Sum of Far East Oil Projects Tight as China Plans Reserves Build and Taiwan Secures UAE Source

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Researched by Industrialinfo.com (Industrial Information Resources, Incorporated; Houston, Texas). Within days of a Chinese official's saying that the country would start filling its strategic oil reserves in the last quarter of 2005, an agreement on a joint venture (JV) between Taiwan and the United Arab Emirates (UAE) was announced. The motivation for the JV was reported to be the protection of Taiwan's oil supplies as rival China seeks new sources for its own energy needs.

The vice-director of China's all powerful National Development and Reform Commission (NDRC) made the announcement of China's impending move on reserves at a conference in New Orleans. The announcement came at a time when China's CNOOC $18.5 billion plus cash bid for Unocal (NYSE:UCL ) (El Segundo, California) was receiving some distinctly geopolitical comment in the U.S., as Chevron hung tough to its original $16.4 billion bid for Unocal.

Industry observers say that additional demand arising from China filling its reserve tanks could strain tight global oil supply markets. China's aim is to fill up to 101.9 million barrels of reserves in the next five years. This is equivalent to a 20 day supply at current consumption levels. Zhang Guobao rejected opinions that China's rising oil consumption was behind high oil prices.

Although China's state TV confirmed that the filling of strategic oil reserve tanks at the eastern coastal city of Ningbo would begin at the end of the year, a section of industry opinion felt that any definite move on the reserves would be held over until 2006, when oil prices are expected to calm down after the frenzies of 2005.

In Taiwan, the UAE's International Petroleum Investment Company will invest $2.63 billion in a project led by Taiwan's state oil company, Chinese Petroleum Corporation. Two petrochemical complexes will be built and one in the UAE. A contract covering both projects is expected to be signed by the end of the year. The local Commercial Times reported that concerns rose recently following the Chinese bid for Unocal.

Taiwan's National Security Council is reported to have set up special acquisition teams to investigate further energy supplies and Chinese Petroleum (Taipei) has earmarked $2.8 billion in 2005 for oil exploration projects in Africa and South America. In the twenty years between 1983 and 2003, Taiwan's oil consumption almost tripled, rising to about 900,000 bpd, and is now around the one million bpd mark. Some 99.5 % of the oil requirement is imported, mainly from Middle Eastern sources. Petroleum refining capacity is about in balance with consumption, but with pressure on petrochemical production and fuel supply, there is no room for maneuver, and the result is increased pressure on project development.

For related news item see - June 22, 2005 - Positive Double Whammy Demand Backs Mid-East Refinery and Cracker Project Construction.

The UAE JV will help Chinese Petroleum reduce the cost of crude oil and ensure supplies from the UAE.

Earlier this year, an industry leader in the U.S. said that it was essential for petrochemical companies to have investments in the Middle East - or lose out. The Chemistry Council reported that the U.S. remained the world's largest chemical manufacturer, with $459.1 billion sales in 2003, representing nearly 25% of the $1.94 trillion global market.

With Japan's established strategy, of investing and participating in the development and delivery of sources worldwide and India and Southeast Asia's policies of securing long-term energy sources by entering into trade and energy swaps, there is not time to hang around on the identification and clinching of real resource deals.

The Chemistry Council reported that ethylene capacity in the Asia Pacific region could increase 42% by 2010, to 44 million tons, and overtake the Americas, which may gain 7.5%, for a total of 41.4 million tons, while Europe trails at 32 million tons. By 2010 North America may become a net importer of ethylene, it said.

Let us hope that the cross-border nature of oil and energy supplies combined with the necessity and value of global technologies is enough to keep the gunboats in cruise formation, while giving the more macho geopoliticians a sense of national duty fulfilled.

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