Wildcats & Tigers: China's Oil Acquisition Strategy

The following is a review of US Air Force Major Patrick Sullivan’s 2006 thesis for a Master of Science in Strategic Intelligence from the National Military Intelligence College (NMIC). The thesis examines China’s strategy to “buy equity oil interests” around the globe, the methods that they employ in that task, and the resulting impacts on global oil production and US national security concerns.

This review should also be of interest because it offers a window into the strategic thinking of the US intelligence community. NMIC is the training ground for the next generation of American strategic decision makers. I have searched every thesis paper in the NMIC system for the last 9 years—no paper deals specifically with Peak Oil. This is the only thesis that deals with the geopolitics of global energy scarcity—in this case, the rise of resource mercantilism in China.

Maj. Sullivan’s thesis is unclassified, however NMIC does not provide public access to their thesis database. I have scanned a hard-copy, and made the PDF available for download:

Wildcats And Tigers: China’s Oil Acquisition Strategy and Potential Outcomes (WARNING 3MB, 130 page PDF)

Sullivan begins by noting that in 1993, China went from being an oil exporter to an oil importer, and is today the world’s second-largest consumer of oil after the US. In response, China’s leadership directed the nation’s oil companies to pursue a 'go out' strategy to acquire equity positions in both private and state owned oil companies worldwide. Source. Many of the resulting deals support regimes with leadership generally unfavorable to the US, such as Sudan, Iran, Venezuela, and Angola. Sullivan asks: to what extent will China’s equity-based oil acquisition strategy affect US national interests?

Sullivan’s focus on the 'equity' nature of Chinese oil acquisition illustrates the inherently mercantilist approach to securing future energy supplies—while China’s participation in the race to produce more oil may bring more overall resources to bear in this struggle, their ultimate aim is to lock-down a secure share of oil for their own domestic consumption. Sullivan documents their willingness to pay a premium beyond what a rational market actor would pay to secure these equity interests to ensure their future supply at the expense of others.

Sullivan reviews the various attempts by China’s several National Oil Companies to acquire stakes in foreign projects. This is largely a well sourced overview of acquisitions, attempted acquisitions, and partnerships. However, a few novel bits of information do pop up. For example, Sullivan leverages the US government’s Open Source Center to scour Chinese-language press releases, revealing an otherwise under-reported $2.6 billion dollar deal between CNOOC and the Nigerian government to develop a new deepwater block—particularly significant because the 1800 meter depth, and lack of other foreign partners in the deal, suggests that CNOOC’s deepwater technical capabilities may be much more advanced than commonly assumed in the West.

In Sullivan’s literature review, he references Paul Roberts’ 'The End of Oil,' Michale Klare’s 'Reource Wars,' and Samule Huntington’s 'Clash of Civilizations.' He also discusses the USGS report placing Peak Oil after 2030, and briefly mentions the phrase 'peak oil.' In the face of Peak Oil, Sullivan concludes that 'China’s perceived quest to ‘lock up’ supplies creates a potential that they may run afoul of U.S. efforts to sustain its supplies of the hydrocarbon pie.' He then proceeds to discuss China’s oil acquisition strategy through the lens of US national security interests. Sullivan specifically frames his analysis in terms of the 9 'tasks' laid out in the 2006 National Security Strategy document, highlighting particular areas of conflict, such as 'work with others to defuse regional conflicts,' and 'ignite a new era of global economic growth through free markets and free trade.'

Finally, Sullivan summarizes by answering several 'key questions,' such as:

1. Will China’s oil strategy actually guarantee it a steady flow of oil by virtue of its commanding equity position in foreign oil firms? Yes, but at barely 12 percent of its annual imports (by Chinese admission) this flow of equity oil is a poor return on investment made in the preceding decade. Nonetheless, this flow does represent the success that China had in diversifying its supply well beyond just its three principle suppliers of a decade ago.

2. What are the political, economic, and military perquisites, if any, attached to recent Chinese equity deals in foreign oil companies and how might they influence regional security? China certainly “packages” political and economic perquisites to varying degrees with some—though not all—of its equity deals. The most frequently used inducements are large signing bonuses, “soft loans,” and infrastructure development. Interestingly, the Chinese official view is that these are “gifts” indicative of its international goodwill as opposed to unfair trade “sweeteners.” Much less common, though, are overt political patronage (i.e. lobbying the UNSC on behalf of the regime in Sudan to soften the United Nations’ stance on Darfur) and military largesse relative to arms sales and political support to oil states by other nations, in particular Russia, France, and the United States.

