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Asia: China's race for resources stirs up more than just oil

Asia: China's race for resources stirs up more than just oil

Author: Tatsuo Kotoyori
Publication: The Asahi Shimbun
Date: February 21, 2008
URL: http://www.asahi.com/english/Herald-asahi/TKY200802210054.html

In October 2007, an oil-drilling derrick was built in eastern Ecuador near the source of the Amazon river.

"Since then, the well water has smelled bad. Everyone is complaining about it," said Manuel Bonilla, who grows bananas in the suburb of Tarapoa in Sucumbios province.

The derrick stands just in front of the house of the 62-year-old farmer.

It was built by Andes Petroleum Co., a company jointly set up by two of China's three major state-run oil companies, one of which is China National Petroleum Corp. (CNPC).

In 2005, the joint company purchased oil-drilling rights from a Canadian firm that had decided to withdraw from the region.

The oil facilities in the jungle are enclosed by a high-voltage electrified barbed-wire fence and are protected by guards armed with guns. There is also a runway for aircraft, making the site look even more like a U.S. military base in Japan.

Chinese engineers at the facilities rarely leave, spending most of their money on-site. The engineers are apparently afraid of becoming the targets of repeated demonstrations held by local people demanding improved water quality and more jobs.

In November 2006, dozens of Chinese and people related to the site were caught by local residents.

"They (Chinese) must be living in air-conditioned rooms inside the oil facilities. They are like kings," Armulfo Estrella, 35, a local senior member of Ecuador's ruling party, said sarcastically.

China, which has become the second-largest oil-consuming country in the world, has made inroads into nearly 40 countries to obtain oil. In the process, however, it has caused friction with local residents within those countries.

Ecuadorian President Rafael Correa declared a state of emergency in El Coca, capital of the neighboring Orellana province, after a series of demonstrations by local residents.

In the most luxurious hotel in the city, a Chinese man was enjoying his holidays. The 40-year-old engineer was dispatched to Andes Petroleum from CNPC in 2004. He said he planned to go back to work in Tarapoa the next day.

When I told him that I wanted to go to see oil fields and showed him a memo with the name of their place, he snatched the memo and tried to hide it.

"You must not go there. If you do so, you will be shot by farmers," he said.

For security reasons, engineers working at the oil facilities, including the man, are not allowed to leave the hotel, even during holidays, without the permission of their company.

The workers are flown in and out by helicopter rather than driven out for fear of their safety.

The engineer told me that nearly 100 Chinese engineers are working at the oil fields.

He now earns about $5,000 (560,000 yen) a month, nearly double the amount of those doing the same job in Beijing. His wife and son, a high-school student, live in Beijing.

"I am away from my family. Besides, I have been forced to work in a place with no entertainment. There is also a risk of getting involved in accidents. So it is a matter of course that we can receive such high salaries," he said.

Anti-American sentiments and leftist movements have intensified in South America, and Ecuador is no exception.

Meanwhile, China is positively making inroads into disputed countries, like Sudan in Africa, which are shunned by the United States and European countries. Although China is criticized for such a business style, a Japanese expert on energy issues said, "It is bringing an increase in oil supply to the entire world."

The Chinese engineer said, "We are public servants. So, we will go anywhere if we are told to do so."

Chinese oil companies, which had been engaged in securing oil abroad, suffered a major setback in 2005, when one of them failed to take over Unocal Corp. Though China National Offshore Oil Corp. presented a favorable offer to buy out the major U.S. oil company, it was forced to withdraw from the deal after U.S. Congress vehemently opposed the acquisition.

After the failure, China shifted its strategy to be more flexible in order to minimize criticism, said Guo Sizhi, a chief researcher at the Institute of Energy Economics Japan.

When China took over a Canadian oil company in Kazakhstan later that year, it gave about 30 percent of the company's shares to local governments.

In January 2006, China signed a memorandum with India to strengthen cooperation in the field of energy. As a result, their joint purchases of oil companies were realized in Colombia and elsewhere.

Meanwhile, the Chinese government stated in its 11th five-year plan, which started in 2006, that it aims to improve energy consumption efficiency by 20 percent.

If the economy continues to grow in China and India at high rates, the price of crude oil could reach a record-breaking level of $150 per barrel in 2030, according to the "World Energy Outlook 2007," released by the International Energy Agency (IEA) in November last year.

The ongoing price hikes of crude oil are said to be the result of an influx of speculative money into the oil market. But increasing oil consumption in China and other countries has also contributed to the price hikes.

Economic growth increases the demand for energy. The growth also causes an improvement in living standards, which means the widespread use of cars. As a result, the dependence on oil also increases.

Chinese statistics show that China consumed 348.76 million tons of oil in 2006. However, domestic oil production has hovered at around 180 million tons in recent years.

The IEA estimates that China's net oil imports will more than triple by 2030, and, as a result, imported oil will account for as much as 80 percent of that consumed by the country.

China's current energy policy is to buy natural resources, which it is lacking, from foreign countries while refraining from selling its own domestic stocks.

The effects of the policy were seen last summer at the Kiwada tungsten mine in Iwakuni in Yamaguchi Prefecture, western Japan, which had been closed for 15 years.

Low-quality ore that had remained in and outside the pits was again exported. But the name of the country that received the ore remained undisclosed.

Tungsten, which is a kind of rare metal, is the main raw material needed for super-hard tools. Its price has skyrocketed fourfold since around 2005. As a result, a buyer appeared for the ore that had remained in the Kiwada mine for many years.

Shigeo Nakamura, president of Advanced Material Japan Corp., a trading company that mediated the ore export, said the current price hike is "completely different" from those in the past.

China produces 90 percent of the world's tungsten and rare earth metals and 50 percent of indium.

The country used to export the metals at low prices in order to acquire foreign currency, forcing many mines overseas to shut down. But it changed its policy, placing its highest priority on meeting domestic demand to maintain economic growth.

Based on the new policy, China curbed exports of those metals. As a result, their prices have jumped throughout the world.

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