- Email: [email protected]
The international enrrgy relations of China
Book reviews
Far East energy policies- in depth and breadth THE INTERNATIONAL ENERGY RELATIONS OF CHINA
becoming a massive net exporter of energy, but he argues that there will be an 'export bubble' during the 1980s, which will deflate, leaving the country a by Kim Woodard net importer of energy in the 1990s. Although coal, gas, uranium, hydroStanford University Press, Stanford, power, biogas and solar power are all CA, USA, 1980, 717pp, $50.00 analysed, much of the first part of the book is concerned with oil, and here FAR EAST OIL AND ENERGY two issues stand out. First, there is the SURVEY tension between the self-reliance policies which the country followed to edited by Bryan Cooper develop the Daqing (Taching) oilfield Petroleum Economist and Petro- in the early 1960s and the increasing Consultants, London, UK, 1981, involvement with foreign companies in current offshore developments. It is 476pp, £160, $385 clear that the post-Mao leadership is These are excellent examples of two aware of how far their onshore techdifferent types of product. Kim nologies are also behind best foreign W o o d a r d has written a painstakingly practice, and one wonders if their tacit massive monograph on China's energy renunciation of self-reliance in the offscene. It would be difficult for any shore area will lead them to experiment single academic author to do the job more with foreign companies onshore better. Bryan Cooper's volume is a as well. team effort, involving authors from a Second, Woodard brings out the consultancy, Petroconsultants, and the range of offshore delimitation disputes, energy journal, Petroleum Economist. in which China is involved. The full The result is expensive, designed for exploitation of the country's offshore continuous updating and more strictly reserves will depend on the settlement aimed at the business market. How- of disputes with North and South ever, it manages to pack a mass of Korea, Japan, Taiwan and Vietnam. information into a readable package (There are some more marginal and there is no combination of aca- disputes with the Phillipines). As often demic books with the same range of seems to happen, the most interesting analytically important factual material. sedimentary zones lie across the areas in question. Both these books suggest that China is not being particularly China aggressive about these conflicting W o o d a r d ' s book is divided into two claims, but that there will have to be parts. The first covers China's energy some solid diplomacy before explorapolicies, with particular concern paid tion can move ahead confidently to the country's international energy throughout the Yellow, East China and relations. The second half is a statistical South China Seas. profile of the country, in which he presents all the past significant estimates of Reference work China's energy reserves and production; his own analysis of China's pre- However, to pick out two issues is to sent status; and his projections for the risk leaving the impression that this is a narrow book - far from it. Woodard future Chinese energy scene. The picture which emerges is of a has produced an essential reference country which is 66% dependent on work, not just for those concerned with coal, but working hard to expand its oil energy developments in East Asia, but and gas sectors. He does not see China for anyone concerned with the politics
ENERGY POLICY December 1981
of the region, or of China itself. For instance, my attention was caught by sections on: the relationship of key Chinese political figures, such as VicePremier Deng, to energy developments; China's reactions to OPEC's successes in the 1970s, the social problems connected with developing hydropower; China's nuclear diplomacy; the way energy has been involved in China's wider political relationships with both Japan and the USA. Overall this is an impressive piece of scholarship, albeit slightly oddly structured, with the international developments coming before the discussion of the country's indigenous energy ones.
A broader view The cost of the Cooper volume will obviously restrict its availability, but anyone working on Asian energy developments should know that it exists and that it is worth tracking down. A b o u t one third of the text covers a general analysis of developments throughout the region (which extends from Afghanistan in the West, to Pacific Islands like Fiji in the East; from the Soviet Far East in the North, to Australia in the South). Along with the obvious statistical analyses of reserves and production, this part has an invaluable section (with an excellent map) of the offshore boundary disputes throughout the region, and has a useful summary of the contractual arrangements under which companies are working in each country. (For example, they give a lot of attention to Papua New Guinea's Resource Rent Tax, which is only collected when a specified 'threshold' discounted internal rate of return on total cash flow has been realized). The rest of the volume consists of an analysis of each country's energy picture, consisting of a brief history of developments, basic statistics and a map. Obviously, its 32 pages on China lack the depth of Woodard's book, and in going for comprehensiveness, there is not much room for the kind of sophisticated discussion of statistical reliability, with which Woodard is concerned. On the other hand, the emphasis is on bang up-to-date information,
341
B o o k reviews
which is clearly presented. Once again, there is some bias toward oil and gas, but not too marked. Other energy sources are adequately treated, but one finds gaps in the country studies, such as no discussion of the coal industry in India, or of nuclear developments in Pakistan. However, these are small quibbles about a volume which becomes increasingly invaluable as the attention a country receives decreases (I parti-
cularly learned a great deal from its section on Vietnam). One warning, though, to librarians: the volume comes in a barely adequate loose-leaf folder. It is, though, worth the cost.
