Africa, China, the United States, and Oil

By David H. Shinn

Two Chinese academics wrote last year in the Far Eastern Economic Review that “energy security is already playing an increasingly important role in Sino-U.S. relations, intensifying friction on regional issues.”  They cited, for example, policy disagreements between the United States and China over Sudan.  Although Sudan is not a source of crude for the United States, it supplies about 7 percent of China’s imports.  China also has significant energy investments in Sudan.  As the United States tries to isolate or punish countries like Sudan, China has concluded that they are important to its energy security and the rapid growth of its economy.  The two Chinese academics argued that the legitimacy of the Chinese Communist Party depends on this continuing strong and sustained economic growth. 

In the meantime, a senior U.S. official warned that Beijing’s ties with “troublesome” states would have repercussions.  Countries deemed troublesome by the United States that export significant quantities of oil to China will probably continue to cause tension between the United States and China.  There is no inherent reason, however, why American and Chinese energy policy in Africa should result in conflict.  There are opportunities for Sino-American cooperation on the development and security of oil reserves.  It is in the interest of both the United States and China to develop a secure supply of crude at a reasonable international price.

U.S. and Chinese Oil Consumption and Imports

The United States is the largest and China the second largest consumer of oil in the world. China uses about 7 million barrels of oil a day while the United States consumes about 20 million barrels.  The International Energy Agency projects that Chinese demand will exceed 9 million barrels daily by 2011.  China relies on locally available coal for most of its energy needs.  Oil and gas account for only about 20 percent of its energy requirements and imported oil constitutes less than 10 percent of China’s total energy consumption.  While it is important to keep this in perspective, China has had one of the sharpest increases in energy demand globally during the past two decades.  Oil is replacing coal in some industries because of coal’s low efficiency and negative environmental impacts.  China’s demand for oil and gas is rising faster than its demand for coal. 

The United States is the world’s largest importer of petroleum.  China is the third largest oil importer after the United States and Japan.  On a per capita basis, however, China imports only about one-twentieth as much oil as the United States.  China’s 1.3 billion people, one-fifth of the world’s population, tend to diminish all per capita statistics.  Nevertheless, China’s oil requirements are growing faster than those of the United States.  The sheer size of China’s population and its rapidly expanding economy are leading to increasing competition for access to oil with a variety of countries, including the United States.  China’s increased consumption is also contributing to the rising price of crude.       

China’s crude oil imports have increased about 13 percent annually since 1994.  In 2006, imports accounted for 47 percent of Chinese oil consumption while the comparable figure for the United States was about 60 percent.  At current rates of growth in oil consumption, China will need to import about two-thirds of its total requirement by 2015, while U.S. imports will rise above 60 percent of total needs.  In order to satisfy its growing consumption and higher oil imports, China is diversifying its suppliers and encouraging its national oil companies to invest in Africa, the Middle East, and elsewhere.  China is pursuing a long-term policy of energy security rather than following the approach of Western companies that tends to emphasize short-term profits.  

The Role of Oil from Africa

The 53 countries in Africa possess only 9 percent of the world’s proven petroleum reserves compared to almost 62 percent for the Middle East.  But Africa remains largely unexplored and may well be the location of significant future oil and gas discoveries.  IHS Energy, an oil and gas consulting firm, believes that Africa will supply 30 percent of the world’s growth in hydrocarbon production by 2010.  A U.S. Department of Energy study projected that African oil production would rise 91 percent between 2002 and 2025.  African oil also tends to be high quality and low in sulfur, making it particularly desirable to refiners.  Although much less significant than the Middle East as a source of oil, Africa is no longer a marginal player, and has become especially important to the United States and China.  Libya’s 39 billion barrels of oil reserves and Nigeria’s 36 billion barrels are both twice the size of China’s proven reserves and just under twice the size of American reserves.

