The tenuous line between the US and China

The NYT today has an interesting article on the US attitude toward China. Of course the government isn't happy about the potential CNOOC deal to buy Unocal, but it isn't going to do anything about it at the moment since it's still a tentative plan. As we've read before, however, if the deal does come to fruition, it will be referred to the "Committee on Foreign Investments in the United States, which reviews sensitive acquisitions by companies from abroad on the basis of national security".

The article goes on to discuss how the US is really in a bind, since we need to play nice with China. They own large sums of money in American bonds, and the US government is depending on them to cooperate as they try to deal with the North Korean nuclear threat.

And the ramifications of the deal for the sale and distribution of oil?
Mr. Bush has made "energy independence" one of his defining themes. While the Chinese in this case say they would not be taking oil away from the United States, the deal's opponents suggest that it would place a vital resource in the hands of a nation that has a voracious and growing appetite for energy to fuel its rip-roaring economic expansion.
Another nuance of this point is mentioned earlier in the article, when the author notes

Hardly a week goes by without Mr. Bush vowing to make America less dependent on foreign sources of energy, so any deal that increases that dependence - or is even perceived as doing so - would create a problem for him.

And the situation has left the administration once again confronting the likelihood that its numerous ties to the oil industry will become a political issue.

So aside from the economic ramifications of this deal, does the s*** hit the fan politically if it goes through?

Unocal's reserves are 1.75 billion barrels. If my math is right, that's less than 3 weeks' worldwide supply.

I also just read a theory that the Chinese won't care if their bid is rejected - it will allow them to behave likewise.


I agree... regardless of outcome, no doubt there is a certain "testing of the waters" component of the Chinese bid for Unocal. Smart move on their part too - the Asian production makes Unocal a legitimately useful acquisition for China; Unocal is not that big a fish that lawmakers can rightfully raise a security stink over.

Of course in these emotionally charged times, Congress and the Senate are apt to do foolish things. I hope they are reminded that the great depression of 70 years ago was in large part caused by trade wars.

Random speculation: if US lawmakers shut down CNOOC, the Chinese will take a stab at a European or Canadian (or perhaps Aussie) company fairly soon.

If they are truly looking for expertise as well as Asian accessible reserves and operations, its possible a company like Talisman (more than 1/2 reserves are North Sea and N.A. but it does work in Indonesia, Vietnam and other odd placs) might be a target. 1.5B proven reserves and an excellent track record at replacement via drill bit. Talisman (and the Chinese) were for a time joint partners in operations in Sudan (until a couple of years ago when domestic politics forced TLM's withdrawal).

Really random speculation/conspiracy stuff: If the powers that be have any real inkling that Peak Oil is upon us, or even near us (within 2 - 5 years), I fully expect an "engineered" economic slow down - severe, intentionally - to slow down the arrival of PO, or lessen/mask the effects of same if too late.

A trade war would be one way to start the ball rolling.

If the Unocal tries to accept the deal, I think we can count on a LOT of noise out of Congress. It will be interesting to see 1) how the administration tries to control Congress's reaction, and 2) whether the administration has enough clout to control Congress at this point. If Congress is hell-bent on either stopping the deal or starting a trade war over the exchange rate, I think that the administration will get run over, particularly if the perception in D.C. is that the public will support such moves. (Anybody seen any surveys to guage what the public might be thinking on this?)

If the deal is blocked, I think that we will be able to identify that point as the beginning of the end of the worldwide free market in oil (not that it is really a free market even now) and that nationalization, in one form or another, will become the order of the day. Also, I think overt political and/or military interference in the oil industry will become common as other countries take the lesson from the U.S. that geo-political strategic concerns trump free oil markets.

With regards to an "engineered economic slowdown" two points: 1) the way things look now, it may not need to be engineered - the housing bubble may do nicely by itself, (and if not that, avian influenza pandemic is waiting in the wings - hard to predict when that one lands though) and 2) the danger anybody in a position of power should be aware of is that if we are as near peak as most in the PO community seem to think we are, the economic slowdown may never end. The Great Depression needed a world war to end it, but even this option may not be available because of nukes and the fact that WWII at least had oil available to power it.

Really random speculation/conspiracy stuff: If the powers that be have any real inkling that Peak Oil is upon us, or even near us (within 2 - 5 years), I fully expect an "engineered" economic slow down - severe, intentionally - to slow down the arrival of PO, or lessen/mask the effects of same if too late.