Louis Turner Research Fellow Royal Institute of International Affairs London
Interdisciplinary economics of high cost oil HIGH COST OIL AND GAS RESOURCES
uniqueness') rent is at best misleading and at worst wrong. Apparently, the rent is 'due to the oligopoly nature of the OPEC cartel'. Presumably then, if one ascribes to the view that OPEC has never acted as an effective cartel, l North Sea fields earn no rent! Other terms such as equilibrium, user cost and optimality are used out of context and with meanings only loosely connected to their usual interpretations; while his attack on intertemporal Pareto e f f i c i e n c y - a l t h o u g h Paratean economics can be criticized on many grounds - is just not valid.
High-cost fields Perhaps most strikingly, the premise underlying the book - that the development of high-cost fields is d e s i r a b l e - is open to question. The four reasons which are claimed to make these developments desirable warrant closer scrutiny. In fact, if the high-cost fields yield revenues which barely repay capital costs (plus a normal return on capital) then their development will be of no great relevance to the first three claims: there will be no additional growth; the balance of payments will show no great improvement; and government tax revenues based on economic rent will not rise. This leaves the fourth claim of ensuring reliable energy supplies, but if the fields are high cost they will also tend to be geologically complex and to be using untested production techniques conditions hardly inducive to reliability.
industry to date. Unfortunately he does not extend his analysis to encompass the decision-making process in large by Jerome D. Davis public organizations. Consequently, he fails to recognize that, in many Croom Helm, London, 1981, 266 pp, instances, the dearth of development £16.95. decisions for high-cost fields results directly from government policies. As the status of the North Sea changes from that of an unknown province to No benchmarks one of an established producing area, the development of the less attractive Indeed it is a pity that the foundations oiifields is being scrutinized more for this book were not properly laid intensely. In the early years of offshore for with shaky foundations arguments exploration the focus of concern tend to lose their validity. The author related to the challenge of using apparently has not grasped several innovative technologies to conquer economic concepts central to his thesis. unfamiliar problems. Higher cost fields His use of the term 'marginal' - having tended to be shelved in favour of the rejected the economist's d e f i n i t i o n better projects, which have been leaves the reader wondering how one brought into production and will soon decides whether an oilfield has pay back their capital costs. But as relatively high costs, or not, when there fewer and fewer of the better category is no benchmark to relate those costs of projects are discovered, the role of to. More importantly, it leads to conthe higher cost fields becomes more fusion later on. For example, when vital to the future of the North Sea. discussing the 1978 changed PRT Starting with the premise that there legislation, Davis sympathizes with the is a need to develop the less attractive U K government's attempts to raise fields, Jerome Davis examines the extra tax revenue and erroneously institutional factors that interplay with ignores the need for tax concessions, a project's economics. This interplay - even though the s a m e oilfields were rather than the economic criteria considered of borderline commercial alone - is taken to determine whether value despite the dramatic oil price a high-cost field will be developed or increases. not. His excellent interpretation of the The author's description of the decision-making process in large economic rent associated with North private organizations goes a long way Sea fields as an oligopoly (and in one to explain the course of the North Sea place as an 'oligopoly/Ricardian/
Because of the shaky foundations, Davis never questions the need to encourage development. This is a regrettable omission. It excludes the possibility of using too many scarce resources in the North Sea, of overexploring and o v e r - d e v e l o p i n g the province. The danger is that skilled labour and specialized capital will be diverted away from uses with a higher value added than the value added on high-cost offshore development. The possibility of this danger occurring could be great, especially if Davis's description of oil companies as crude short firms desperate to acquire North
342
ENERGY POLICY December 1981
Development
Far East energy policies- in depth and breadth THE INTERNATIONAL ENERGY RELATIONS OF CHINA
