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A Barrel in the West Is Worth Two in the Bush

Officials at China’s state-owned oil conglomerates have recently decided to pull out of a venture into Iran’s South Pars gas field and strike deals with Canadian, British, and Dutch oil companies instead. Bloomberg Businessweek reports:

“There’s a clear herd mentality among these Chinese state-owned entities,” says Derek Scissors, an Asia economic policy fellow at the Heritage Foundation. And right now, the herd is moving toward North America, where the most advanced drilling equipment is being deployed in horizontal shale fracking and deep water methods. Not only that, but Chinese companies’ attempts to go elsewhere haven’t worked out so well. “First of all, people are getting tired of the Chinese showing up in their backyard,” says Scissors. “And the Chinese aren’t thrilled with having to deal with Nigeria or Venezuela either. They want stability.”

With its technology, political stability, and giant reserves of oil and gas, North America is a better place to do business than many countries in the Middle East, where there is a lot of geopolitical risk, or Russia, Argentina, and Venezuela, where there is huge political risk. Oil and gas in the ground is worth more in a geopolitically stable, predictably governed, and well-developed part of the world.

Look for more and more energy companies around the world to ask tougher questions before pouring billions of dollars of investment into dicey places.

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  • Luke Lea

    And let us let the Chinese people and their leaders know that there will be a certain amount of conditionality if they want to continue to do business with us. Democracy and the rule of law will not wait forever. Nor will we build up a powerful state at war with these political ideas.

  • Kris

    All true, as was a previous post of yours on this subject.

    “North America, where the most advanced drilling equipment is being deployed in horizontal shale fracking and deep water methods”

    Of course, given that China is estimated to have large oil shale deposits, one might cynically wonder whether an additional motivation is that China wishes to be “inspired” by the relevant North American technology.

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