Chinese oil expansion

  What are Chinese state firms doing in Africa?  Among other deals, last year the CNPC agreed to get the right to the Agadem oil field in Niger in return for the construction of a 20,000 bbd oil refinery in the country.  It will also build a pipeline to export whatever it finds, although the route is still unclear.  And now the Chinese government has announced that it might start to subsidize the acquisition of natural resources even more.  Well, there are economic reasons to think that such subsidies don't make all that much sense.  So what is China doing?

I think there is an answer.  In reverse order:

(1)  Price hedging.  China wants to hedge against another oil spike.  Inasmuch as the Chinese will be able to push around African states, and keep them from expropriating the surplus, this would work.  And China might be able to do it.  States aren't unitary actors.  Bribing individuals within them brings value; recently the Chinese were involved in a bribery scandal in Namibia.  That one wasn't energy-related, but leaders can be bought, and so can influential actors within weak states.

(2)  Mad Max insurance.  What if the global trading system collapses?  Well, if the Chinese government has control of the marketing tools,and can plausibly threaten to destroy or interdict them, then it may have the ability to insure that its consumers have access to oil.  Moreover, it may be assuming that foreign states won't have the ability to find alternate markets in the event of such a collapse.  The rub?  I'm trying to picture such a collapse, short of a third world war.  It isn't coming to me.  Maybe a war that China isn't involved in?  I don't know.

(3)  Production.  Maybe Chinese officials believe that oil investment won't increase as much as they need it to.  Oil companies sell project management skills more than anything else, but are subject to political risk.  Perhaps (1) is wrong, and the Chinese assume that African governments will hose them in the event of oil price spikes ... and perhaps they don't care, because the more oil that Chinese state firms can bring on line, the less likely such spikes will be.  If rational private actors won't make the investments, then the Chinese government will.

I'm leaning towards (3), but I don't know.  Thoughts?

Comments

[Doug M.]

The discovery of oil in northwest Uganda has attracted remarkably little attention. The amounts involved aren't huge, but they're not tiny either, and the oil will be (for a new 21st century field) relatively cheap and easy to get out.

The Chinese are all over that one. Sudan and the soon-to-be-independent-nation South Sudan, too.

Otherwise, not much to add.

Doug M.

[Scott Blair]

3) is a bit confusing though, isn't it? If China expands investment, other people won't as the price declines accordingly. So there shouldn't be that much change from a world without china investing. The only way this doesn't seem like it would be true is if capital to invest in the oil industry really is limited, which would be surprising to me.