becoming a massive net exporter of energy, but he argues that there will be an 'export bubble' during the 1980s, which will deflate, leaving the country a by Kim Woodard net importer of energy in the 1990s. Although coal, gas, uranium, hydroStanford University Press, Stanford, power, biogas and solar power are all CA, USA, 1980, 717pp, $50.00 analysed, much of the first part of the book is concerned with oil, and here FAR EAST OIL AND ENERGY two issues stand out. First, there is the SURVEY tension between the self-reliance policies which the country followed to edited by Bryan Cooper develop the Daqing (Taching) oilfield Petroleum Economist and Petro- in the early 1960s and the increasing Consultants, London, UK, 1981, involvement with foreign companies in current offshore developments. It is 476pp, £160, $385 clear that the post-Mao leadership is These are excellent examples of two aware of how far their onshore techdifferent types of product. Kim nologies are also behind best foreign W o o d a r d has written a painstakingly practice, and one wonders if their tacit massive monograph on China's energy renunciation of self-reliance in the offscene. It would be difficult for any shore area will lead them to experiment single academic author to do the job more with foreign companies onshore better. Bryan Cooper's volume is a as well. team effort, involving authors from a Second, Woodard brings out the consultancy, Petroconsultants, and the range of offshore delimitation disputes, energy journal, Petroleum Economist. in which China is involved. The full The result is expensive, designed for exploitation of the country's offshore continuous updating and more strictly reserves will depend on the settlement aimed at the business market. How- of disputes with North and South ever, it manages to pack a mass of Korea, Japan, Taiwan and Vietnam. information into a readable package (There are some more marginal and there is no combination of aca- disputes with the Phillipines). As often demic books with the same range of seems to happen, the most interesting analytically important factual material. sedimentary zones lie across the areas in question. Both these books suggest that China is not being particularly China aggressive about these conflicting W o o d a r d ' s book is divided into two claims, but that there will have to be parts. The first covers China's energy some solid diplomacy before explorapolicies, with particular concern paid tion can move ahead confidently to the country's international energy throughout the Yellow, East China and relations. The second half is a statistical South China Seas. profile of the country, in which he presents all the past significant estimates of Reference work China's energy reserves and production; his own analysis of China's pre- However, to pick out two issues is to sent status; and his projections for the risk leaving the impression that this is a narrow book - far from it. Woodard future Chinese energy scene. The picture which emerges is of a has produced an essential reference country which is 66% dependent on work, not just for those concerned with coal, but working hard to expand its oil energy developments in East Asia, but and gas sectors. He does not see China for anyone concerned with the politics
ENERGY POLICY December 1981
of the region, or of China itself. For instance, my attention was caught by sections on: the relationship of key Chinese political figures, such as VicePremier Deng, to energy developments; China's reactions to OPEC's successes in the 1970s, the social problems connected with developing hydropower; China's nuclear diplomacy; the way energy has been involved in China's wider political relationships with both Japan and the USA. Overall this is an impressive piece of scholarship, albeit slightly oddly structured, with the international developments coming before the discussion of the country's indigenous energy ones.
A broader view The cost of the Cooper volume will obviously restrict its availability, but anyone working on Asian energy developments should know that it exists and that it is worth tracking down. A b o u t one third of the text covers a general analysis of developments throughout the region (which extends from Afghanistan in the West, to Pacific Islands like Fiji in the East; from the Soviet Far East in the North, to Australia in the South). Along with the obvious statistical analyses of reserves and production, this part has an invaluable section (with an excellent map) of the offshore boundary disputes throughout the region, and has a useful summary of the contractual arrangements under which companies are working in each country. (For example, they give a lot of attention to Papua New Guinea's Resource Rent Tax, which is only collected when a specified 'threshold' discounted internal rate of return on total cash flow has been realized). The rest of the volume consists of an analysis of each country's energy picture, consisting of a brief history of developments, basic statistics and a map. Obviously, its 32 pages on China lack the depth of Woodard's book, and in going for comprehensiveness, there is not much room for the kind of sophisticated discussion of statistical reliability, with which Woodard is concerned. On the other hand, the emphasis is on bang up-to-date information,
341
B o o k reviews
which is clearly presented. Once again, there is some bias toward oil and gas, but not too marked. Other energy sources are adequately treated, but one finds gaps in the country studies, such as no discussion of the coal industry in India, or of nuclear developments in Pakistan. However, these are small quibbles about a volume which becomes increasingly invaluable as the attention a country receives decreases (I parti-
cularly learned a great deal from its section on Vietnam). One warning, though, to librarians: the volume comes in a barely adequate loose-leaf folder. It is, though, worth the cost.
