Chinese premier to bolster Gulf energy ties

 Published: 1/11/2012 9:43:00 AM GMT
Original Cached
Chinese premier to bolster Gulf energy ties

(Financial Times) -- China will this week launch its highest-level diplomatic visit to the Gulf for more than two years, seeking to bolster its growing energy ties to the region amid jitters over possible western sanctions on Iranian oil and Tehran's counter-threat to block the Strait of Hormuz.

Premier Wen Jiabao's six-day trip will take him to Saudi Arabia, Qatar and the United Arab Emirates, while China's state-owned Sinopec is poised to sign a joint venture deal to develop a big refinery on the Saudi Red Sea Coast.

Rising tensions between Iran and its Arab oil producing neighbors have highlighted the delicate path Beijing needs to tread to preserve both as big oil suppliers, while unrest across the Middle East has triggered wider concerns in China about its dependence on the region's oil.

"Half of China's oil imports are sourced from the Middle East, so the region's instability is a major concern," said Ben Simpfendorfer, founder of Silk Road Associates, a Hong Kong based consultancy. "Conflict with Iran tops the lists of worries, should it disrupt physical oil supplies. There is also the risk that the Middle East starts to call on China to play a bigger role in the region, no different to the other major powers."

While few details have been disclosed about Wen's visit -- the most senior Chinese mission to the Middle East since President Hu Jintao went to Saudi Arabia in 2009 -- his choice of countries suggests energy will be high on his agenda. Saudi Arabia is China's largest supplier of crude -- and Beijing is expected soon to overtake Washington as the biggest buyer of Saudi oil -- while Qatar recently became China's largest supplier of liquefied natural gas.

Analysts say the expected confirmation later this week of a deal between Sinopec and Saudi Aramco, Saudi Arabia's state owned oil company, to build a 400,000 barrel a day refinery at the Red Sea port of Yanbu is an early sign of an effort to deepen a relationship previously based on the simple equation of Saudi Arabia producing oil for China to consume.

The Yanbu facility is Sinopec's first overseas refinery and comes after a similar joint venture with Aramco to build a joint refinery in China's Fujian province. Aramco has been further increasing its Chinese presence by building a refinery in the south of the country in partnership with PetroChina and by sending students to Chinese universities -- mirroring similar programs in the United States and elsewhere.

"Chinese-Saudi oil relations are expanding annually -- for mutual benefit," said Walid Khadduri, a consultant for Middle East Economic Survey, a newsletter. "It's a commercial relationship. It's not political."

Elsewhere in the region, Chinese oil companies have landed several service contracts in Iraq, where Cnooc and Sinochem are helping develop the Maysan oilfield, while CNPC is working in the Rumaila field together with BP. Chinese companies are also working in Iran, although progress has been slow there because of U.N. sanctions on the oil sector.

While China's diversified relationship with Middle East oil producers is in one sense a strength, the Arab uprisings and the intensifying battle between the west and Iran over Tehran's nuclear program have highlighted its potential pitfalls.

The already cool relations between Saudi Arabia's Sunni Muslim monarchy and the Shia rulers of Iran have chilled further after revelations of an alleged Iranian plot to kill Riyadh's ambassador to Washington and thinly-veiled Saudi allegations that Tehran is behind unrest in the country's oil-producing eastern province.

China's crude oil purchases from Tehran have also fallen under closer scrutiny this week, after the US announced sanctions on Iran's Central Bank. Tim Geithner, U.S. Treasury Secretary, arrived in Beijing on Tuesday to press China to support the move.

Even though Wen is said to be skipping Tehran on this visit, most observers don't expect Beijing to abandon its historic policy of seeking good relations with both Iran and the Gulf Arab states, whatever the antagonism between them.

"China wants to look long-term," said Robin Mills, an analyst at Dubai-based Manaar Energy Consulting. "And when this crisis is over, Iran will be a very important player."

© The Financial Times Limited 2012

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