FocusChina eyes alternative crude sources to Iran amid sanctions

31 January 2012 05:00  [Source: ICIS news]

By Rachel Yang

SINGAPORE (ICIS)--China is looking at energy resources elsewhere in the Middle East and in Latin America that can be tapped amid tightening sanctions on Iran, from which the world’s second largest energy guzzler derives about a tenth of its crude imports, industry sources said on Tuesday.

Iran’s crude oil exports to China reached 27.7m tonnes last year, up 30% year on year and were roughly 11% of the northeast Asian country’s crude imports in 2011, official data showed. (Please see Table 1)

Industrialization in China has been fuelling the world’s second biggest economy’s huge power needs, which could not be satiated by its own resources. Over the past five years, the country has been relying on imports for more than half of its crude requirements, and this dependence is expected to grow over the years.

In 2011, the country’s dependence on oil imports increased to about 57% from 54.8% in the previous year, according to the National Development and Reform Commission (NDRC).

“We predict the country’s dependence on oil imports will increase to 60% in 2020 and 65% in 2030,” said Tong Xiaoguang of the Chinese Academy of Engineering.

Given this backdrop, China will have to scramble for a new supplier if international pressures intensified to isolate Iran, which is suspected of developing a nuclear weapon. The Middle Eastern country is China's third biggest crude supplier in 2011, based on official data.

“We worry about the country’s energy security as oil prices continue to rise and [the] tensions in [Iran and the US] have been rising lately,” said Wang Haiyun, an energy analyst at The Energy Foundation in China.

“The government should take measures to deal with it,” he added.

China’s state-owned oil majors such as China National Petroleum Corp (CNPC), China National Offshore Oil Corp (CNOOC) and Sinopec have postponed their investment projects in Iran, according to an industry source.

CNPC has put off the second phase of its offshore gas project in South Pars, while Sinopec delayed its oilfield development at Yadavaran in southwestern Iran, while CNOOC pulled out its staff in a gas field project in North Pars, said the industry source.

“The delay of the projects in Iran by China’s three top oil companies may be influenced by the political situation between the US and Iran, which will cause economy losses,” said Zhou Xiujie, an energy industry researcher at China Investment Corp.

State-owned oil and gas giant Sinopec signed a deal with Saudi Aramco in mid-January to build a 400,000 bbl/day refinery in Yanbu, Saudi Arabia, as part of China strategy to diversify its sources of crude.

Saudi Arabia accounts for the biggest share in China’s crude imports of about 20% last year at 50.27m tonnes, according to Customs data. (Please see Table 1)

In Latin America, Sinopec had announced in November that it will acquire a 30% stake in an oil and gas exploration project in Brazil.

China National Offshore Oil Corp (CNOOC), through its joint venture firm, Bridas Corp, has attempted to increase its stake in Argentinian resources by acquiring BP’s interest, but this fell through.

Over the past four years, China’s crude imports grew at an average rate of about 12%, according to official data. A low rate of increase at 6% was recorded in 2011 to 236m tonnes, as China’s tight monetary policy has choked some of its industries into inactivity. (Please see Table 2)

But China remains an emerging economy with a humongous room for growth. Its economy is expected to remain growing in the high single-digit levels – much faster than the pace of expansion of industrialized economies – translating into much higher energy consumption.

Table 1: China’s Top 10 Sources of Imported Crude in 2011

Country	Import volume (in tonnes)
Saudi Arabia	50.27m
Angola	31.1m
Iran	27.7m
Russia	18.5m
Oman	18.2m
Iraq	13.8m
Sudan	13m
Venezuela	11.5m
Kazakhstan	11.2m
Kuwait	9.5m

Source: China Customs

Table 2: China’s annual crude imports

Year	Import volume (in tonnes)	Growth rate (year on year)
2008	179m	9.8%
2009	204m	14%
2010	239m	17.2%
2011	253m	6%

Source: China Customs

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By: Rachel Yang

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