China: The new Big Oil

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NEW YORK (CNNMoney.com) -- China is on an oil buying binge.

Over the past few months, the Chinese government -- or its big government-controlled oil firms -- have closed or floated a slew of deals in countries all over the world. These deals have expanded the nation's oil reach and may one day position the nation to match the skills of western oil firms.

The deals include a $10 billion loan the Chinese government extended to Russia's Rosneft in exchange for a guaranteed cut of that company's production. The Chinese have also gotten in tight with Brazil's Petrobras, arranging a similar deal with the firm that is developing a huge new offshore field - one of the biggest new discoveries in decades.

But it doesn't end with loans. Last week the Wall Street Journal reported that China National Petroleum Corporation is interested in buying all or a part of Argentina's YPF for $14.5 billion, although a deal is far from certain.

In Africa, CNOOC and Sinopec are buying a $1.3 billion stake in offshore Angolan development rights from American oil firm Marathon. Angola has recently overtaken Nigeria as Africa's biggest oil producer, and is one of Exxon Mobil's (XOM, Fortune 500) favorite countries to invest in.

And rumors are swirling that the China National Petroleum Corporation will take the majority stake in Iraq's Rumaila oilfield from BP (BP). Rumaila produces over 1 million barrels a day, and is Iraq's biggest oil field.

It's clear what the Chinese are doing.

"They are stilting on a huge pile of cash and they're using this as a buying opportunity," said Greg Priddy, a global energy analyst at the Eurasia group, a political risk consultancy.

China wants to buy oil for several reasons.

First, they can. Their huge trade surplus means the Chinese have racked up a giant stash of dollars.

But this pile of dollars can be dangerous. Many worry the dollar is set to fall due to rampant American spending.

But China is stuck. It can't sell them too fast for fear of accelerating the dollar's weakness.

So buying hard assets like oil is a great way for China to diversify its holdings, without destabilizing the greenback.

Second, they don't really trust the market.

The Chinese, along with many Asian countries, have less faith in the free market. This distrust was, in Chinese eyes, probably justified a few years back, after they tried to buy U.S. oil company Unocal in an open market deal that collapsed after a public outcry in the United States.

"The Chinese definitely want their own stuff that they can control and send anywhere in the world," said Priddy.

Finally, they see the big picture.

Chinese oil demand is expected to grow nearly 20% in the next six years, and the country already imports over half of the 8 million barrels a day it uses.

"They are doing what you'd expect any country to do: They are procuring resources for the best interest of the people," said Ruchir Kadakia, a global oil analyst with the consultancy Cambridge Energy Research Associates. "I think they watched the developed world dig itself into a deep enough hole to learn a few lessons."

All this buying raises the question: Will the Chinese firms soon be able to rival the Western oil companies?

In many ways they already do.

China National Petroleum Corporation's daily oil production is already roughly equivalent to Exxon's. And PetroChina at one point had a market capitalization twice Exxon's, although the vast majority of shares are owned by the government-run China National Petroleum Corporation so it's hard to arrive at a true market value.

Where the Chinese firms lag is in expertise.

Complex operations - like deep water drilling or liquefying natural gas, are still the domain of the Western oil firms.

But given time, and given their need to develop those deep-water leases off Angola, the Chinese are bound to gain the technical know-how that will put them on-par with the best western firms.