In 2011, China is expected to lead the world in car sales for the third straight year. Its sales in 2011 are expected to be near 20 million vehicles compared to less than 13 million vehicles for the United States. And, these vehicles will be mainly run on oil-based fuels. China’s oil consumption increased 12.9 percent in 2010, hitting the 10 million-barrel-per-day mark in November, and its oil imports have risen 17.5 percent. Recognizing the need for oil resources, its state-owned oil companies are buying oil and gas assets around the world.
Most recently, China has invested in an oil pipeline to bring Canadian oil sands to Canada’s west coast to be shipped to Asia, and China has bought interests in U.S. oil shale projects. Both these forms of oil—oil sands and oil shale—are not liked by environmentalists in the United States because of their production techniques resulting in greenhouse gas emissions that are slightly higher than conventional crude oil on a life cycle basis. But to China, these forms of crude oil offer an opportunity for much needed energy to fuel its growing economy.
China’s Automotive Market
According to China’s National Bureau of Statistics, China’s auto vehicle inventory totaled 40.3 million vehicles on the road at the end of 2010, 28.4 percent higher than in 2009. China’s light commercial and passenger vehicle sales totaled almost 17 million vehicles, a 33 percent increase above 2009 sales, making China the largest automobile market for the second year in a row. Passenger vehicle sales in China totaled 11.9 million vehicles in 2010, 37 percent higher than in 2009, led by compact vehicle sales. Due to their smaller size and lower price, compact vehicle sales totaled 4.9 million vehicles, an increase of 49 percent from 2009 levels.
Sport Utility Vehicle (SUV) sales, which increased more than 40 percent in 2009, were the third largest market component in China, with sales at 1.7 million, almost twice as much as in 2009. Chinese buyers are purchasing SUVs as their second vehicle because they are fun to drive. As a result, both domestic and foreign companies are rushing to manufacture new models of SUVs for the China market. According to the China Automobile Trading Company, China imported 650,000 vehicles in 2010 of which 57 percent were SUVs.
According to the National Bureau of Statistics, individuals owned 34.4 million vehicles, up more than 32 percent from 2009 levels. Beijing has the highest car ownership rate of Chinese cities, totaling 2.8 million vehicles at the end of 2010 and suffers the worst gridlock of any major city in the world.
According to the China Association of Automobile Manufacturers, China’s auto sales rose 14 percent in January 2011 despite the expiration of a tax credit for purchases of small vehicles. J.D. Power, an automobile data market company, predicts that sales for 2011 will be 11 percent higher than last year, with 19 million vehicles sold, keeping China as the largest global automobile market by a large margin. Some automobile manufacturers are estimating the growth in 2011 vehicle sales to be between 10 and 15 percent, and at the higher level sales may reach 20 million units. In contrast, light-vehicle sales in the United States are expected to increase to 12.8 million units.
The vast number of automobile manufacturers, both domestic and foreign, vying for the China market has had an effect on prices. Passenger vehicle prices dropped 3.8 percent in January from the prior year, as the automobile companies competed for market share. According to China’s National Development and Reform Commission, the steepest price decline was in minivans at 6.4 percent. Despite the robust growth of the SUV market, SUV prices declined by almost one percent.
China in the Electric Car Business
China plans to produce electric vehicles—a million such vehicles a year—and sell to overseas markets. BYD Co LTD, a Chinese automobile and battery manufacturer backed by Warren Buffett, is expecting to have electric vehicles for sale in the U.S. market by the first quarter of 2012. The company realizes that these relatively expensive automobiles would be a tough sell in China, but not so tough in the United States, where President Obama would like to have a million electric vehicles on the road by 2015. BYD is the world’s largest cell phone battery maker, and is looking to distinguish itself in the auto market, with plans to be the biggest car manufacturer in China by 2015, and the biggest in the world by 2025.
China’s BYD e6 all-electric sedan. Photo: BYD
A developer in California plans to sell an electric vehicle that will be manufactured in China. CODA Automotive Inc. will adapt one of its four-door sedans for electric drive and U.S. safety standards and have the vehicle ready for sale during the second half of this year. CODA plans to sell 10,000 to 14,000 vehicles in its first 12 months of sales, competing favorably with bigger rivals such as Nissan, because its battery technology delivers a longer driving range and more consistent performance at low outdoor temperatures. In California, CODA’s sedan will retail for $44,900, with a $7,500 federal tax credit and a $5,000 state government credit.
China’s Oil Demand
China is second in the consumption of oil among countries worldwide. For the first time, in November 2010, its oil demand exceeded 10 million-barrels-a-day. According to preliminary data from the Chinese government, oil consumption rose 12.9 percent in 2010 from 2009 levels. China imported an average of 4.8 million barrels a day of crude in 2010, 17.5 percent more than in 2009.
Because China’s imports are close to 50 percent of its demand, the country is buying interests in oil resources around the world. Chinese companies are investing in energy resources from Australia to Africa to Latin America as they try to secure access to raw materials needed to fuel their fast-growing economy. China’s oil companies are operating in 31 countries and have equity production in 20 of them. Since the beginning of 2009, China’s oil companies have spent over $47 billion to acquire oil assets worldwide. Most recently, they have made several investments in North America.
China is helping to finance the development of an oil pipeline to move oil sands to Canada’s west coast, opening Canadian oil sands to Asian markets. The proposed $5.51 billion dollar Northern Gateway pipeline would carry 525,000 barrels of oil per day to British Columbia where it would be shipped to Asia. Approval for the project is slated for next year with construction scheduled for completion in 2016. Canada’s oil sands estimated at 170 billion barrels are the second largest oil reserves in the world, second to Saudi Arabia. Currently, Canada exports its crude oil to the United States, but the Obama Administration is holding off on permitting the construction of a pipeline to carry oil sands from Canada to U.S. refineries, forcing Canada look for other outlets for its crude.
China is also making investments in the United States. In October 2010, China’s National Offshore Oil Corp. (CNOOC) invested $1.08 billion for about a third of Chesapeake Energy’s interest in the Eagle Ford Shale project in South Texas. Now the company is investing $570 million for one-third share of Chesapeake Energy’s shale oil and gas drilling project in Colorado and Wyoming. They also plan to fund two-thirds of the drilling costs up to $697 million.
China is fast outpacing the United States in manufacturing, and is garnering the necessary energy assets to keep its economy fueled. In fact, China is expected to replace the United States as the country with the largest manufacturing output in the world this year, according to IHS Global Insight, a consulting firm. That was a position that the United States held since the 1890s. According to the U.S. Bureau of Labor Statistics, manufacturing employment in the United States has been reduced from 19.6 million jobs in June 1979 to less than 12 million jobs today, which is the lowest number of manufacturing jobs in this country since 1941.
China, knowing that it needs energy to keep its manufacturing base growing and to fuel its vastly increasing automobile fleet, is buying energy assets worldwide. Recently, China’s oil companies have invested in Canadian oil sands and in U.S. oil shale projects—fuels that environmentalists in the United States oppose—but fuels in abundance that can replace conventional oil. Canada’s reserves of oil sands total 170 billion barrels and the United States has 800 billion barrels of shale oil reserves, mostly on federal lands. Together these oil resources represent over 125 years of U.S. oil consumption at current rates without importing a drop. But to get at them, the U. S. government needs to permit the construction of the Canadian-U.S. oil sands pipeline and lease oil shale resources on Federal lands that it is currently holding hostage.