Sullivan continues with several more summations.

While Sullivan’s thesis doesn’t break new theoretical ground—at least for readers familiar with growing Chinese energy demand and the issues of Peak Oil—it is by far the best summary of the issue that I have read. It is thorough and well sourced, and will likely point even the most versed reader to some new arguments, new sources, or new interconnections and causal relationships. Its chief weakness is the failure to more explicitly discuss the impacts of peaking global oil production on China itself, such as the potential for demand-destruction in Chinese domestic consumption. Still, I highly recommend it as a summary of both history and current thinking on the subject.

Nothing, it seems, forces a closed, isolationist culture onto the world stage faster or more resolutely than the demand for modern energy. It always starts with "resource mercantilism." Then comes the gunboat diplomacy, making noise about regime change, troop buildups, invasion. Occupation.

While I have not yet had time to read anything other than the summary, a few thoughts immediately spring to mind:

1. If the US government really buys into the CERA view of oil availability, then it should be uttterly unconcerned about China's mercantilist approach to securing energy.

2. The US should be happy that China is spending its vast stock of USD holdings. As one of the largest holders of USD, the risk of China "dumping" said stock is potentiallty catastrophic. Better for the US that these holdings are diluted across a swathe of other countries.

3. "Sullivan documents their willingness to pay a premium beyond what a rational market actor would pay to secure these equity interests" .... relative to the US (and UK) spending hundreds of billions in a war to secure Iraqi supplies...

China's mercantile approach only seems to be a poor return on investment when viewed with a mindset stuck on a belief in growing production. When production is flat or declining, locking down the resource sooner rather than later may very well result in a better return on investment than other choices.

Sullivan appears to be locked into the "global market" mindset, which may not survive the peaking of global oil supplies.

Ghawar Is Dying
The greatest shortcoming of the human race is our inability to understand the exponential function. - Dr. Albert Bartlett


You may be interested in this China population pyramid for your blog, looks a bit like a snake eating a large meal. :

http://www.iiasa.ac.at/Research/LUC/ChinaFood/data/pop/pop_6.htm pop china pyramid

BTW, your link to that plastic Sargasso Sea seems to be NF

That is in no way any kind of advantage. Quite the opposite.

The mindfully.org server appears to be down currently. I have no idea if this is a permanent change or a temporary one. You can also read about the "Eastern Garbage Patch" at Greenpeace or other sites. Simply do a Google search on the following terms - "plastic" "Pacific" "tropical" "gyre" "Texas" - and you will get multiple articles on the topic.

Please note that the "Eastern Garbage Patch" is not unique. There are other ocean gyres that are exhibiting similar trash problems, just not at the scale of an entire area as large as Texas... at least not yet.

Ghawar Is Dying
The greatest shortcoming of the human race is our inability to understand the exponential function. - Dr. Albert Bartlett

Good point--I think it's telling that our "best minds" on the topic can only come to the conclusion that this is a poor investment. The failure to view this from within the paradigm of Peak Oil shows our own failures.

By getting long term supply contracts with nations that are politically unstable and have no respect for property law this whole strategy could backfire on China. Just look at what happened to US companies in Venesuala and the civil war in Nigeria. China could make tens of billions in infrastructure investment only to have the next dictator tear up the contract.

Actually, this is good news for the world and the USA. China is spending gobs of money, tens of billions, to develop oil fields everywhere, especially where we cannot due to political reasons. This is perfect for us.
Oil is a fungible commodity. If China spends $5 billion in Venezuela (they are), and pumps out great gobs of oil, and takes it back to China, that is that much less demand on other world oil markets.
This is even better than good. China spends the money to enhance the world's productive capacity, but we benefit from the extra supplies, which hold prices down.
The downside is that this is another reason to worry about a glut going forward. The higher prices we see now are flattening world crude demand, possibly causing a Peak Demand. That is the good news. The bad news is that an ensuing glut will pound prices back into the $20s range, then we go back to the profligate and polluting ways,

Oil is, today, a fungible commodity. The notion of a dawning mercantilism suggests that its fungibility may be short-lived. The whole point of gaining an equity stake--as with the other current trend toward long-term, bilateral supply contracts--is to remove your supply chain from the uncertainties of a global marketplace. Fungibility defines what is on the market, but to a far lesser extent supplies that are locked down into equity stakes or long-term contracts.

