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Let’s start with the fact that the motorcycle manufacturer Honda, has recently announced that it intends marketing a new, small motorcycle in India and China. It will cost less than the local equivalent of $600. Add to that the fact that Tata in India has developed a motorcar, the Nano, that sells for less than $2500 and the picture becomes clear. Cheap transport fuelled by petrol is a booming industry in the developing world. Whereas in Europe the affluent classes are, for the sake of their and the planet’s health, getting on their bikes, the emergent middle class of India and China are getting off their bikes and onto or into cheap petrol driven transport.
The British Prime Minister, David Cameron was, famously, photographed riding to the Houses of Parliament on a pushbike. We have yet to see a photo of the Chinese Premier cycling to work. In Europe, to ride a bicycle is to establish your “green”credentials. In China, India or indeed any other part of the developing world it is a mark of poverty that is to be given up as soon as circumstances permit. The poor of Africa and the Far East do not ride bicycles for the sake of their health nor to save the environment. They do so because they haven’t been able to buy motorised transport- yet.
In the developed world we can contemplate giving up the motorcar. In Amsterdam, university graduates ride pedal powered taxis and delivery vans. In London and New York, cycle couriers are the epitome of urban cool. The same cannot be said of Delhi or Beijing. There, cool is transport driven by an engine and it is to this that the poor aspire. They are tired of cycling. Before condemning this seemingly deplorable lack of concern for the environment, we should bear in mind that to give up material possessions that we have already enjoyed is much easier than giving up a dream of those to which we aspire.
At present, in China there are thirty light, petrol driven vehicles for every one thousand people. In the USA and Europe the number is over ten times greater. Remember also that with three percent of the population of the world, the USA uses twenty five percent of its oil. China has twenty two percent of the population of the world. So, if per-capita car ownership in China reaches levels comparable with the U.S.A. or Europe how much petrol will that use up and where will it come from? The answer to the first part of the question is that at present rates of production, it would take the total global output of petrol to satisfy the needs of the Chinese motorist. For this reason if no other, China will never have the same level of car ownership as the West. But even a fraction of an increase in the levels of motorised transport in China will place an enormous strain on the market. Oil is now a “zero-sum game”. Oil used by one consumer reduces the amount available to another. At the moment stocks are high but by the end of next year there will be competition in the market and prices will rise. As for the second part of the question, that is, whence China will secure its supplies of petrol, we need only look at what is written in giant capital letters on the wall. Let’s examine a few facts.
In May of last year, the Chinese government agreed a loan facility of $10 billion to the state owned Brazilian oil company Petrobras. In return, the company guaranteed to supply China with up to 200,000 barrels of oil a day for the following ten years. Very recently it has been reported that Sinopec, the state owned Chinese oil company has paid $7.1 billion for a forty percent stake in the Brazilian operation of the Spanish oil company Repsol S.A. This will give China a massive stake in the exploration of new deep water fields off the coast of Brazil. To secure this deal, Sinopec paid a premium of around 70% above the market value.
In Canada, this year, Sinopec has again paid massively over the market valuation in acquiring for $(US) 4.65 billion Conoco Phillips’ share in the Alberta oil sand producer, Syncrude. Possession of this asset will give China a major say in the proposed development of a pipeline from Alberta to Kitimat B.C. From this port unrefined oil will be shipped to the Pacific Rim and in particular, to China.
In Venezuela, Angola, Saudi Arabia, Iran- in fact, anywhere where there is oil, China is providing money, infrastructure and long term good-will projects in order to achieve one goal, security of supply. Even the recent conflict between China and Japan over a boat captured in the East China Sea can be attributed to energy security. This is disputed territory which is important primarily because it is thought to lie above significant deposits of hydrocarbons.
What China is doing is in marked contrast to the market orientated approach of the West. In the U.S. and Europe we rely upon being able to procure oil on the open market. To do so is to assume that there will be no problems with future supply. China however, is, albeit at some cost, forging relationships with oil producing countries that ensure that it remains a preferential customer and thus will be supplied in the event that shortages occur in worldwide production. It is to these bi-lateral agreements that the recent Bundeswehr report drew attention. Put simply, China’s guaranteed supply will mean the rest of the world’s guaranteed shortage. We should be very worried.
It is not only in the acquisition of oil that China has been predatory. At the moment it has 20 nuclear power stations under construction and plans a further 123. Of these, four are to be built by the American company, Westinghouse. In order to secure this contract, Westinghouse agreed to provide China with 75,000 documents relating to the construction of its AP1000 reactors. There is no doubt that China will use this information to become the leading manufacturer in the nuclear sector. That much is certain. As most commentators have observed, Westinghouse has given away its long term future for the sake of short term profit.
There are two reactors currently under construction in Europe, one in France the other in Finland. Both are beset by construction problems and both are over budget and over schedule. I have no doubt at all that in Europe, desperate governments faced with the reality of an energy gap that they will have ignored up to that point, will, in future, buy “off the shelf” Chinese reactors.
China is a totalitarian capitalist regime. It can spend as it wishes without the fear of censure by a disapproving electorate. In most other parts of the World, governments are fettered by the need to keep voters on their side. So, it is inconceivable that a European country could spend so profligately on securing energy supplies without first acknowledging the reality of energy depletion and in particular, Peak Oil. However, the people of China are not being well served. Whatever action their government takes to avoid it, the constriction of oil supplies will inexorably catch up with their economy. In the meantime, as China uses more and more energy it will inevitably become an increasingly complicated and vulnerable economy. It is to be hoped that as our economy grapples with and adapts to energy depletion it will at the same time be transformed by becoming simpler and more robust. China’s headlong rush for economic growth is ultimately bound to hit the buffers of resource depletion. When it does, it will join those “developed” economies like our own who will have felt the effects first. It is to be hoped that at that stage we will be able to show them a positive example of how to cope.
By way of postscript, two observations; first, the price of oil has just reached $90 a barrel; second, the Tata Nano has recorded poor sales-it is too expensive for the poor and too cheap for the emergent middle classes.
Robert Urquhart Collins
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