China takes the brakes off motoring

The worlds most populous nation now has motoristsbut theres no petrol at the pump.

By Nury Vittachi, a journalist and author based in China.

Oil-starved motorists in China are waiting in mile-long queues, desperate to buy petrol. Oil-rich fuel suppliers are desperate to sell it to them.

But buyers and desperate sellers cannot reach each other. A piece of paper stands in the way.

The chaos at filling stations this week in China is one of the most frustrating repercussions of large-scale changes in the oil business. The biggest change is the way that Asia is following Americas lead to become a continent of gas-guzzlers. Already, China is the worlds second biggest consumer of oil. But there are changes at every level. Chinese urbanites are putting away their Forever Brand bicycles and trading up to VW Santanas: a German-designed car built on the outskirts of Shanghai.

But taxi drivers such as Huang Pengfei, queuing up outside a station in Shenzhen, are not interested in economic development, except for their own. Huang just wants to get on with his job. Unfortunately, that means he has to get up at 4am to queue outside one of the few open petrol stations in the southern Chinese city, where roads outside some stations have become de facto car parks, jammed with stationary vehicles. At dawn, he gets a small quota of petrol, and tries to make it last as long as he can.

We are exhausted by the end of the day, and our earnings are much less, Huang told the South China Morning Post.

It seems a long way from the situation described just after Chinese New Year, where Chinese newspapers exulted in the fact that oil imports were falling. China had hefty year-end stockpiles, the Peoples Daily reported on 25 February.

What happened? Between then and now, oil prices rose from US$49 a barrel to US$67. Chinese suppliers, unable to raise their prices because a government edict forbids them from doing so, have shut hundreds of filling stations, claiming that they would otherwise be selling oil more cheaply than they can get it. (Petrol costs 4.7 yuan a litre in China about half the 90 pence a litre UK price.)

Oil watchers this week noticed China taking two big steps to remedy the problem. First, it revealed that it had greatly increased spending on oil processing plants. Second, it made a bid to buy a Canadian company with oilfields in Kazakhstan. A fierce bidding war between China and India is expected for the assets.

Chinese leaders are desperate to avoid whats happening in Indonesia, where the oil squeeze is putting the brakes on economic development. While most countries would love to have a gross domestic product growth rate of six per cent, Indonesia needs it the government believes thats the minimum rate at which there is any hope of alleviating the countrys crippling unemployment and poverty. But the rise in the price of oil has dropped growth from over six per cent in the first quarter to five-and-a-half in the second. The International Monetary Fund has asked Indonesia to cut subsidies on fuel to free up money for spending on poverty relief. But President Susilo Bambang Yudhoyono told the press that he worried a fuel price hike may even cause an increase of poverty.

Chinas GDP growth rate is higher, at about 9.5 per cent, but the government there also believes that maintaining development is essential to ward off instability and unrest caused by unemployment.

For Indonesia, there is an alternative although not an easy one. The country has massive oil reserves (it is a member of OPEC, the Organization of Petroleum Exporting Countries), but the turmoil of recent years means that it is a net oil importer. The answer could be to rid the system of red tape and corruption and persuade firms to invest in new refineries.

China has no such option. Earlier this year, Wang Gongli, president of the China Oil and Natural Gas Designing Institute, told an energy forum in Beijing that domestic demand in his country could never catch up with supply. By 2020, China will want 450 million tons of crude oil a year, and half the supply would depend on imports.

For people watching the oil industry, the long-term picture is unclear. Clearly, China is assuming there will be endless growth of demand, and endless growth of supply. In reality, fewer oilfields are being found around the world, and the size of existing ones tend to be revised downwards as technology enables suppliers to achieve higher degrees of accuracy. The result would have to be sharply higher oil prices, which would cause massive changes in society, doubling or tripling the prices of common everyday items, many of which are manufactured or transported using oil.

There are groups who think that this would be no bad thing. The Association for the Study of Peak Oil (ASPO), which includes oil executives, academics and geologists, believes world oil production is at its peak and will diminish. The resulting huge rise in oil prices they believe it could triple even from todays high rate will force societies to look for alternative forms of energy. Dr Colin Campbell, a member of ASPO and a former executive vice president of Total-Fina, told the BBC: "If we price oil correctly, it could give us time to find bridge fuels, fuels to fill the gap between an oil economy and a renewable economy.

It sounds like a worthy goal. But for taxi-driver Huang, living in a city where fuel is rationed to 11 litres a person, barely a splash in the bottom of his tank, the road ahead is winding and uncertain. Ironically, the best thing he could do is probably to make sure he keeps his bicycle well-oiled. You never know when you might need it again.