Zoo Station

Oil futures crossed the $61 mark earlier today, before retreating slightly by the end of the trading day. Some of the uncertainty today has been ascribed to the nervousness surrounding the Iranian elections. In the meanwhile, Washington has gone into a frenzy about CNOOC's bid for Unocal. Even Paul Krugman has jumped into the fray suggesting that the sale of Unocal be blocked. The logic among protectionist interests in Congress (similar to the ones expressed in the 80's about Japan) is that CNOOC's takeover of Unocal will represent a serious national security threat. In an op-ed in the Washington Post, Sebastian Mallaby rubbishes that claim.

The protectionists say the Chinese want to pay for Unocal with cheap loans from their taxpayers, just as Japanese corporations were once denounced for accessing cheap capital from servile banks. But this means that China's taxpayers are offering sure profits to Unocal's shareholders. Admittedly, it also means that Chevron's shareholders stand to forgo a business opportunity, but then that opportunity may not have paid off. From the view of U.S. economic interests, this is a net plus.

The protectionists worry that China will ship all of Unocal's output home to its own industries, thus hogging scarce oil supplies and taking them "offline." Even if this were possible, it wouldn't matter: Unocal's oil and gas would be meeting Chinese demand that would otherwise have to be met by Chinese purchases on world markets. In other words, China would be reducing both the supply and the demand for energy in the open market. Prices paid by American consumers wouldn't budge.

What if there were a real oil crisis? A simulation conducted last week in Washington suggested that a couple of middling terrorist attacks in Saudi Arabia and Alaska would be enough to cause a global oil shortage, sending prices above $100 a barrel. Yet Chinese ownership of Unocal wouldn't affect this picture. China could respond to the crisis by routing Unocal's energy to its own industries. But again, oil is fungible, so this wouldn't matter.

You can see why this is not the dominant view in Congress. China is, after all, a communist dictatorship, and we shouldn't assume its intentions are friendly. Equally, the American oil addiction is a genuine problem, and we should strive to break our dependence on potentially unstable suppliers such as Saudi Arabia. But although the Unocal bid seems to yoke these twin problems together, the appearance is deceptive. If you look for a convincing reason to block China's bid for Unocal, you're not going to find one.

In the meanwhile, Econbrowser has been examining whether anything can satiate China's demand for oil.

I am not among those who expect China's real GDP to continue to grow near double digit annual rates for the next 20 years. As a statistician, if I'm trying to predict China's economic growth rate for a long period into the future, I would look not just at the recent past of China but further at the broad experience of any of a number of countries over time. What's been happening in China is quite unusual in a broader historical context, and from a purely statistical viewpoint, you'd have to expect its future growth rate to be less of an outlier than the last 20 years have been.

Furthermore, if the growth rate of China's petroleum demand does not slow down, that would represent quite a different pattern of energy use than we've seen elsewhere. The above diagram compares the average annual growth rate in petroleum demand over 1960-2002 for 11 different countries with the level of GDP per person in that country in 1960. There is a fairly strong correlation-- the richer the country was in 1960, the slower in percentage terms its petroleum use has grown over the last 40 years, with the richest country at the start of that period (the United States) exhibiting one of the slowest growth rates of petroleum use.