Nickel's Nice, But Oil Is the China Card

Includes: ATHOF, PTR, PWE
by: Market Blog

by David Berman

The Chinese economy is developing at a blistering pace, and the country is acquiring a talent for producing things it once needed to import. From cars to telecommunications equipment to steel products, China has arrived on the world stage.

However, it's a safe bet that China is always going to need imported oil, and lots of it.

China is already the world’s second-largest oil consumer, behind the United States, and its thirst appears unquenchable. According to the Institute for the Analysis of Global Security, China’s oil consumption is growing by 7.5 per cent a year, which is seven times faster than U.S. growth.

This wouldn’t be a huge problem if China were a great oil producer. It isn’t. Its reserves are puny next to its needs, a fact made clear when it switched in 1993 to being a net importer of oil from a net exporter. These days, China produces about four million barrels of oil a day, but burns through about 7.6 million barrels a day.

With rising demand, the days of cheap oil are over, which is good news for oil companies and energy investors. Even better news is the fact that China has shown a strong desire to own oil-producing assets, and pay handsomely for them.

Through its state-owned investment and energy companies, China has already bought stakes in Athabasca Oil Sands Corp. (OTCPK:ATHOF), Syncrude Canada Ltd. and Penn West Energy Trust (NYSE:PWE) – in deals that total more than $8-billion.

The Chinese aren’t likely finished their shopping spree: PetroChina Co. (NYSE:PTR) alone plans to spend $60-billion (U.S.) on international acquisitions over the next decade, according to the company’s chairman.

Some of that money will come to Canada, no doubt, and wise investors will be ready for it.