Remember, in a market environment, the value to a buyer of an essential commodity is not just in the average price (lower is better), but also in reducing variance (lower is better) of this price.

Classic option theory.

Consider a parallel situation with electricity demand. It's even worse than oil since it can't be stored at all (as opposed to having capacity to store a very small fraction of yearly consumption).

If alot needs to be purchased on the spot market then the variance will be very high and the consumer is subject to intermitted insane spikes which will hurt them economically.

China is interested in reducing the variance of its costs, not just optimizing the mean.

This highlights China's current, obvious military weakness: no expeditionary capability and a "blue water navey" that is hard-pressed to even cross the Taiwan Strait. They are rapidly working to address this shortfall, but they certainly aren't there yet...

A blue water navy today only works if their is one.
Two simply destroy each other and quickly. Outside of subs.
A modern ship cannot survive long in a naval battle the question is only if you can keep some ships afloat but one of the navies is assured of utter destruction down to its submarines.

Better to think of them as mobile bases for a single world power to manage its assets during the cold war the navies in a sense ignored each other.

Its interesting that you bring it up since a gentleman's agreement to share the declining resources is needed in the past we had the cold war but thats not easily done when your facing ever declining resources.

In the future I think that anyone that threatens MAD will simply get hit with a first strike we won't fight another cold war so I think that your left with the worlds super powers having to divide the world first and then its a tenuous game if everyone keeps their side of the bargain.

Say the US/Europe/Japan gets Iraq China gets Iran etc etc.
And India cannot be ignored they have nuclear weapons or maybe they are who knows and of course some of the "gifts" are temporary for example China is sticking its head in a noose by having close ties with Venezuela since its trivial for us to control being so close. But since they are the weaker partner with only the threat of nuclear war as a bargaining chip it makes sense that they get the most troublesome and least defensible resources.

Outside of MAD America is still in control we have won the prime position for the coming resource wars now its a matter of elimination of our own democratic government so we can clean out the pesky natives living on top of our oil.

China is sticking its head in a noose by having close ties with Venezuela since its trivial for us to control being so close.

Will Venezuela be as trivial to control as, say, Iraq?

No doubt in my mind as a American that has lived all over the US when push comes to shove and its a issue of keeping the SUV and the McMansion and killing millions for oil or withdrawing to put our house in order the vast majority of Americans will agree with killing. We are the biggest bastards on the planet it would be wise not to forget it. The current holding pattern in Iraq is simply caused by the fact we can't at this movement call in the B52's and level Baghdad and any other problematic city without oil. Its a temporary condition.
And it will be resolved. Bush is well aware of the fact that we either need to leave or wipe out the insurgency in Iraq and further they understand full well this means basically wiping out the Iraqi population. They may be arrogant but they are not fools. We need either the civil war to spin out of control so we can restart a real war or have it resolve or wait until the public voluntarily gives up enough right to allow our foreign to proceed unimpeded.

Don't consider the current state of the US military playing the gentle giant to persist. And never underestimate the US military when the job is destruction. We are the best in the world at killing people in large numbers. The only thing we are waiting for is a flimsy excuse to crank up the war.

It's possible that the current mess is exactly on-plan, keeping the pot boiling there without costing too many GI's per week. The US needs a pretext for its fourteen huge, permanent bases in Iraq, with the key word being permanent.

The destabilizing effect of the occupation on Saudi, the brinksmanship with Iran, even the control of pipeline routes through Afghanistan, it all works to the same end, creating and maintaining the pretext for a permanent and expanding occupation.

At least I find such grim, conspiratorial machinations more comforting than chalking this fiasco up to the "banality of evil."

But I have to disagree with you about the US Navy. Submariners are fond of saying that there are only two types of ships, subs and targets, but the planners don't agree. In war gaming, the Nimitz-class carriers are just about invulnerable, positioned as they are in the center of the battle-group bubble. But their game changes completely the instant the first nuke detonates.

