China has made aggressive investments in oil production facilities and fields in Venezuela, Brazil, and several places in the Middle East. Almost all its multi-billion dollar deals are aimed at locking up supply to accomodate its ravenous need for energy which fuels is rapidly expanding economy. Many of its recent transaction guarantee crude at market prices.

The most substantial China investment to date is a plan to buy one-sixth of the reserves of Nigeria which is a poor nation with abundant supplies of crude.

According to the FT, “The overall value of the Chinese offer is not disclosed, although some details suggest a figure of about $30bn. Some oil sector executives said the total on the table was $50bn.” The move is clearly meant to elbow out Western companies like Chevron (CVX) and Exxon Mobil, (XOM) which have dominated exploration and exporting of crude from Nigeria.

The CIA Factbook reports that Nigeria ranks No.10 among nations of the world in terms of proven oil reserves which puts it ahead of both China and the US.  It is China and the US that will be the greatest competitors for crude over the next several decades, at least until alternative forms of energy have some real share of energy production. Many experts expect the world’s supply of crude to begin to shrink within three or four decades.

The Chinese can afford to invest tens of billions of dollars in crude reserves. The large oil companies based in the world’s most populous nation have access to government funds which are not available to the publicly traded energy operations based in the US, Canada, and Europe. That will put companies like Exxon, the world’s largest publicly traded oil company, at a disadvantage over time. It may already pose competition that Exxon is not in a financial position to handle now.

China’s attempt to capture huge pools of reserves may meet with some nationalistic resistance in countries such as Nigeria where there is a formidable resistance movement pressuring the central government. But, $30 billion is a stunning sum of money for a nation with a GDP below $300 billion. China can write checks that the rest of the world cannot and that may prove irresistable among countries with large reserves and troubled national finances.

Douglas A. McIntyre

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