil Companies (NOCs) acts like an arm of government that is concerned with steps and procedures that are used to ensure that China energy security on behalf of other oil consuming economies is enhanced. NOCs works in collaboration with the government on how the country will increase investments in the oil venture. The challenge of high consumption of petroleum in China has made oil market to be competitive, leading to China expanding globally to solve oil security issues. In 1993, China was importing oil from Middle East which was about 16% but towards 1998 the country’s consumption level of oil was noted to be 61%. The increased consumption in the economy made the stakeholders to make decisions that ensure oil is abundant in China economy. In 2002, China was ranked as the second largest oil consuming economy though Japan was still a large oil consuming economy. The level at which oil consumption was accelerating was astonishing since it indicated that annually the consumption of oil was 15% indicating that 254 tonnes were used in 2010. In 2011, China imported 56.5% of oil comparing with United States where the importation of oil decreased to 50% in the same year. This was the first time that oil importation in United States reduced due to the weak economy and vehicles that were efficient in oil consumption. China in 2011 imported liquefied natural gas (LNG). Due to rising oil consumption and demand, Chinese oil companies have increased relational ties thereby acquiring overseas assets. Chinese NOCs in collaboration with other companies spends an approximate $47.6 billion on oil and gas assets. In early 1990s, when NOCs had already entered the field of oil importation, NOCs was a lightweight industry which was not even able to compete with giants that already existed in oil producing basins. After a year, NOCs made a breakthrough in oil producing which made the western nation to fear on matters relating to oil. One of the major oil security issues that were set by Chinese NOCs was acquiring a tender “block 1/2/4” that was won by China National Petroleum Corporation (CNPC) in 1996. The American oil companies were not allowed to venture in Sudan since earlier they had declared Sudan as a state that supports terrorism. Since China has signed a principle of non intervention in Beijing, it did not intervene in Sudan domestic issues and thus China being able to pursue business interest in Sudan (Herberg, 41). Chinese government worked along side Sudan government to make sure that terrorism will be curbed in Sudan by working as partners. Chinese NOCs enjoyed the opportunity and lucrative partnership in Sudan and by 1999 China oil import from Sudan was 270,000 tones. Oil security issue that is a concern to Chinese NOCs is a going global strategy so that they are able to pursuit their interest (Sovacool and Brown, 61). To cover financial losses that were caused by price fluctuations, CNPC and Sinopec had to come with a strategy that would create environment which Chinese NOCs had to use so that China could effectively compete with other countries. This motivated competition for petroleum consumption, the supply was diversified worldwide that made the oil consuming states to boost their economies. To deal with oil security, the Chinese NOCs established natural resource procurement that was signed so that the country could diversify the supplying of oil. Advanced technology has been a tool that China has been using on oil security, for example China has been using oil that is from different parts of countries. China benefits from extraction of oil since they have the technology which simplifies the extraction making it easier to convince others to be suppliers. This has made it possible to sustain the large economy with oil and also acquire assets. Due to lack of transparency and accountability, Chinese NOCs face a lot of challenges since some countries think that they are producing the oil and then transmit it to China where the companies have poor reputation. Threats that will face China government in oil security issue Energy security has increased the attention of the stakeholders and this is the reason why countries have paid a lot of attention towards oil. Threats like terrorism have been witnessed in the recent past. Oil and other fossil fuel depletion Oil and other fossil fuel depletion is a major threat that China face on oil security issue. This is due to the vast consumption of oil and inadequate amount of fossil fuel. Some years back, China surpassed US as the importer of Persian Gulf crude oil and again in 2013, it overtook US as the importer of Middle East oil. Due to the high consumption, China government fears that oil that is being extracted already may have reached it peak. Globally oil and other oil products are being consumed at high rate and thus the possibility of reaching its peak. Some of the countries that supplies oil to other countries argue that oil market which might be depleted will solve itself. Through immerging of other rich oil fields the market will be solved by making profit and distribute resources equitably. Since market is not perfect and the possibility of oil depression holds true then technology should be advanced so that heavy and light machines will not be using oil. Geopolitics (support of dictatorship, terrorism) Politics that divide the country alongside ethnic communities due to natural resources has the likelihood of occurring. This means that the president or other leaders may support dictatorship since they have their own natural resources and they will not depend on other countries import. For example, in case of Libya, the government was dictatorial since the country was non dependant on other countries leading to a rise of powerful government that does not allow democracy. Countries that have rich oil field are associated with terrorist who are concerned in making profit from the oil fields. Peaceful nation that will not allow mass killings of individuals due to natural resources boost their economy by creating revenue that the government use for development. Terrorist are known for causing disasters like mass killing to threaten the country while under oil extraction process (Miller, 57). The communities who are benefiting from the rich oil fields may be attacked making them to be evacuated from their original homes. This is done to make the government be unstable so that extraction of oil does not occur. Natural resources are supposed to be shared equitably so that threats of geopolitics are solved. It is the role of the China government to make sure that leaders will promote peace without causing division among the members of the society. Reliance on foreign sources of energy Since China is known