Louis Turner Research Fellow Royal Institute of International Affairs London
Interdisciplinary economics of high cost oil HIGH COST OIL AND GAS RESOURCES
uniqueness') rent is at best misleading and at worst wrong. Apparently, the rent is 'due to the oligopoly nature of the OPEC cartel'. Presumably then, if one ascribes to the view that OPEC has never acted as an effective cartel, l North Sea fields earn no rent! Other terms such as equilibrium, user cost and optimality are used out of context and with meanings only loosely connected to their usual interpretations; while his attack on intertemporal Pareto e f f i c i e n c y - a l t h o u g h Paratean economics can be criticized on many grounds - is just not valid.
High-cost fields Perhaps most strikingly, the premise underlying the book - that the development of high-cost fields is d e s i r a b l e - is open to question. The four reasons which are claimed to make these developments desirable warrant closer scrutiny. In fact, if the high-cost fields yield revenues which barely repay capital costs (plus a normal return on capital) then their development will be of no great relevance to the first three claims: there will be no additional growth; the balance of payments will show no great improvement; and government tax revenues based on economic rent will not rise. This leaves the fourth claim of ensuring reliable energy supplies, but if the fields are high cost they will also tend to be geologically complex and to be using untested production techniques conditions hardly inducive to reliability.
industry to date. Unfortunately he does not extend his analysis to encompass the decision-making process in large by Jerome D. Davis public organizations. Consequently, he fails to recognize that, in many Croom Helm, London, 1981, 266 pp, instances, the dearth of development £16.95. decisions for high-cost fields results directly from government policies. As the status of the North Sea changes from that of an unknown province to No benchmarks one of an established producing area, the development of the less attractive Indeed it is a pity that the foundations oiifields is being scrutinized more for this book were not properly laid intensely. In the early years of offshore for with shaky foundations arguments exploration the focus of concern tend to lose their validity. The author related to the challenge of using apparently has not grasped several innovative technologies to conquer economic concepts central to his thesis. unfamiliar problems. Higher cost fields His use of the term 'marginal' - having tended to be shelved in favour of the rejected the economist's d e f i n i t i o n better projects, which have been leaves the reader wondering how one brought into production and will soon decides whether an oilfield has pay back their capital costs. But as relatively high costs, or not, when there fewer and fewer of the better category is no benchmark to relate those costs of projects are discovered, the role of to. More importantly, it leads to conthe higher cost fields becomes more fusion later on. For example, when vital to the future of the North Sea. discussing the 1978 changed PRT Starting with the premise that there legislation, Davis sympathizes with the is a need to develop the less attractive U K government's attempts to raise fields, Jerome Davis examines the extra tax revenue and erroneously institutional factors that interplay with ignores the need for tax concessions, a project's economics. This interplay - even though the s a m e oilfields were rather than the economic criteria considered of borderline commercial alone - is taken to determine whether value despite the dramatic oil price a high-cost field will be developed or increases. not. His excellent interpretation of the The author's description of the decision-making process in large economic rent associated with North private organizations goes a long way Sea fields as an oligopoly (and in one to explain the course of the North Sea place as an 'oligopoly/Ricardian/
Because of the shaky foundations, Davis never questions the need to encourage development. This is a regrettable omission. It excludes the possibility of using too many scarce resources in the North Sea, of overexploring and o v e r - d e v e l o p i n g the province. The danger is that skilled labour and specialized capital will be diverted away from uses with a higher value added than the value added on high-cost offshore development. The possibility of this danger occurring could be great, especially if Davis's description of oil companies as crude short firms desperate to acquire North
342
ENERGY POLICY December 1981
Development