China is Preparing for the Future by Buying Up Energy Resources of All Kinds
Energy is a necessity for growth. That's why countries like China and India are building so many new power plants—without reliable electricity their growth would eventually strain and falter. China has been particularly aggressive in partnering with and buying foreign oil companies. And it's doing the same thing with coal.
Lots of power
Peabody Energy expects about 200 gigawatts of coal-fired power to come on line in China over the next four years or so. Another 70 gigawatts should show up in fast growing India. According to Peabody, that pair of countries will account for around 80% of the world's growth in coal consumption. And that's on top of the 37 nuclear reactors Cameco sees the two building right now. It believes 70 new reactors are likely to be built in China and India over the next decade.
The two countries have little choice but to keep building power plants because large populations and improving economic standards require it. Without adequate power, new buildings are useless. Without electricity modern conveniences like refrigeration, air conditioning, computers, and cell phones won't work. It's why Cameco is planing on notably increasing its uranium output despite currently weak market conditions.
China and cars
Oil is one energy area that's garnered a lot of attention with regard to China. Car ownership is growing quickly in China, with major auto manufacturers like Ford expecting volume growth in the country even while other regions, like the United States and Europe, could see auto sales slow. Lots of new cars quickly translates to a need for more oil, which is the building block for gasoline.
That's why China Petroleum & Chemical Corp. , more commonly known as Sinopec, ventured into Canada to acquire oil and natural gas reserves. The company paid over $2 billion for Daylight Energy in 2011. More recently, CNOOC purchased Nexen, another Canadian energy company, for around $15 billion.
Essentially, China Petroleum and CNOOC are ensuring they can serve their home markets well into the future by buying up oil and gas reserves around the world. And increasing demand for everything from gasoline for cars and trucks and chemicals for industrial uses will provide the growth this pair is looking to sate. Very quickly, Chinese energy companies like these have become major industry players with growth prospects that may be better than industry giants like ExxonMobil .
Coal in play
Although oil and gas deals have made the headlines, the need to lock in reliable fuel supplies hasn't stopped there. For example, privately held China Kingho Energy Group recently made a $60 million offer for Carabella Resources, an Australian metallurgical coal company. Met coal is used in the steel making process. The deal makes sense on many levels, but is probably most desirable because Aussie coal is located so close to the Chinese market.
Peabody has also gotten into the act, inking a partnership with Shenhua Group to provide China with thermal coal. This deal is good for China because it helps lock in access to coal, but is equally as good, if not better, for Peabody. The coal miner is, essentially, in pole position to sell coal into one of the fasted growing coal markets in the world.
Don't doubt the growth
While Peabody's deal may not be as exciting or controversial as CNOOC's $15 billion purchase of Nexen, it shows that China is looking to lock up key resources of all types. Chinese growth may slow as the country matures, but its apatite for energy of all types will continue to grow. It has to if the nation is to keep its citizens happy. Peabody's partnership and the purchases by China Petroleum and CNOOC are proof that you shouldn't doubt the long-term demand that Asian growth is going to bring about for even out of favor resource industries like coal.
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The article China is Preparing for the Future by Buying Up Energy Resources of All Kinds originally appeared on Fool.com.
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