for the high consumption of oil like petroleum, there is a possibility of China relying on other countries for energy. The ever growing population which requires energy for the survival will have to use other measures to make energy be sufficient to them. For example, in 2006 United States president by then George Bush once admitted that for US to remain competitive with other countries the country needed affordable energy. This is because US was importing oil from other parts of the country which in turn United States was funding. To make sure that threat of oil security from reliance on foreign sources was solved then United States had to advance its technology. Likewise, for China which has a high population that will require more energy will mean that technology will need to be upgraded so that the ever growing population oil needs are met. Environmental issues, in particular climate change Oil extraction causes environmental degradation particularly climate change due to usage of machines that emits smoke and carbon to the environment. Environment degradation will hinder agricultural produce due to lack of clean water that will hinder vegetation growth. Most tourists are attracted by the country environment and since the environmental degradation will be experienced, then the possibility of tourist coming to China will be reduced. Environment contributes greatly in tourism since it is a source of revenue which the government uses for social and infrastructure developments. China must make sure that any machine or smoke that is emitted to the environment is controlled through the use of carbonated chimney. Water reserves should not be prone to extraction of oil since it would mean that water will be a scarce resource in China. Measures to solve environmental issues should be outlined so that when extraction of the natural resources is taking place, certain rules and regulation will be adopted in China. Aims of oil security agencies in China Refining Increasing crude oil that is imported from other foreign countries is a goal which China government has embraced so that it meets oil product demand. Due to the demand and the growth rate of individuals who cannot do without oil, the government together with the Chinese companies is working on the aim of processing different crude oil types. China is the third from United States and European Union in refining of crude oil in capacity. In 2013, for example, the crude oil refined was estimated to be 13 million bb/d comparing with 890,000 bb/d which was refined in 2012. The refineries are being expanded to make sure that more oil is achieved as the demand of oil in China is rising every day. The refineries are designed in a way that will accept all grades of crude oil thereby increasing the competitive advantage of Chinese refineries. China is not only concerned with the demands of the Chinese rather the aim is to export the crude oil to foreign countries with an aim of maximizing their potentiality. The aim of Chinese oil companies is to attain a capacity worth 17 million bbl/d. China is anticipating to add 4 million bbl/d in 2014 by building refining capacity which will ensure that oil imports in China is reduced. Some of the notable oil refining companies in China that are working for the attainment of high volume of crude oil are Sinopec which is located in Yangzi, Sinopec that is located in Tianjin and CNPC that is located in Pengzhou among others. Companies are working their best to attain the goal of processing crude oil so that economic and industrial growth remains sustainable. Oil importer Being the one of the largest consumer of oil globally, China is projected to be the second largest importer of oil in 2014. This is according to the oil and gas journal (OGJ) since China has a reserve which is holding more than 24.4 billion barrels. Due to the stable domestic market, the country is able to sustain 54% of it economy. China is expected to use technology and able to extract oil from non petroleum liquids as a gas making it be liquid which the Chinese resident will use. Coal which is sufficient in China or may be imported will be processed and be used as liquid which the resident will also use like petroleum. In addition, Chinese oil companies are determined to use biofuels and crude oil by processing it so that it will be the second largest importer in 2014. Oil production in China has been growing moderately reaching to 6.6 million bbl/d comparing with that one of United States that has reached to 5.5 million bbl/d. Sector organization The Chinese government together with the sector concerned with oil in China is working towards the goal of attaining transparent and accountable organizations that will boost the economy through exportation of oil and it products. China oil companies work in collaboration with other international companies to make sure that oil production will be sufficient and its citizens do not face difficulties to access the vital product (Tomczak, 36). The companies dominate the extraction of oil without government involvement thereby allowing the upstream and downstream sectors to be responsible for oil production. Engagement of international companies in extraction of oil in China has made it possible for China to be among the best countries that are organized to attain the goal of providing adequate oil products for local industries and transport sector. By setting a powerful regulatory sector that is responsible for oil demands of its citizens, China is able to import oil from other countries and also export it to other deserving nations. National Development and Reform Commission (NDRC) has been given the mandate to plan, policymaking and regulate the energy sector. The National Energy Administration (NEA) is the one which is concerned with regulation of oil prices for the domestic demand and for international usage. One of the companies that are known to have influence in China is China National Oil Companies (NOCs). In collaboration with the local companies and international companies, NOCs have been organized to make sure that production of oil is in line with the demand of rural as well as urban based Chinese residents. Pricing reforms The prices of the oil keep on fluctuating and this is the reason why NDRC has the goal of ensuring that oil prices are regulated at domestic and international levels. The Chinese government in collaboration with NDRC launched a fuel tax and reform so that the refiners and other oil investors will use downstream investments. This means that the investors will sell oil at a regulated profit making the consumer price to be low leading to high demand for oil. Internationally, individuals require oil but the high price for oil