Part of the plan of 14 large bases requires the reinstatement of the draft. That draft may be the deciding question. Will American voters okay this?

I doubt it (the draft). Maybe in the future sometime, but it is not in sight yet.

On the Iraq war and the U.S. military, it's probably useful to keep in mind where the U.S. has been successful and where it has been unsuccessful. As long as the focus of the military was on killing enemies and blowing things up, as in the initial conquest of Iraq, the U.S. military was very successful. When the mission switched to a policing action, the U.S. military has had trouble. In a policing action, it is a bad day when a lot of Iraqis die, because they are no longer an enemy. In order to think clearly about the situation, the change in the mission is important.

I agree about the subs I thought I basically said the same thing. I guess I was misunderstood.
Also its really hard for me to set up china as a real military threat esp post peak. China will be facing serious internal problems that will make it hard for them to push outward.

If you look at China and India's and even Europe's internal problems have repeatedly ripped apart all attempts at world domination. Many people don't realize that China is just as polyglot as Europe with probably more languages. They do share a written language and a official language but at a regional level the local languages and identity are very strong in China.

America has finally managed to be the effective rulers of the world the problem is nobody wants it.

China doesn't have to be a superpower on a level with the US to be the effective hegemon.

Even a second-rate blue-water navy will be good enough to play gunboat diplomacy with Angola or Nigeria, should it prove necessary.

Who will stand up to them?

The USA? The Iraq adventure will have castrated the US for a couple of decades at least : not in terms of military capability, but in terms of public will for imperial adventures. I doubt if they could even sustain an occupation of Venezuela, politically.

Russia? The Chinese will carve out an entente with them.

Europe? Har.

When these countries renege on the the contracts it give China a reason to enforce the contracts using gunboat diplomacy.
They I believe have every intention on ensuring these contracts are honored at all costs including regime change if needed. The US has practiced the form of forced capitalism for centuries we learned it from Europe who learned it from the Romans. In general its called free trade using our terms and conditions.

The Chinese were, of course, on the receiving end of this sort of arrangement in the 19th and early 20th centuries. They will be expecting to dish it out as the rising power of the 21st. They will be utterly ruthless if they have to be, but mostly will presumably operate as the developed nations have done with respect to African mineral resources etc in the post-colonial era : make themselves the privileged partner; buy off the elites so that they work against their own nation's interests and in favour of the interests of the Chinese.

It will be tricky to figure out how to wage the resource wars without throwing to many nukes around. Probably the use of nuclear armed terrorists will allow a few strategic nukes without obvious aggression. So each side will periodically nuke each others cities with the terrorist as scapegoats allowing us or china to wipe out the particular country without overt nuclear war. Periodically we can sic the nuclear armed "terrorists" on any country that is causing problems with our resource grabs. The general unwinding of the world will give us plenty of scapegoat terrorists to use as cannon fodder. Worst case we can nuke our own cities esp ones causing problems for the regime when needed.

This of course means a military government or suspension of elections soon if the neo-cons are going to remain in power.
Which means if they really are this crazy they will crash the US economy in 2008 and call off the presidential elections. I can't see them willing to cede power.

If their are any real conspiracies with our current rulers going on they pretty much have to execute before the next election I think. Unless of course both parties are involved then we won't know for a long time.

You are a dreadful cynic. I believe in the resilience of American democracy.

Obama/Clark in 2008. Moralisation of foreign policy, and graceful decline.

Prediction: Your prediction of martial law and military government will not occur. Why? Because the neo-cons do not see the situation as that dire, thus they are willing to live with the electoral process for four more years. In fact, the neo-cons probably see Democrat incompetence as the key back to the White House after the sub-prime meltdown finishes.

Democrats will remain hamstrung on foreign policy and shoot themselves in the foot largely enough that 2012 will be a huge opportunity for the right again. Do any of you want to bet against a Jeb Bush in 2012 run if a Democrat wins in 2008?

Ghawar Is Dying
The greatest shortcoming of the human race is our inability to understand the exponential function. - Dr. Albert Bartlett

Yes, I'll take a $100 bet on that.

(bearing in mind that in 2012, $100 will probably not be worth collecting.)

