Oil-Hungry China Courting Nigeria, Iran, Iraq, Canada, Venezuela…

For all their UK-shaming investment in renewable energy, like announcing the construction of the world’s largest solar array this week, China’s passage to future number one superpower status will nevertheless be lubricated with oil, and lots of it. So much so that they’re casting their net wider to secure it – the FT reports today that it’s got a copy of a letter outlining talks between China and Nigeria, with China’s state oil company CNOOC aiming to bag a sixth of all Nigeria’s proven oil reserves.

Up for renewal are 16 licences, though a further seven blocks of oil whose licences are ongoing are also being discussed, potentially causing friction between CNOOC and private western companies. Nigeria rejected China’s initial offer, but is allowing negotiations to continue - Tanimu Yakubu, economic adviser to the Nigerian president, said that the Chinese “are really offering multiples of what existing producers are pledging [for licences]. We love to see this kind of competition.” Apparently China is bidding with $50bn. Despite the potential cultural spats, despite the legal changes in Nigeria that demand more national autonomy with their oil assets, and despite previous failures by the Chinese to secure stakes, it looks like they might push the whole thing through via the sheer weight of cash.

In the last month, China has invested in Venezuela, with a $16bn oil exploration deal; in Canada’s potentially lucrative but logistically tricky oil sands; and in the Democratic Republic of Congo, where they’re mining cobalt and copper. Their recent move into Iraq, with Chinese workers rather than Iraqis and with little to no investment in the area, highlights the local cultural tensions that will inevitably rise along with China’s expanding oil exploration.

It’s also going to create wider diplomatic tensions too. The US is used to having Venezuela as its bitch, but Chavez is up for a “multi-polar world” in which the US’s power is diminished and shared with the likes of China, which I’m sure the US will just love. Then there’s the whole Iran issue. 15% of China’s oil comes from Iran, who have actively courted China to secure their business and, they hoped, a political ally. While China, like Russia, is keen to be accepted in the western corner of the global diplomatic playground, it also really needs that oil. Hence the lack of pressure on nuclear sanctions this week, which shows that Iran’s courtship has paid off, at least for the time being.

China’s involvement in Nigeria is also fractious for the US, as America is traditionally a big importer of Nigerian oil to guard against having to rely too heavily on the Gulf; China diluting the American share of Nigerian oil will mean the US has to look elsewhere. There are also inevitable, fairly paranoid howls about national security in the wake of the Canadian sands deal.

It’s in China’s political interests to have a very diverse energy portfolio – over-reliance on one country could lead to a dangerous lack of energy security and independence, so we’re likely to see more and more expansion into places like Africa, Brazil and so on, who in turn will appreciate the more diverse range of business they’re receiving. Though while the economists might “love to see this kind of competition” in Nigeria, getting that to translate into infrastructure and investment in local economies is the most important step.

Posted by Ben Beaumont-Thomas in Green Rush | September 29, 2009 11:33AM |