Tuesday, August 25, 2009

Oil in China Shop (or Is It China in Oil Shop?)

In the past month, the two largest oil companies in China have entered into stock purchase agreements with two Canadian oil companies, Addax Petroleum and Verenex Energy. (I understand Addax is Canadian although some reports say it is Swiss based and the oil assets are located in West Africa (primarily Nigeria) and the Middle East (mostly Iraq). Sinopec (2nd largest Chinese oil company) has purchased Addax and China National Petroleum Corp (CNPC) (largest Chinese oil company) is purchasing Terenex subject to Libyan approval, which may or may not happen. The Addax purchase is much larger, worth $7.5 Billion whereas Verenex is valued at about $460 million.

These purchases have gotten very little attention, barely popping into mainstream news although Reuters, ABC and AP have online articles. And there are other possible acquisitions of interests in oil companies in the wings- including interests in an American company, Marathon, and a sizable interest (at a sizable price) in Argentina's YPF.

CNN claims it is our own damn fault. We buy too many Chinese goods and China has to use its trade surplus in dollars to buy something so why not buy oil companies. China needs oil and other minerals to keep its manufacturing juggernaut going and so the cycle continues. Everything is made in China now from household appliances to those nifty "green" stainless steel water bottles sold in Whole Foods to the counterfeit Viagra and other medicines one can buy on the internet from"Canadian" pharmacies. (But see this article about placebo effects in Wired which leads one to the conclusion that counterfeit Viagra (i.e. the "sugar pill") be just as good as the real thing.)

At least China is outright buying these oil companies. At other times, China has acquired interests in oil and minerals in third world countries, particularly in Africa, by loaning money to build infrastructures like roads and electric plants and using the mineral rights as collateral for those loans which inevitably comes due. Peter Navarro refers to it in The Coming China Wars as Chinese imperialism. China is a giant Pac-man gobbling up the world's natural resources. We probably cannot stop it, although some such as Libya and Iraq object to the outright acquistitions. We need to pay more attention to it and perhaps look at our own role as consumers of cheap goods in feeding the giant Chinese Pac-man.

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