products makes the consumer to look for other alternatives. If the prices of oil are regulated, it implies that the demand will be high and this is the reason why Chinese oil companies and the government are working to attain the goal of pricing reform. Due to the retailers not sticking to the rules and regulations, refiners have regulated their prices while the retailers have set high prices for oil. This makes the refiners to incur high loss while the retailers gain a lot of profit resulting to a non-transparent oil market (Tewksbury, 52). Due to this aspect, the Chinese oil companies has revised the pricing by shortening the retail price where they are adjusted in every 10days so that the consumers are not humiliated by the retailers. Solutions for China oil security issue Coal liquefaction Being the second largest economy with high consumption of oil, and based on the fact that the country has rapid industrialization and motorization, China needs a stable oil security that will sustain the economy. Vehicle ownership in China has increased and thus oil production is under pressure based on the fact that individuals require oil to drive their vehicles and to operate machines that make work easier among other roles. A sustainable solution is to use coal by processing it since it is sufficient in China. Coal liquefaction (CL) is a potential solution which will make China to be able to sustain its residents and thus solving the oil supply issue (Armaroli and Vincenzo, 25). The only risk of coal liquefaction is that profit will not be high as that one of petroleum products. The strategy will be sustainable and thus will be able to solve the oil security issue but in terms of the cost it will not make a lot of profit to the refiners. Oil supply security will be solved and thus the increased vehicle ownership will be able to use the oil without being imported and thus the price will be regulated and thus making it a benefit to the residents and the government. Renewable energy The use of biofuels and crude oil will also boost the economy and sustain the growing population. The heat that emanate from underground will be efficient to the economy if the companies can heat the inner core that will further heat water sources. The possibility of steam that is produced by the heated water will likely to power machines. This can be a solution to China high consumption of oil. Biofuels like ethanol and algae are natural resources which are available, China can use the biofuels which will be much cheaper as compared with consumption of petroleum. Being an advanced technology country, China should ensure that the biofuels and crude oil are refined which in turn will lead to production of oil that will meet the growing population. Technology, if embraced will reduce the importation of oil and be an export country after acquiring the natural resources from other countries. Refining of crude oil will make it possible for China to enjoy a stable economy that will create employment and investment opportunities. The crude products that are not used as fuel may be refined and allow the growing population to use the oil thus making the importation of oil to be reduced (Varley, 54). Companies like NOCs among others that are concerned with oil refining should aim at producing billion of barrels which in turn will benefit the government together with the Chinese residents. It is the role of the Chinese companies to ensure that oil regulation are attained by incorporating the transportation department and other relevant stakeholders in oil security issues (Porter, 32). To sustain the economy with oil then if the above solution will not be used importation of oil from Middle East and other African content has rich oil fields that will cater for the demand of oil. Conclusion The immerging competition among the G8 countries has resulted to high consumption of oil. This is based on the fact that industrialization and motorization has took place thereby increasing vehicle ownership and other power machines that are used by individuals to simplify their work. The demand for oil consumption has been increasing making developed and developing countries to depend on regions such as Middle East, North Africa and Central China among others. This has emanated business transactions and diplomatic ties among the producers and consumers. For example China conducts business transaction with Sudan based on the fact that China needs oil from Sudan. On the other hand Sudan imports other products which they require increasing ties with consuming countries. Despite the increased demand for oil globally, there has emerged conflict among the oil producing countries as developed countries such as US aims at remaining dominant in the oil producing regions. The formation of trading block such as Organization of the Petroleum Exporting Countries (OPEC) has made the producers to have power to deal with the consumers who use their economic power to suppress them. With the increased cases of terrorism, it is essential for US in collaboration with UN to put in place sustainable security measures in oil producing countries. In this way, the oil exploration process will be undertaken in a secured manner. Based on the impact of changing oil prices in China economy as well as global market, it is necessary that proper price regulations mechanisms are put in place. While the developed countries are able to come up with other energy alternatives, third world states are greatly affected by price increment of oil products. Ii is notable that China has interest in the developing countries for example in the African region. Thus, the country should come together with other countries to regulate oil prices since oil is one of raw materials that the developed countries use during their infrastructure establishment in developing countries. Works Cited 1. Armaroli, N. & Vincenzo, B. Powering Planet Earth: Energy Solutions for the Future. Weinheim: Wiley-VCH, 2013. Print. 2. Herberg, M. Energy Security and the Asia-Pacific: Course Reader. United States: The National Bureau of Asian Research, 2014. Print. 3. Miller, R. Business Law Today: The Essentials: Diverse, Ethical, Online, and Global Environment. 10th ed. Mason, Ohio: South-western, 2013. Print. 4. Porter, A. Peak oil enters mainstream debate. New York. London: Routledge, 2005. Print. 5. Tewksbury, D. Preemptive Energy Security: An Aggressive Approach to Meeting Americas Requirements. Carlisle Barracks, Pa.: U.S. Army War College, 2006. Print. 6. Tomczak, P. China: Sources of Conflict. Carlisle Barracks, PA: U.S. Army War College, 2001. Print. 7. Varley, C. Chinas Power Sector Reforms Where to Next? Paris: International Energy Agency, 2006. Print. Read More