CHINA'S QUEST FOR OIL SECURITY

• Document Type: FOIA
• Collection: FOIA Collection
• Document Number (FOIA) /ESDN (CREST): 0005304573
• Release Decision: RIPPUB
• Original Classification: U
• Document Page Count: 21
• Document Creation Date: June 23, 2015
• Document Release Date: September 10, 2009
• Case Number: F-2008-01057
• Publication Date: January 26, 1999

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Intelligence Report
China's Quest for Oil Security
Summary
Office of Asian Pacific and Latin American Analysis 26 January 1999
In response to growing long-term domestic demand and stagnating domestic oil
production, China is pursuing an energy security policy that calls for establishing
enduring diplomatic and business relationships with oil producing countries in five
geographic regions: the Middle East, Central Asia, Latin America, Russia, and
Africa, according to official Chinese press reports.
lanes-could create bilateral tensions.
? Oil is likely to remain a small share of China's total primary energy
consumption, but Beijing's evident concern is that supplies are
sufficient to meet the needs of the growing transportation and
petrochemical sectors, such as fertilizers and plastics.
? Beijing has actively promoted the efforts of Chinese oil companies to
reach long-term oil production sharing arrangements in the
development and rehabilitation of foreign oilfields. Although
Premier Zhu Ronji appears to be encouraging a more measured
approach in overseas oilfield investment than his predecessor, Li
Peng, the combination of flat domestic production and rising
consumption will necessitate China's continued search or
guaranteed supplies of foreign oil.
In the short
termer s~diplomatic efforts in support of bids to develop foreign oilfields could
place US firms at a disadvantage and increasingly challenge US policy in regions
in turmoil; such as the Middle East. Over the longer term, Chinese-efforts to
secure foreign oil resources for example, by boosting exports to finance
oil-related investments or improving power projection capabilities to protect sea
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 From a purely commercial perspective, however, China's strategy of seeking foreign
oil deals may not be the ideal solution to its oil dependency, for it may do little to
insulate the economy from price fluctuations-an important motivating factor in
seeking foreign deals, according to official Chinese press reports-and simply add to
the country's mountain of bad state-owned enterprise debt. In our view, it
would be cheaper for China to buy oil on the spot market than to pay dearly for
production-sharing arrangements with other partners, which require substantial
outlays for development, transportation, and refining:
Getting the Oil to Market
The Chinese rely on ships to transport crude and product to coastal cities where
demand is highest, but with growing oil imports--China is considering taking steps
to improve its methods of moving foreign oil supplies into and throughout the country.
Beijing has indicated it will build a tanker fleet, modernize its port facilities, revamp
and expand its refining capacity, build new pipelines, and develop a strategic
petroleum reserve, according to Western press sources, but low world oil prices have
slowed implementation.
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