CHINA’S QUEST FOR OIL

There has been much hand wringing since the announcement last week that The China National Offshore Oil Corp. is trying to take over a U.S. oil company. While there is plenty of political and economic tension between the two countries, this deal, if it goes forward, does not threaten U.S. national security by constraining the supply of oil available to Americans.

Last week, CNOOC offered $18.5 billion for Unocal, a California-based oil company which in April agreed to a $16.4 billion takeover by Chevron, the country’s second largest energy company. The Chinese are willing to pay more to ensure a supply of oil and gas for its rapidly growing economy.

This has led to fears that the Chinese company, which is 70 percent owned by the government, will snap up oil reserves now claimed by the United States. Two Republican congressmen, Richard Pombo, chairman of the House Committee on Resources, and Duncan Hunter, chairman of the House Armed Services Committee, have already expressed concerns to President Bush. The deal must be approved by the Committee on Foreign Investment in the United States. The multi-agency group can prevent foreign investments if they pose a threat to national security. Earlier this year, the group allowed the sale of IBM’s personal computer business to Lenovo of China.

During a meeting with the Bangor Daily News, the president’s chief of staff Andrew Card said the deal raises concerns because the company is controlled by the Chinese government.

Such fears are balanced by what columnist Sebastian Mallaby argues in Monday’s Washington Post is the reality of China trying to ship all of Unocal’s oil and gas, 70 percent of which is in Asia, to its own industries, leaving it unavailable to the rest of the world. “Even if this were possible, it wouldn’t matter: Unocal’s oil and gas would be meeting Chinese demand that would otherwise have to be met by Chinese purchases on world markets,” Mr. Mallaby writes. “China would be reducing both the supply and demand for energy in the open market. Prices paid by American consumers wouldn’t budge.”

Unocal’s reserves account for only about 1 percent of U.S. consumption.

While Congress is sure to debate the merits and pitfalls of the Unocal deal, the Chinese government is not simply trying to buy its way out of a looming energy crisis, it is mandating efficiency as well. Last year, the Chinese government approved automobile fuel efficiency standards that are far more stringent than those in the United States.

The Chinese standards require that cars and trucks get between 19 and 38 miles per gallon this year and between 21 and 43 miles per gallon by 2008. Only 19 percent of current new U.S. cars and 14 percent of trucks would meet the 2008 standard. The U.S. standards are calculated based on the average fuel consumption of the entire fleet sold by an automaker (so one hybrid model can lower the entire fleet average). Under the Chinese system, each model sold must meet the standards.

If Congress is so worried about the U.S. oil supply, it should take more action on the consumption side of the equation rather than just trying to protect production.