Of course they know. Roscoe Bartlett of MD gives speeches to congress and we know that Bush has been briefed about it on a number of occasions. But they can't admit that they know about it, because that would surely be political suicide, and worse than PO is the Dems winning in 2008.

But since you probably didn't really mean their simply having an inkling of the situation, what were you really getting at?

On a related topic see Indian Oil seeks stake in Singapore Petroleum

It (Singapore Petroleum) has a 15% stake in the Kakap gas field in offshore Indonesia, and a 40% stake in the Sampang field in offshore East Java, Indonesia. It also has a 10% working interest in exploration Block 102 and 106 in offshore Vietnam.

"There is a possibility of subsequently increasing the stake in SPC to the level of controlling stake and eventually gaining management control," the IOC official said.

I think that most of the political leadership thinks that there will be enough industrial civilization left functioning to continue politics as usual, so they act accordingly. Roscoe Bartlett may be the exception that proves the rule.

By the way - I really don't know what all the fuss over Unocal is. Only 38% of those 1.7mboe of proven reserves are oil - the bulk of Unocal's reserves and production is natural gas, and of that, the lions share of the NG is in... you guessed it, Asia.

Maybe the press, and ideally Congress and the Senate, will get a clue one of these days. That NG is going to be sold to Asians no matter what. Losing Unocal isn't like losing Chevron (or BP to the Brits, or Statoil to the Norweigans, or PetroCanada or Encana to the Canucks).

Re my comment about, do "they" have an inkling... being briefed on a threat vs believing a threat are two different things, as we've seen with al qaeda pre 9-11.

My sense is the oil men in charge are more likely to see the current situation as an unexpected bump in the supply-demand road than a longer term problem, except to the extent that developing nation growth over the past four years will have made them believers that mere competition for oil resources will be their number one problem.

If Peak Oil were front and centre in their minds as a threat, we'd see one set of actions; if its mere competition they fear most, we'd see a different set of actions.

So far it seems that competition is viewed as the principle threat.

ianqui said "Of course they know".

I choose the opposite side of the arguement, "Of course they don't know".

Did the administration know there would be a powerful insurgency in Iraq? They were told there would be by the Department and just about every advisor that was not handpicked. But who did they believe?

I think it is the same with peak oil. Their ideology, shown most clearly by Dick Cheney, is that God put oil on earth so that we can burn it. This group thinks that there is no such thing as a "natural resource". To them, man's ingenuity combined with the forces of the market produce valuable inputs to the economy. To me the evidence of the arguments made on the right, and the investment patterns of big oil/big energy interests, point to a refusal to accept that this picture may be about to be proven wrong.

Commentators seem to alternatively beleives that the Bush administration is a bunch of complete morons who know nothing, and credits then with omnipotance.

To me the answer is simple and clear. They are a bunch of ideologue and peak oil does fit in their ideology.

Right after posting my last comment, I read this column in Bloomberg. It basically says that all of this peak oil stuff is nonsense. It's all about simple economics and market clearing prices.

Just like the cure for the common cold, AIDS or cancer, as soon as we needed those, the market just created the right incentives and they were invented.

Mike and Jack: Indeed. This all hinges on what the definition of "to know" is. Have they heard about the concept? Yes, of course they have (Matthew Simmons briefed him as early as 1999, as Kunstler points out in TLE).

But does that mean they believe it? Of course not. I think Jack's right on when he says that these people don't believe in the idea that natural resources are something to be preserved. Furthermore, as politicians are wont to be, they're extremely short-sighted in their policies, because the only future of the country that they care about is the duration of their stay in office (or until the next election). While the peak may happen now-ish, real crisis probably won't come until somewhat later. And anyway, Bush can't be elected again, so he probably doesn't care at all.

"And anyway, Bush can't be elected again, so he probably doesn't care at all" from ianqui.


"There's no such thing as legacies. At least, there is a legacy, but I'll never see it."
-George W. Bush, speaking to Catholic leaders at the White House, Jan. 31, 2001

Yes you willl George! See Jim Kunstler's Turning Point in which he refers to the "Hooverization" of our divine leader. And this disappointing news from the NY Times article ianqui cites:

Secretary of State Condoleezza Rice was a director of Chevron for a decade before Mr. Bush's election, and even had a Chevron tanker named for her. (The tanker has subsequently been renamed.)

Yes, in Star Trek-like fashion, it is now named the "Altair Voyager". Just trying to lighten this up a bit....