China’s Appetite For Natural Resources

According to Sahit Muja of the NY Economy and Politics Examiner, China has an insatiable appetite for the world’s natural resources to sustain an economic boom that powers ahead despite the global downturn. The quest for raw materials is the central goal of the country’s foreign policy. And virtually every natural resource imaginable is found just over the border. Russia has large reserves of natural gas, oil, diamonds and gold, while millions of square miles of birch and pine provide supplies of timber. China is the world’s fastest-growing major economy and consumes more than a third of the world’s aluminum output, a quarter of its copper production, almost a tenth of its oil and accounts for more than half of trading in iron ore. Last year, China bought $211 billion worth of iron ore, refined copper, crude oil and alumina, according to government data.

China Petrochemical Corp., the country’s second-biggest oil company, in June agreed to buy Geneva-based Addax Petroleum Corp. for $7.6 billion in China’s biggest overseas takeover to date. Purchasing Addax, which has oil reserves in Iraq’s Kurdish territory, shows Chinese oil companies are “going for bigger transactions. Australia has signed a record 41.3 billion US dollar deal to supply Chinese energy giant PetroChina with liquefied natural gas, officials said. The agreement, which represents the biggest foreign investment in Australia, is for PetroChina to buy 2.25 million tonnes a year over the next two decades from ExxonMobil’s Gorgon gas field. China has also extended huge sums of credit, including a $25-billion loan to Russian companies, to pay off debt and develop the East Siberia Pacific Ocean pipeline in exchange for 300,000 barrels a day of oil. The Chinese Development Bank lent Brazil’s Petrobras $10 billion to help with its $170-billion, five-year plan to increase its crude output. In exchange, Petrobras agreed to give the Chinese 200,000 barrels a day of oil exports. China extended a $4-billion loan to Venezuela to expand various oil projects, according to the Energy Information Administration. Chinese companies are also reportedly eyeing new oil deals in Nigeria and Ghana.

The state-owned China National Offshore Oil Corp., or CNOOC, reportedly is negotiating the purchase of leases owned by the Norwegian StatoilHydro in U.S. waters in the Gulf of Mexico, the source of about a quarter of U.S. crude oil production. China’s push to enter U.S. turf comes four years after CNOOC’s $18.5-billion bid to buy Unocal Corp. was scuttled by Congress on national security grounds.

Commentary – China is being aggressive. But some analysts are saying that buying natural resources such as oil is a way for China to diversify holdings that are heavily concentrated in US securities. This may be true, but I believe that China is implementing a very long range plan to meet their projected energy needs. China has faced problems with energy shortages in the past as a result of the growth in its manufacturing economy and pollution problems created by its reliance on coal. According to some reports, China imports 40% of its oil requirements and these oil imports have been growing at 30% per year. They are currently dependent on coal for about 65% of its energy. China wants to change this situation such that more of their energy needs are met with oil and gas, and non-carbon sources such as nuclear power, hydro and wind.

Carbon Bill Could Cost US Refiners $100 billion/Year

As reported in the Oil and Gas Journal, proposed legislation (Waxman-Markey climate bill HR 2454) on carbon capture and sequestration potentially could cost US refiners $100 billion/year, threatening the sustainability of the domestic refining industry and giving undue favor to non-US refiners.  Carbon capture is a means of mitigating the contribution of fossil fuel emissions to global warming, based on capturing carbon dioxide (CO2) from power plants. Carbon sequestration is a technique for the long-term storage of carbon dioxide or other forms of carbon by injecting the CO2 below the surface of the earth. The proposed Senate climate change and energy legislation has even more stringent emissions targets than the hotly debated Waxman-Markey bill.

Commentary – Currently carbon capture and sequestration technology is being developed and not commercially viable. If this legislation is passed, these costs will be passed on to consumers, otherwise US refiners will be out of business and we will be importing all of our gasoline needs. Either way get ready for $4.00/gallon prices or higher. In my opinion, “cap and trade” is a convoluted form of tax increase and may not even reduce emissions. If the government really wanted to save all this legislation and bureaucracy, all they needed to do is pass a carbon tax on gasoline, except that wouldn’t provide the politicians and administration with cover. They want you to blame private industry for high prices because they are causing global warming.

2008 Report On Proved Reserves Of Natural Gas and Crude Oil

The Energy Information Administration’s (EIA) estimates of proved reserves of natural gas and crude oil as of the end of 2008 tell very different stories about apparent changes in the availability of these two energy resources in the United States. Proved reserves are those volumes of oil and natural gas that geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions. Proved reserves of natural gas rose enough not only to replace production, but also to grow by almost 3 percent over 2007, largely due to continued development of unconventional gas from shales. In contrast, even though discoveries of crude oil rose for the third year in a row, proved reserves of crude oil fell by more than 10 percent.

Total U.S. proved reserves of dry natural gas rose by 7.0 trillion cubic feet (Tcf) from 237.7 Tcf at year-end 2007 to 244.7 Tcf year-end 2008. Total natural gas discoveries in 2008 was 29.5 Tcf which represented the sixth consecutive yearly increase and were the highest level of discoveries in the 32 years EIA has published proved reserves estimates. In 2008, 90 percent of total discoveries came from extensions of existing fields. Natural gas produced during a year is subtracted from proved reserves. Production of dry natural gas in 2008 totaled 20.5 Tcf, up 5.4 percent from 2007, marking the third consecutive annual increase in U.S. natural gas production.

Total U.S proved crude oil reserves declined 10.3% from 21.3 billion barrels (bil. bbls) at the end of 2007 to 19.1 bil. bbls year-end 2008. The changes included 1.1 bil. bbls of new discoveries, downward revisions of 1.6 billion barrels and production of 1.9 bil. bbls. EIA also collects reserves estimates of natural gas liquids (NGL) which are hydrocarbons in natural gas that are extracted (as liquids) at the surface in gas processing or cycling plants. Year-end 2008 proved reserves of NGL were 9.3 billion barrels, an increase of 1.4 percent over 2007.

Commentary - A notable source of new crude oil discoveries was North Dakota, which added 167 million barrels. These discoveries represent rapid growth in reserves in the Bakken shale and the underlying Three Forks formation. Operators can produce oil from the Bakken using the same horizontal drilling and hydraulic fracturing techniques used so widely for natural gas shale production. The production of oil from the layers of shale within the Bakken Formation is different from the extraction of oil from oil shale plays such as the Canadian oil sands