OPEC countries, which produce 40 percent of the worlds oil, are stepping up efforts to secure their market share in China as the group competes with Russia to supply the worlds fastest-growing energy market.

OPEC countries, which produce 40 percent of the world’s oil, are stepping up efforts to secure their market share in China as the group competes with Russia to supply the world’s fastest-growing energy market.

Sheikh Ahmad Fahd al-Sabah, president of the Organization of Petroleum Exporting Countries, will lead the group’s first talks with China tomorrow as members including Saudi Arabia and Kuwait plan investments in Chinese refinery projects worth more than $8 billion to increase their share of China’s fuel market.

Oil prices have tripled since 2001 as the Chinese economy expanded at more than 9 percent a year, straining global supply. Russia, China’s largest non-OPEC supplier, may build a pipeline to feed Siberian oil to China and will raise rail shipments 50 percent next year. Saudi Arabia has used oil refinery investments to ensure sales in Japan and South Korea.

“The relationship between China and OPEC is still weak,” said A.F. Alhajji, oil economist and associate professor at Ohio Northern University. “OPEC members should invest more in China and circulate some of the petrodollars that they earned in recent years.”

China, the world’s second-largest energy market, imported about 800,000 barrels a day from Saudi Arabia, Iran and Indonesia, its largest OPEC suppliers, according to Beijing- based Customs General Administration. Russia, Angola, Oman and Sudan are the biggest non-OPEC exporters to the country. China will need to import more than 3 million barrels a day next year.

`Securing Access’

“The Chinese are very pro-active in securing access to energy resources around the world,” said Dariusz Kowalczyk, investment strategist at CFC Seymour Ltd. in Hong Kong. “For OPEC to know how to plan their own investments, it makes sense to find out how the Chinese will source the energy they need.”

OPEC is pumping at the fastest pace for 25 years. Oil traded at $ 58.15 a barrel in New York today, 27 percent higher than a year ago. Middle Eastern nations will sell roughly $ 400 billion of oil this year, up from $ 100 billion in 1999, according to the International Monetary Fund.

Saudi Aramco, the world’s largest oil company by production, agreed in 2001 to expand a refinery in Fujian province jointly owned with China Petroleum & Chemical Corp., or Sinopec, and Exxon Mobil Corp. at a cost of $ 3.5 billion. Aramco may also build a second joint venture plant with Sinopec in the northern city of Qingdao.

“We share the view with most key energy consultants that major capital investment in the sector will be needed to handle expected demand,” Aramco’s refining head Khalid al-Buainain said on Dec. 1. The company also plans refinery investments in Saudi Arabia, the U.S. and South Korea.

Saudi Contracts

In turn, Sinopec was among companies awarded contracts in 2003 when Saudi Arabia allowed international companies to explore for gas on its territory for the first time in decades.

Kuwait and China have agreed to develop a refinery complex near Guangzhou in the south of the country with the capacity to produce between 200,000 and 400,000 barrels a day of gasoline and other fuels, Sheikh Ahmad, who is also Kuwait’s Oil Minister, said in Kuwait City on Dec. 12. That project, which would use Kuwait oil supplies, may cost as much as $ 5 billion, he said.

“China should allow OPEC members to invest in downstream operations and refineries within China,” Ohio Northern’s Alhajji said. “China has to make structural changes to attract such investment. This includes the removal of price controls on all petroleum products.”

Limited Fluctuations

The National Development and Reform Commission, China’s top economic planning agency, limits fuel price fluctuations to 8 percent from levels it sets to curb inflation and manufacturing costs. It hasn’t raised fuel prices in step with crude oil costs.

“We want to know how we can help meet China’s energy needs and understand from them what energy policies they plan to pursue,” Adnan Shihab-Eldin, OPEC’s acting secretary general, said in an interview in Kuwait City on Dec. 12.

Chinese oil demand will increase 6.1 percent next year to 7 million barrels a day, the Paris-based International Energy Agency said on Dec. 5. The country’s oil production isn’t keeping up with consumption, spurring demand for imports. Domestic output will grow 3.3 percent to 3.7 million barrels a day next year, the State Information Center said on Nov. 12.

“China is the elephant in the room and by far the fastest- growing energy consumer,” said Gal Luft, co-director of the Institute for Analysis of Global Security in Washington. “This makes it an important client for OPEC. For political and market reasons, OPEC would like to strengthen relations with China.”

Iran, OPEC’s No. 2 producer, is China’s largest supplier of oil after Saudi Arabia, accounting for 14 percent of Chinese imports, according to the U.S. Energy Department. Sinopec signed a $ 100 billion agreement last year to import 250 million metric tons of liquefied natural gas from Iran over 30 years.

Russian rail shipments to China will rise 50 percent next year to 300,000 barrels a day, according to the U.S. Energy Department.

OPEC’s members are Saudi Arabia, Iran, Venezuela, Kuwait, the United Arab Emirates, Iraq, Nigeria, Libya, Indonesia, Algeria and Qatar.

Source : quote.bloomberg.com