Hmm but they know Iraq is over if we have another election. The chances of the Democrats losing is very low.
I'm sure they are aware our economy won't make it too 2012.

You may be right but I'm sure 2008 will be a decision point if any neo-con conspiracy is real. Losing the election will make much harder for them to act later and also they would effectively loose Iraq almost for sure.

Btw I'm gaming this a bit its a matter of if we assume that the neo-cons are seriously on some sort of mega-power trip and so far the actions of GW indicate this is true then they will be forced in my opinion to act in 2008 if they wish to maintain power. It comes all the way back to the old warning about the military industrial complex and the danger American democracy can face from it.

I see a real decision point if the election looks like it will go democratic. On the other hand if the democrats win and its a smooth transition of power I'll have serious doubts about any sort of conspiracy amongst TPTB.

If you look at our economy its setup to fail in about 2008 if thats the desired outcome. TPTB can pretty much at any point over the next year and a half send the economy into a tailspin if needed its that fragile. On the other hand they can probably keep it going for say six months or so after the election. The latest news seems to indicate that Bush and the Democrats will agree to string along the current Iraqi war. But this will do nothing to prevent public opinion from turning increasingly against the war.

I'm simply setting up the case that I feel that if we have a
real conspiracy with our neo-cons that they must act if they wish to consolidate power I think they will simply lose to much if the Democrats unwind all the work they have done to restart the military industrial complex and positioning for the coming resource wars.

Sorry for the convoluted reply but I want to make it clear that I'm simply not sure what the neo-cons plan. The moves of both Bush and the Fed indicate they are positioning for a coup if so I think they cannot accept a loss in 2008.

If I'm wrong then we have some of the stupidest leaders in history so its tough to decide which is worse.

One reason I'm not alarmed is I do believe that democracy will be suspended as peak oil progresses so its just a issue of timing. I think it will go very early. I'd love to see democracy rise up and handle the issues we face but its only as strong as its average citizen and thats not saying much in the US today. So the issue is who the masters will be and how much of a secret police force they will build up. I think the Democrats will be fairly benign but GW with unlimited power is scary.

I have tweaked the PDF file from Jeff's site so that it is:

  • slightly smaller (2.6 MB)
  • searchable
  • easier to navigate, with some bookmarks and links.

  • Wildcats and Tigers PDF

    Thank you!

    The Chinese are eyeing Australia's uranium resources http://www.news.com.au/couriermail/story/0,,20987458-3122,00.html and will develop one prospective area http://au.biz.yahoo.com/070207/19/135yz.html

    In my neck of the woods they have part equity in a new nickel mine but will take 100% of its output http://au.biz.yahoo.com/070501/19/17qs0.html. The Chinese have also bought 50% of the wind farm subsidiary of the local hydro company.

    Ha. I'm just reading The Tin Princess by Philip Pullman... The tiny imaginary kingdom of Razkavia is wedged between Bismarck's Germany and the Austro-Hungarian empire. Both want the Razkavian nickel mines for their military industries... Bismarck invades in the end.

    I am surprised by the US centric mindset of the comments here. This "groupthink" continues to get the generals - armchair and otherwise - into trouble.

    The US spends 10X more than the rest of the world on military power, and yet cannot secure Iraq and the oil there.
    The US has an "us vs them" approach to all problems.
    The US always asks "who are our enemies"
    Did you ever think the big stick approach may be limiting?

    China has never had a non-asia imperialist view, and does not have the resources to achieve it anyway, and has much more pressing problems internally.

    The Chinese are very deep. Put yourself in their shoes, and try and understand Chinese history for the past few hundred years (something America is just now beginning to do in Iraq - doh!)
    They are the ultimate pragmatists, and they take the ultimate long term view.
    I think they understand peak oil much better than we may think they do.

    I like the Goldman Sachs comment: "buy what china buys and sell what china sells"
    China is buying basic resources of all types

    A few years after Marco Polo returned to Genoa from his 10+ years stay in China, the Emperor, whom had come to know Marco, got up a fleet of 16 ships. His idea was that they would sail to Genoa, a sort of returning Marco’s visit with one of their own. In the end, the fleet was ready, but just before they sailed, the Emperor died. And his successor cancelled the voyage, saying something to the effect that China needed to look inward to itself rather that outward.

