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Why PetroChina Reveals China's Global Emergence


The company's move to take Aramco's place is a bigger deal than most investors realize.


Editor's Note: See more from Keith Fitz-Gerald on Money Morning.

I bought a Toyota Prius (TM) last Saturday.

The signs are everywhere that oil is headed for stratospheric highs -- $200, $250, or even $300 a barrel. Some of these signs are just plain obvious. But even the subtle indicators are pointing toward some very expensive energy costs headed our way.

Let me tell you about one such indicator that I came across over the New Year holiday. A tiny news item said that Saudi Arabian oil concern Aramco is abandoning a lease on Caribbean oil storage, and further reported that PetroChina Co. Ltd. (PTR) is moving in to take Aramco's place.

Most investors here in the West -- if they even read the item -- would have dismissed it as just another minor business transaction, one among the thousands that take place each day. But this particular deal was much more than that. It's another indication of China's continued global emergence. And it also underscores this country's relegation to the growing legion of "former" world powers that have been eviscerated by the financial crisis that they created.

In case you missed the story, let me share the details, and then explain what I believe those details actually mean.

On the last day of the year, the state-owned Saudi Aramco walked away from a 5 million barrel storage capacity lease at the Statia Terminals Group NV facility on St. Eustatius Island in the Caribbean. Ordinarily that wouldn't be significant. After all, oil leases come and go -- change is a normal part of doing business.

But two facts make this transaction different:

  • First, Aramco had renewed this lease -- which accounts for 38% of the total storage capacity on the island -- since 1995 as a means of staging oil near its primary market: The United States.

  • And, second, with Aramco's departure, PetroChina, China's state-run oil company, has opted to move in.
From a strict numbers standpoint, I grant you that a 5-million-barrel facility doesn't appear significant. That much oil will meet US energy needs for all of about five hours. And it equates to less than 1% of the US Strategic Petroleum Reserve, which holds about 726.6 million barrels of oil. So it's not like China will suddenly have a lock on the US oil market.

So what gives?

The Saudis know that US has peaked. The Prius -- and hybrid vehicles in general -- are no longer a novelty on US highways. And though still inadequate, alternative-energy policies are finally gaining traction in Washington. Finally, US consumers are getting smart: They aren't just going to stand passively by and just "take it" when oil reaches the $150-a-barrel level. They'll find additional ways to conserve, pushing demand down even more.

So Aramco is shifting its focus elsewhere.

In fact, the company is targeting China and India, the first and second-fastest-growing oil markets in the world, as measured by petroleum consumption. Aramco is actually using free-storage capacity that it recently acquired from Japan.

Now I grant you that the high growth rates from China and India are partly due to the fact that they're both starting from a small base. Even so, if you take the time to do a little bit of simple forecasting, a dramatic picture emerges. China's oil consumption is growing 12% a year. At that rate, China's annual oil use will equal or surpass that of its US counterpart by 2018.

We're talking less than a decade from now.
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No positions in stocks mentioned.
Fifteen trades. All profitable. Since launching his Geiger Index trading service late last year, Money Morning Investment Director Keith Fitz-Gerald is a perfect 15 for 15, meaning he's closed every single one of his trades at a profit. And he did this during one of the most volatile periods for the U.S. stock market since the Great Depression. Fitz-Gerald says the ongoing financial crisis has changed the investing game forever, and has created a completely new set of rules that investors must understand to survive and profit in this new era. Check out our latest insights on these new rules, this new market environment, and this new service, the Geiger Index.

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