China now obtains almost one-third of its imported oil from Africa; this compares with one-quarter as recently as 2004.  About two-thirds of all African exports to China consist of oil.  Twenty-two percent of U.S. crude imports came from Africa in 2006; this compares with only 15 percent in 2004 and slightly exceeded U.S. imports from the Middle East.  U.S. oil imports from Africa have nearly doubled since 2002.  Both China and the United States are projected to increase their percentages of imports from Africa.  While Chinese imports from the Middle East have fluctuated around 50 percent in recent years, they are projected to increase.  At the same time, China is reluctant to become excessively tied to the Middle East as a source of oil.  China also lacks refinery capacity for the heavier crude that comes from the Middle East. 

Some critics argue that China is a neocolonial power that is simply using Africa as a source of raw materials, especially petroleum.  It is true that African oil, minerals, and timber are important to maintaining China’s economy and they constitute nearly all of Africa’s exports to China.  But the argument is disingenuous.  The same argument could be made for the United States, Europe, and Japan.  China purchased only 9 percent of Africa’s petroleum exports in 2006 while the United States took 33 percent and Europe 36 percent.  The four major African suppliers to China in 2006 in order of importance were Angola, Congo-Brazzaville, Equatorial Guinea, and Sudan.  The four largest African exporters of oil to the United States were Nigeria, Angola, Algeria, and Gabon.  

Three African Oil Suppliers

Three countries — Angola, Sudan, and Equatorial Guinea — demonstrate the success and challenges of China’s oil diplomacy in Africa.  Angola has been China’s most important African source of petroleum since the beginning of the twenty first century, while Sudan was until last year the second most important African supplier.  China entered the Angolan market after major Western oil companies had developed a thriving oil export industry.  Together with international partners, China revived Sudan’s moribund oil industry in the middle of a conflict zone.  Although China has much less investment in the oil sector in Equatorial Guinea, the latter has become an important supplier of crude.   

China has invested heavily in Angola because the country is generally politically stable and its oil production has surged in recent years.  Although some observers believe China’s investments in Angola are a threat to Western interests, Angola’s largest investors remain Western companies.  ChevronTexaco and Exxon Mobil each produce about 500,000 barrels per day while BP and Total have major projects underway.  Chinese involvement in Angolan oil does not seriously degrade U.S. energy security.  There are no significant political policy differences between the United States and China over Angola.  Neither country appears seriously interested in Angola’s internal political situation, apart from the question of political stability.  This is hardly surprising for China, but the State Department’s 2006 human rights report on Angola notes the overall human rights situation in Angola is “poor,” despite some improvements in a few areas.  No consequences flowed from this State Department finding. 

Sudan dropped to China’s fourth largest supplier of African oil 2006, but the country remains important to China because of its $4 billion investment in Sudan’s oil sector.  The China National Petroleum Company (CNPC) entered Sudan in 1996.  Together with others, it acquired oil fields pioneered by Chevron, which had abandoned Sudan because of civil war.  CNPC’s operation, which also discovered additional oil, produced 500,000 barrels per day in 2006 and is expected to reach 750,000 barrels per day this year. 

Sudan originally became an issue in Sino-American relations because of Sudan’s ongoing civil war and its poor record on human rights.  China is one of Sudan’s most important suppliers of military equipment, which Khartoum can easily purchase using revenue from the oil that China helped develop.  Sudan used this weaponry against the forces in southern Sudan, which had the sympathy if not outright support of Washington.  This dilemma ended in 2005 following a peace agreement, which the United States helped to broker and China welcomed, between northern and southern Sudan.  In fact, China now contributes personnel to the United Nations peacekeeping operation that is designed to implement the north-south peace agreement.

Since 2003, the crisis in Darfur has been an issue in Sino-American relations.  The United States continues to put pressure on Sudan to end the conflict while China, at least until recently, has been reluctant to use its leverage with Sudan.  President Hu Jintao met with Sudanese President Omar al-Bashir in Khartoum in February and reportedly pressed al-Bashir to comply with a United Nations-African Union hybrid peace plan.  At the same time, however, he announced the cancellation of Sudanese debt and promised to build al-Bashir a presidential palace.  The United States complained that this sent mixed signals to Sudan.  Since the February visit, however, China seems to have stepped up its pressure on Sudan to allow the hybrid force to enter Darfur.  Nevertheless, Sudan remains a contentious issue in Sino-American relations and oil plays a critical role.    

