China takes the long view on oil

Bloomberg reports China is in talks with Kazakhstan over a $10bn oil accord:

China National Petroleum Corp. plans to buy a minority holding in AO Mangistaumunaigas from state-run KazMunaiGaz National Co., a China National official said yesterday. The two nations may sign an accord on April 15 when Kazakh President Nursultan Nazarbayev visits Beijing, the official said, declining to be identified because of internal rules.

Last week China (along with Japan and possibly India) talked with Venezuela, although this did not achieve much substantial development in their existing relationship. In February, China struck lengthy oil supply contracts with Russia and Brazil.

Much of the world takes a short-term view of oil prices – even now we are seeing relatively low oil prices despite a widespread view that this will lead to a shortage squeeze next year.

China’s substantial foreign currency reserves allow it to take advantage of the current environment in which oil-producing nations such as Iraq, Algeria and Uruguay are feeling under enough pressure to sweeten terms for foreign companies doing exploration and production.

But it may be part of an even wider plan. China, already the world’s second biggest energy consumer, features prominently in oil demand theories such as Peter Hughes‘. China wants to lock up fossil fuel supplies, his argument goes, but this is part of a wider strategy to avoid vulnerability to supply shocks in future; another part of that strategy is to minimise dependence on fossil fuels altogether. Is it a coincidence that China also recently revealed plans to be the world’s biggest electric car maker?

Update: The WSJ reports that Shell is bidding with unnamed Chinese companies in Iraq, which was semi-confirmed by Jeroen van der Veer, and CFO Peter Voser, according to wires reports from Beijing where the pair were this morning.

Related links:
China, Kazakhstan may sign $10bn accord for oil(Bloomberg)
China gets busy
(FT Energy Source)
Peaking oil demand? (FT Energy Source)

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