China's Thirst for Oil Rattles Old Order

China's surging appetite for energy is engraved in the landscape of this gritty port city: waterfront piles of coal, gas pipes snaking along grimy roads, and tankers anchored amid islands where pirates once lurked.

Zhenhai is at the heart of a global energy revolution.

As China's leading oil receiving center, the city provides this nation of 1.3 billion people with hundreds of thousands of barrels of crude per day to feed its galloping economy.

The shifting pattern of energy consumption is rattling Washington and aggravating an already intense rivalry with neighboring Japan over access to oil and gas supplies, adding to tensions in an already volatile region.

"The global demand for oil has been rising faster than supply because there's new economies that are beginning to gin up, new economies growing, like China and India," President Bush said recently.

"Oil — the dependence upon oil is a national security problem, and an economic security problem," Bush said.

China is acutely aware of the security implications of its growing dependence on imported oil. For more than a decade, its three large state-owned companies have been scouring the globe, from Iran to Angola, to secure supplies.

In the past six months alone, China has signed deals totaling more than $7 billion for stakes in oil and gas fields in Kazakhstan, Nigeria and Syria. A state-controlled company is reportedly considering a $2 billion bid for yet another Kazakh property.

The worldwide buying spree helped net at least 3.5 million barrels per day of imported oil last year — enough to make China the world's third-leading consumer of foreign oil.

Chinese demand is forecast to more than double by 2025, to 14.2 million barrels a day from the current 7 million a day, according to the U.S. government's Energy Information Agency.

Although China's imports still only constitute about one-sixth of total world oil trade — compared to 30 percent for the United States — it is already the world's second largest oil consumer. China's increasingly pivotal role as global manufacturer of practically everything has ensured demand will continue to grow.

The worry in Washington, Tokyo and other major oil importing centers is that competition is helping push prices to potentially destabilizing levels, and raising the risks of conflict over dwindling resources.

China has sought to diversify its energy sources, clinching exploration and production deals in Africa and Latin America to limit its dependence on Middle Eastern oil. It too recognizes the huge economic stakes for all sides.

However, those deals also have raised worries.

Earlier this year, the Bush administration published a revised National Security Strategy that accused Chinese leaders of "acting as if they can somehow 'lock up' energy supplies around the world or seek to direct markets rather than opening them up."

U.S. and other Western oil companies discovered during the oil crises of the 1970s show how vulnerable such deals can be, but "There is considerable rhetoric in some high places that China's trying to monopolize or control world energy resources," says William Overholt, director of the Center for Asia Pacific Policy at RAND Corp. in Santa Monica, Calif.

A more broadly shared concern, he says, is that just as U.S. oil needs have helped keep dictatorships in power in the past, "China is buying into oil in places where those purchases support abusive regimes" such as Sudan and Iran, undermining U.S. diplomacy in other areas such as nuclear nonproliferation.

While many agree with Overholt's characterizations of China's oil allies, critics point out that Saudi Arabia — whose oil fields were developed by U.S. companies and which has been the anchor of Washington's foreign oil strategy for more than three decades — is also not a democratic society.

For China, ensuring future supplies is top priority as it fuels annual economic growth rates of about 10 percent.

China still gets more than two-thirds of its energy from coal, and roughly half of its oil supply is from domestic sources — 3.4 million barrels a day in 2005. But veteran fields are beginning to falter and motor vehicle use is surging.

"Oil imports are bound to play a very important role in China's future development," said Dong Xiucheng, a professor at the China University of Petroleum.

Much of that oil will arrive through Zhenhai, a port city about 100 miles south of Shanghai and home to the country's first national petroleum reserve — as well as the country's biggest refinery.

Tankers from the Middle East and Africa berth at busy oil terminals secreted in the nearby Zhoushan archipelago, a pirate hideout in centuries past. A pipeline under construction will connect offshore terminals to factories in the Shanghai region, the country's biggest commercial hub.

Surging oil consumption by China, India and other emerging economies — on top of what is already being consumed by wealthy nations like the United States — has added urgency to the debate over future supplies.

Some experts believe production will soon peak, and that looming shortages require a fast shift to alternatives.

Others say the peak is at least several decades ahead: the U.S. Geological Survey reckons that only about one-third of the world's estimated 3 trillion barrels of recoverable oil has been consumed.

China relies most heavily on the Middle East, which provides about 45 percent of its total oil imports, with Saudi Arabia accounting for about 17 percent.

In late April, Chinese President Hu Jintao flew to the kingdom for talks with Saudi Aramco, the world's largest oil producer — the latest episode in a continuing Chinese effort to ensure access to Saudi Arabia's 9.5 million barrels per day of oil production.

That visit, coming just after meetings between Hu and Bush in the United States, was closely monitored in Washington.

China takes American concerns seriously and has worries of its own over its vulnerability to upheavals in global hotspots and to U.S. naval pressure in the Malacca Straits, the narrow Southeast Asian passage through which virtually all Middle Eastern and African oil moves on its way to East Asia.

Though Beijing is building up its own navy, analysts say it would take decades — if ever — to match America's.

With the naval option of limited value, China has tried to do the next best thing — reduce the amount of oil that reaches it via the Straits.

"Gaining access to new routes is a very important strategy for China to ensure the security of its oil imports, aside from diversifying the countries supplying oil," said Dong, the Chinese Petroleum University professor.

China is studying alternative routes for African and Middle Eastern oil, including a pipeline through Myanmar, a port project in Pakistan and possibly even building a shipping channel through Thailand.

It is also laying pipelines to former Soviet countries.

China recently opened a 625-mile link carrying 190,000 barrels a day of Kazakh oil, providing its first direct access to potentially rich central Asian fields.

Construction has begun on an even bigger pipeline project that when completed in 2010 will move up to 1.6 million barrels per day of crude from Russia's Irkutsk region to its Pacific coast, with a branch line running into northeastern China.

Japan prevailed in persuading Moscow to route the main pipeline to the Pacific, rather than into China, providing low-interest loans to pay much of the more than $10 billion cost.

China and Japan are also facing off over potentially rich gas resources in the East China Sea, with no signs of an early resolution.

The high stakes of energy rivalry are highlighted in a Chinese online book, "The Battle in Protecting Key Oil Routes."

The anonymously authored book is set in a future where oil costs $100 a barrel. It begins with U.S.-Japan naval exercises focused on the Malacca Straits that trigger a real battle between China and the United States when a U.S.-fired missile goes astray.

The still incomplete book has drawn little attention, but it does reflect growing awareness of the potential for energy competition to get out of hand.

Given the risks, Washington should step up energy cooperation with China, says Sen. Joseph Lieberman (news, bio, voting record) of Connecticut — a Democrat regarded as a close security ally of President Bush.

"These are two nations following similar international oil acquisition policies," he said. "If we let it go, this could end up in real military conflict, not just economic conflict."