    Antoinetta III

    The problem the US has is it still has to look respectable to the world it cannot practice the genocide needed to effectively institute neo-colonialism. The Chinese are needed as a scapegoat for this endeavor. If we don't have a bogey people will begin to question or massive military expenditures and that cannot happen. The problem is of course how to keep the military in position in Iraq until we can clean out the local population with impunity. I don't think we are seriously worried about them since they have their own problems its more for show and to help justify our own resource grabs.
    Not that the Chinese are not playing the game to the best of their abilities but I think the US is setting the rules.

    Of course once the gloves come off I think a whole lot of people will learn real fear. Can we crush Iraq sure in a few weeks. Will we time will tell. It will have to take a serious disturbance and some sort of suspension of the constitution inside the US before we blatantly subdue Iraq.
    My guess is either we will crash our economy and institute military control or nuke one of our cities before the presidential elections.

    Thanks for the reality check, polytropos:
    "Mirror-imaging" an adversary's intentions is risky at best, but it's utter folly to try to understand China through the lens of American experience.
    They don't have the stock of weapons that the US does, but they have a mountain of cash, so....
    The irony is that their checkbook diplomacy is so much cheaper than our gunboat version.

    China has a mountain of US dollars and it seems the US is hell bent on ensuring the dollar becomes worthless. My guess is we will switch to a new "American Only" currency only good for use in Gods country for Americans with a increasing pegged against the dollar then let the dollar slide off into oblivion. Effectively we will go bankrupt. In the interim we will print them as fast as we can until no one takes them anymore. What this will do will allow the wealthy to convert to the new currency and convert all debts first then the workers will face the problem of being paid in a hyper inflated currency and owing money in a deflating currency.

    We will allow a few of our friends to convert early also. This would probably mean a unified Euro/Yen/New Dollar/Pound world standard currency. Whats important is that debts are converted early to the new currency and of course all the wealthy get it early. Then and only then will the people get it. Of course enemies of the state such as China the Middle East etc won't have their holdings converted or if they do it will be later at a massive lost.

    In reading I've become convinced that a new world currency is on its way and I'm pretty sure that the Euro will actually from the base currency for this new world currency.
    The only thing I wonder about is what will happen to Japan.
    I think they have a choice of converting or waiting in line with the rest of the world to get their dollar debts converted.

    In a sense its ELP for western nations by ditching the dollar and creating a new currency or expanded Euro the western countries can basically take control of the money supply. It might be done by the US claiming its lost control of its currency as the dollar slides into and abyss and we switch to accepting Euro's or the expanded euro in the US.
    In exchange European/US dollar denominated debt is revalued at a good rate.

    Then I really think we will see monetary deflation of this new currency while the old ones hyper inflate away. Each country in the world will face a choice of either converting or seeing their local currencies exchange rate get wiped out. I can't figure out what Japan is going to do.

    China's government did not tell the oil companies to go overseas. CNPC initiated it on their own, and using the "energy security" card, convinced the government it was an appropriate move. There are still many in the government today who are not comfortable with what CNPC, Sinopec, and CNOOC are doing.

    It's also a mistake to see the government and oil companies as one big cabal acting in concert. As you will hear in China, CNOOC's biggest enemies are CNPC and Sinopec, not the USG or other IOCs or NOCs.

    It's also a mistake to think there is some coordinated, integrated plan for resource acquisition by China--or that China even has a comprehensive energy policy. Look at their policies--quite a few act in contradiction to each other. They urge reducing oil dependence on one hand and promote the car industry on the other? They starve their rail system (relative to demand for it) and build a US-size interstate system in the last 15 years? They examples are numerous.

    What is this obsession with China's "equity deals"? The substance of their contracts with Sudan, Angola, and others varies virtually not at all from those signed with Exxon, Chevron, or Shell. They get a cut of production, and the government gets more as the price goes up. That's what Exxon, Chevron and Shell get.

    They do "leave money on the table" from our point of view, and we complain loudly how unfair this is and how it distorts the market (witness the testimony on this subject to Congress earlier this year). But these companies (like Aramco or PdVSA or Petrobras, are national oil companies that don't have to report to stockholders every 90 days, and can accept returns on investment lower than a typical US or EU hurdle rate. Is there something essentially wrong about this?

