China – Changing the World

If you have never been there, it is hard to do this country justice with simple prose – is special and it deserves to be seen that way. I am visiting the country soon, but on the southern province, which has been exudes an energy all its own since 1979. In short, China remains one of the very best profit opportunities of our lifetime.

A few months ago, China entered 22 year contract with Iraq that could worth up to US$3bn and the oil produced from the Ahdab field will help Iraq, a nation where electricity is in short supply, fuel a planned power plant that would be one of the largest in the country. For China, the deal offers a lucrative foothold in one of the most oil-rich countries in the world. In a bigger set of assumptions, this is part of the grand plan of China as a sign of a changing world.

Well now its time for Round 2 of this strategy to unfold. Russia and China recently signed a multi-billion dollar, intergovernmental agreement to construct an oil line from Russia that will supply oil directly to China – worth trillions of dollars with a 20 year oil contract to pump Russian oil and in return, China has agreed to provide a total $25bn in loans to Russian oil companies Transneft and OAO Rosneft Oil Co.

The terms of contacts are fascinating – it gives China roughly 15mn metric tons of crude per year from 2011 to 2030, flowing through the 1,030-km pipeline from the Skovorodino refinery in Eastern Russia to Mohe County in China’s Heilongjiang province. It is a branch of the even bigger 4,700-km East-Siberia-Pacific Ocean Pipeline that is currently under construction.

My sense this oil supply deal is just part of a much bigger strategic drama that is played out here, which the Western world have totally missed.

For China, the oil pipeline will greatly reduce the risks of its oil imports – the majority of which come through the Straits of Malacca and to Russia, it gives it a stable and reliable oil market in the East. Interestingly, China’s nuclear subs were just on parade for the first time ever as part of the 60th Anniversary of the founding of the PLA’s Navy in Qingdao, Shandong province.

If we read between the lines, comments made by leaders of both sides point to a desire to have an even tighter China-Russia relationship in the years to come and this will really lock the United States out of the game and will also wrest an increasing amount of energy-pricing control from OPEC cartel. The status-quo in the global oil game had changed and China is not afraid to do business with rogue nations like Iran, Sudan and Myanmar and has even gotten chummy with Venezuela and Russia.