Each year since 1999, Equatorial Guinea has been China’s third or fourth largest African supplier of crude.  This trade grew as the U.S. State Department’s human rights report on Equatorial Guinea for 2000 stated that “the government’s human rights record remained poor, and it continued to commit numerous serious abuses.”   In 2006, Equatorial Guinea’s oil exports to China exceeded $2.5 billion.  The State Department report for  that commented that “the government’s human rights record remained poor, and the government continued to commit and condone serious abuses.”  When China’s foreign minister visited Equatorial Guinea in 2007, he described China as a major cooperation partner for Equatorial Guinea and the country’s “best friend.”

Equatorial Guinea is also a major supplier of oil to the United States.  About 20 U.S. oil companies dominate oil production in the country.  Although personal relations between the United States and Equatorial Guinean leaders are not as effusive as in the case of China, President Obiang visited Washington in 2004 and met with former Secretary of State Colin Powell.  President Obiang returned to Washington in 2006, and Secretary of State Condoleezza Rice welcomed him as a “good friend.”  President Obiang’s son once told a reporter that “the United States, like China, is careful not to get into internal issues.”  The United States has not been critical of Chinese relations with Equatorial Guinea. 

The United States, China, and African Oil: Competition or Cooperation?

Both the United States and China now depend heavily on Africa for their imported crude oil, and the projections suggest that imports from Africa will only increase in the years ahead.  In countries like Angola and Equatorial Guinea, China and the United States compete for the same supply.  Over the long-term, it is in the interest of both China and the United States to promote political stability, good governance, fewer human rights abuses, and less corruption in African oil producing nations.  Both the United States and China agree on the need for political stability and hence better oil security.  Because of its reluctance to interfere in the internal affairs of other countries, China has not yet been willing to support the other goals.  Even the United States has been selective as it pushes hard rhetorically in Africa for improvements in governance, respect for human rights, and reductions in corruption.  For the moment, it is in the area of political stability where the United States and China have overlapping interests and the best opportunity for cooperation. 

The deputy assistant secretary of state for African affairs told the House International Relations Committee in 2005 that China’s pursuit of African oil “should not be read as a threat.”  He added that efforts by others to seek African energy can work to advance U.S. goals in Africa by increasing prosperity and stability.  A 2006 U.S. Department of Energy report concluded that Chinese energy demands do not per se threaten U.S. national security interests but rather serve to increase world oil supplies.  The then majority leader of the Senate Foreign Relations Committee, Richard Lugar, said early in 2006 that it was crucial for Washington to broaden its energy cooperation with China. 

A spokesperson for the Chinese foreign ministry came to the same conclusion in 2006, stating that “in the field of energy, China and the United States are not competitors.”  The spokesperson added that “China stands ready to cooperate with the United States and other countries . . . on the basis of equality and mutual benefit.”  The vice chairman of China’s National Development and Reform Commission argued in 2006 that the United States and China “need to oppose the cold war mentality” and work together to guarantee stable world oil supplies and prices. 

Some U.S. officials believe that China’s efforts to control energy sources in Africa and elsewhere could exclude U.S. oil companies and undermine U.S. foreign policy.  There may well be Chinese officials who feel the same way about the activities of American companies.  But logic and prevailing sentiment in both countries suggest there is more room for cooperation than competition.  Washington and Beijing can start by looking at ways to collaborate on the discovery and development of additional oil sources in Africa.  They can also work to improve political stability and the security of petroleum supply.  Washington should consult quietly with Beijing in an effort to underscore the benefits of China’s support for better governance, more transparency, less corruption, and improved human rights practices in Africa.  More important, it should enlist African countries with relatively good records on human rights and good governance to make this argument to the Chinese.   ___________________________________________________________________

David H. Shinn is Adjunct Professor, Elliott School of International Affairs
The George Washington University.  He served as U.S. Ambassador to Ethiopia, 1996-1999and Ambassador to Burkina Faso, 1987-1990.