    They do not act to our ethical standards, and that is true. But so far, they haven't invaded the Middle East yet either.

    They invest where we don't want our companies to invest. In that regard, they have increased the total amount of oil in the market, not locked any part of it away. Asserting otherwise is a fallacy.

    If push comes to shove, China has no more security with their current contracts than the IOCs do.

    Frankly, I see China and the US as quite similar in this regard--both struggling how to keep themselves growing, keeping the populace happy, and how to keep themselves in power. There is no coordinated, rational energy policy. They both have embarked on the inanity of biofuels. But China has moved further on CTLs, much to their own and everyone's detriment.

    This article, however, does accurately reflect the current intelligence thinking in the US. Unfortunately, it doesn't accurately reflect reality.

    Chinese oil companies have been aggressively seeking exploration and production acreage around the world. Other NOIC and multi-national oil companies did the same. The Chinese were not always the successful bidders on exploration blocks.

    Husky Oil discovered a 4-6 tcf natural gas field in the South China Sea in the Pearl River Basin. Husky was controled by a Chinese billionaire named Li Ka-shing.

    In 2006 the Chinese found enough natural gas to last for years at their current rate of consumption.

    How much influence do you think a paper by a young Major within a career broadening course of studies has within either the Air Force or the larger government?

    Some few younger officers' ideas catch the attention of decision makers, but most do not.

    USAF Retired

    Not only does the United States consume vast quantities of oil, the American military consumes vast quantities of oil. The Penatagon is becoming accutely aware of the possible impact on US strategic interests of the rising cost of oil and its availability. Any army, so reliant on oil that didn't think seriously about these issues would be foolish indeed. Simply put, the US army needs to become more energy efficient and secure adequate supplies of oil, if it is to maintain its position as the world's number one power. But how exaxtly is this to be done?

    Iraq may be the answer. Supposedly, only 10% of Iraq has really been explored properly. Iraq is thought to contain the largest untapped reserves in the whole world, far more than was previosly thought, making it the single most important strategic prize in history. Figures of 200 billion barrels and even 400 billion barrels have been mentioned.

    Clearly, there is no way, having invested so much in Iraq, the US military will ever relinquish control over such a collosal source of both wealth and power.

    How much influence? Not much--it's probably most telling that, with all the time, energy and access this guy has to more senior decision makers writing at the Naval War College, various ACSs, etc., he didn't cite any other "insider" works on Peak Oil. Of the thousand plus young Majors who have gone through NMIC in the last 9 years, the fact that NONE other than this guy have even broached this topic does carry great significance, I think.

    Look at Gen. Petraeus, for example. He was specifically put into his Iraq position because of his academic bacground in counterinsurgency, and our current 'strategy' is a direct result of those studies. Who will they appoint to be the "Peak Oil General"?? In 10 years, when this is a real crisis, and the military and intelligence communities look inside themselves for topical experts, they will find a real shortage.

    This from the point of view of one who lived in China for 3 years:

    All Chinese officials must spend at least 2 years overseas early in their career. This gives them first hand experience with other cultures, and most make friends at their overseas postings.

    Chinese leadership is acutely aware of the vulnerabilities they have, but they are not monolithic, the leadership is to large for that. Eventually, they settle on consensus and move in a given direction. At the moment, they are agressively developing Jatropha curcas for BioDiesel, PV for electricity production, hydropower throughout the suitable watersheds, and their rail system is not being overlooked. It is first class, and makes that of the US a joke.

    Now to observations from having lived on every continent:
    The US has antagonized virtually the entire world population through its policies since WWII. Chavez hates the US because of the coup attempt, which failed because of his popular support with the masses. US policy is in the process of backfiring bigtime. It has forced together Venezuela, China, Russia, Africa, Iran, Malaysia, Indonesia, Burma, India, The central asian republics, Lybia, Algeria, and the ASEAN countries.

    All these countries are Peak Oil aware, and as mentioned above have decided that the NYMEX and LFE markets work against their interests. Russia, has assiduously turned this anxiety to their advantage by, offering long term bi-lateral relationships with cross investment. China is following the Russian lead in doing the same. These bi-lateral long term relationships are greased with US dollar holdings, but the most important feature of them is the cross investment. China invests in Venezuela, and invites Venezuela to invest in China. Iran does the same. Russia does the same.

