Both China and India will continue to be major oil importers

by Jairam Ramesh

Almost exactly ten years ago, an event of profound significance took place in China. This has already had great political and economic impacts, impacts that will be felt even more increasingly across the world. China became an oil importer in 1993. It was an oil importer for much of the Fifties till the discovery of the onshore Daqing mega-oilfield in the northeast region in the late Fifties or early Sixties.
This catapulted China into the major league of oil producers. For a while in the Seventies and Eighties, it even became a modest exporter. But the story is now dramatically different. In 2002, while China was the world's sixth largest oil producer, producing about 3.4 mm bpd, it was also the world's fifth largest importer, buying close to 1.9 mm bpd.

Oil consumption is galloping, and this year China is poised to overtake Japan as the world's second largest oil consumer. Projections are that by the end of this decade, China could be importing around half of its oil needs and perhaps as much as three-fourths by 2020.
Today, a little less than 60 % of imports are from the Middle East (mainly Oman, Yemen, Saudi Arabia and Iran), but China is looking to Russia, central Asia, east Asia and Africa, apart from investing heavily in developing the hydrocarbon reserves in its own Xinjiang province, where Muslim separatist movements have been active. However, Xinjiang is geologically complex and international oil companies have been lukewarm.

Chinese claims in offshore South China Sea have met with resistance from Malaysia, Philippines, Vietnam, Taiwan and Indonesia, and from Taiwan in the offshore East China Sea. While China would like to diversify, for the remainder of this decade, dependence on the Middle East will grow. With the increasing strategic domination of the United States of America in this crucial region and with its control over the sea-lanes from the Persian Gulf to the South China Sea, the Chinese are certainly worried.
What has added to their discomfort is the growing bonhomie between the US and Indian navies reflected, for instance, in the Indian escort of American ships through the Straits of Malacca.

For long, the Russians have feared a massive Chinese demographic invasion in Siberia and their Far East. This fear has become a reality. According to the Russian Census of 2002, to be released shortly, the Chinese have become the fourth largest ethnic group in Russia after the Russians, Tartars and Ukrainians.
Over 3 mm Chinese have settled down in Siberia and the Far East since the late Eighties. No doubt the opening of the 4,300 km border to bilateral trade is leading to the "Sinification" of places like Vladivostok, Khaba-rovsk, Irkutsk and the Sakhalin Island. But there is a larger strategic picture in the minds of the Chinese who are well aware of this Russian region's enormous oil and gas potential.

China has been negotiating for building a 2,300 km oil pipeline from the east Siberian town of Angarsk to Daqing at an estimated cost of about $ 2.5 bn. The Russians, keen on getting foreign investment into this remote region, are also looking at an alternative, involving a pipeline to Nakhodka on the Pacific coast. This alternative would deliver oil to Japan and South Korea as well. The Chinese are most unhappy at this development.
China is looking at other regions as well. The flagship China National Petroleum Corporation, whose subsidiary, PetroChina, is listed on the New York stock exchange, has pledged close to $ 8 bn to acquire potentially lucrative oil concessions in Kazakhstan, Venezuela, Sudan and Iraq. Of these, the Kazakhstan ventures are the most significant and the Chinese have gigantic, almost grandiose plans involving long pipelines. They are planning a 3,000 km pipeline linking the Kazakh oilfields to Xinjiang, as also a 1,000 km pipeline linking Kazakhstan to Iran.

This latter pipeline is part of a strategy to integrate the Middle East into China's central Asian operations. The economic dimension that it is seeking to impart to the six-nation Shanghai Cooperation Organization, that was originally conceived of as a security and anti-terrorist grouping, shows how China is viewing central Asia, where the dynamics have been changed following the establishment of the American military presence in Uzbekistan and Afghanistan in the last two years. In addition, the Chinese National Offshore Oil Corporation has acquired hydrocarbon concessions in Indonesia, the Gulf of Mexico, Iran and Myanmar.
Last year, India imported 1.4 mm bpd out of a total oil consumption of about 2.1 mm bpd. Two-thirds of oil production in India is offshore as compared to less than 10 % in China. This has given India enormous technological capability but it is not a major producer of oil. It ranks ninth among all importers of oil and by the end of the decade could well inch up to fifth or sixth place even assuming that new domestic sources are developed.

Between three-fifths to three-fourths of India's oil needs will continue to be met through imports. Overseas acquisition of oil fields is now an integral part of India's strategy as well and close to $ 3 bn has been committed so far. Of this, almost half is in the offshore Sakhalin Island in Russia's Far East that could start yielding considerable oil in the next three-four years.
Along with Exxon that has a 30 % stake, ONGC Videsh has a 20 % share in this project which is the single largest foreign investment in the region. The other big Indian overseas investment is in the onshore Greater Nile Project in Sudan where, ONGC Videsh holds a 25 % stake along with, interestingly, China National Petroleum Corporation that holds 40 % and Malaysia's Petronas which has a 30 % stake.

Concessions in Iran's Farsi offshore fields in the Persian Gulf and in onshore Libya are under finalization. In November 2000, Iraq and India signed an agreement that gave India a promising oilfield in western Iraq to develop. The fate of this agreement is now uncertain. In addition, Reliance already has an oil concession in Yemen. The Sudan project, from which oil in sizeable quantities, has already started flowing points to the potential for Sino-Indian cooperation in other places as well.
Natural gas will be an increasingly important energy source for both China and India even though in the transport sector, there is unlikely to be a commercially viable alternative to oil for the next decade at least.

Both countries could well become part of regional natural gas networks. China's investments in Russia, central Asia and east Asia encompass gas as well, while India has a producing gas field in Vietnam and is exploring for gas in Myanmar. But India's participation in cross-country networks is politically contentious. In the east, Bangladesh is unwilling, while in the west and in the north, India is reluctant because any onshore pipeline from, say, Iran and Turkmenistan, will have to go through Pakistan and Afghanistan respectively.
Oil will fuel the global diplomacy of both China and India. So far China has been more aggressive but India has not lagged that much behind. No doubt, it is an area of vulnerability for both countries but it also presents numerous opportunities for establishing and projecting their international presence.