    Consider the Peace Pipeline from Iran to India thru Pakistan. The Russians have offered to finance it, the Chinese have offered to build it. The US has offered to scuttle it. The Pakistanis really need the gas, as do the Indians. The US has said "it's us, or the gas", which means be our friends or have energy to run your economy.

    In Central Asia, the US openly moves to topple regimes it recently emplaced, due to a spat. Russia offers bi-lateral long term agreements with cross investment. For gas, Russia offers design and engineering for a coordinated water management scheme under which the mountainous countries get hydropower, and the Kazachs get irrigation water for their grain, and they offer the money to make it happen, too.

    The Colonel is right on one very important point, the US and its Allies are being denied access to critical resources, in many cases for the express purpose of destroying US power. China and Russia are engaged in asymetric warfare. While the US concentrates on Carrier battle groups the Chinese are buying the resources needed to maintain them, and the technologies required to build them.

    The commentor who mentioned that there are submarines and there are targets is correct. With today's anti-ship missiles, a sub can query a satellite, fix the general location of a target lying hundreds of kilometers away, and launch a missile against that ship while submerged. Most important that sub can be a diesel boat, equipped with AIP propulsion, capable of lying submerged for months, with a crew of 20, and so quiet that US subs are heard by it long before they know it is there.

    The poor man builds submarines.... and does business.....


    That's a pretty remarkable summary of an emerging world order where the US is no longer considered a reliable partner or ally, and must be circumvented.

    It is the the logical result of the Neocon folly : death to multilateralism, death to permanent alliances. Coalitions : build 'em up and knock 'em down according to US perceived short-term interests. What? Nobody wants to build coalitions with us any more? How can this be?

    Add Mercosur to the people that rather forget about the US, even though it still varies a little from country to country. That's a whole subcontinent.

    For some reason, new oil discoveries always deteriorate quickly into Argumentum ad Ignorantiam type assertions. I hope the Chinese and other cornucopians thoroughly enjoy this dream phase, of Bohai Bay.

    China's Bohai Bay may hold 146 bil barrels oil reserves: report

    Hong Kong (Platts)--10May2007

    The Bohai Bay in northern China may hold oil reserves equivalent to 20
    billion mt (146 billion barrels), with half of it still undiscovered, the
    official China Daily reported Thursday, citing an upstream expert with the
    Chinese Academy of Engineering.
    The Bohai Bay rim is believed to have about 60 structures similar to the
    newly found Jidong Nanpu oil field, the report cited CAE's Zhai Guangming as
    saying. Zhai is also the first manager of the Jidong Oilfield Co. under
    Chinese state-owned China National Petroleum Corp, according to the report.
    The CAE professor, however, also noted that these undiscovered structures
    would be more difficult to find.
    CNPC's publicly-listed business arm PetroChina last Friday said its
    discovery of the Jidong Nanpu oil field in the shallow waters of the Bohai Bay
    has a total of four oil-bearing structures. It has confirmed geological
    reserves of 1.02 billion mt (7.46 billion barrels) of oil equivalent,
    including 905.6 million mt (6.62 billion barrels) of crude reserves and 140.1
    billion cubic meters (4.95 Tcf) of gas.
    PetroChina intends to start developing the Jidong Nanpu oilfield as
    soon as possible. The first-phase of the project, to be finished by 2012, will
    produce 10 million mt/year (200,274 b/d).
    Output is expected to rise progressively to 25 million mt/year, making
    the oilfield China's third largest after Daqing and Shengli.
    Han Xuegong, professor with the CNPC Managers Training Institute in
    Beijing, said news of a major oil discovery in the Bohai Bay rim had been
    circulating within CNPC since last year. But the formal announcement of the
    discovery was only made last week.
    Han said he believed this was a signal that PetroChina might have also
    come across other large hydrocarbon structures which the Chinese oil giant has
    yet to announce, the Xinhua news agency reported.
    Han added that based on a primary recovery rate of 40% for oil fields in
    general, Jidong Nanpu's overall output would be about 408 million mt of oil
    equivalent if no further discoveries are made in the acreage.
    Using PetroChina's peak 25 million mt/year production goal for Jidong
    Nanpu as a reference, the field would have a lifespan of about 20 years.