How Does China Do It?

by John Brian Shannon

Why do all the jobs keep going to China? Everyone wants to know.

The Western nations are short of jobs. At present, 150 million jobs have left Europe and North America over the past 40 years and have been relocated to Asia.

This trend has been in play for a few decades, but it began in earnest back in 1973 when the Arab Oil Embargo caused millions of Americans to purchase economical Japanese cars instead of Detroit’s offerings at the time – the thrilling but thirsty American gas guzzler.

Since that time, not only Japan but South Korea too have exported cars to the Western democracies by the millions. The market share of imported cars registered in 1960’s North America was microscopic but now sits at over 50%. China is now exporting cars worldwide and they are increasing their market share in Western nations.

That about covers the automotive market discussion.

But it is not the entire story. There are other factors at play some of which I will cover below and in future blogs. It’s a big topic… trust me.

For another example, when the West decides to design, engineer and build a new fighter plane at a cost of 100 billion U.S. dollars (a hypothetical number, just for comparison purposes) up to one-third of that money is diverted to corporate profit and doesn’t influence the final product.

When communist China decides to design, engineer and build a new fighter plane at a cost of the equivalent of 100 billion U.S. dollars (a hypothetical number, just for comparison purposes) all 100% of that investment goes towards the design, engineering and build quality of the fighter plane.

This is but one example which can be demonstrated many times over. It’s not just fighter jets. Every military ship, airplane, vehicle, guns, ammunition, along with civilian cars and trucks, industrial mining equipment, farm machinery, electronics, railway cars, locomotives and even the railway tracks can be built for less in China.

Communist corporations which do not have to make accommodations for profits have an advantage over ones that must make accommodations for profits. On the hypothetical American example above, 30% of 100 billion U.S. dollars is… drum roll please… 30 billion dollars! That is a lot of R&D money diverted to corporate profit from product testing, build quality – or marketing and advertising which almost always results in more sales.

Anything we can manufacture, China can manufacture at a lower cost when compared to the Western manufactured item. Thirty percent is just the beginning as some items can be manufactured for 1000% less than comparable products in Europe or North America.

During a telephone interview in February, a sitting Member of the Parliament of Canada told me that it is much cheaper for North American oil companies to dig up the tar sands in Alberta, Canada, transport that material to China for refining and then transport it back as finished products to North America.

It’s easy to do some quick math here. The Canadian Enbridge Northern Pipeline is projected to cost over 5 billion dollars if it gets built. The plan is to pipeline the material to Canada’s west coast (highly diluted with petroleum condensate) and ship it across the ocean to China where it can be refined into pure gasoline, motor oil, diesel fuel and other products normally made from conventional petroleum.

Super-tankers will pick up the tar sand/condensate mixture, which is called ‘dilbit’ once it is mixed together into a consistency which will flow through the pipeline system and transport it in that form to China, where new refineries are being built to receive the dilbit material. New Chinese oil refineries cost 1 – 2 billion Canadian dollars (equivalent), while new North American refineries with their higher land, construction, permitting, labour and emission control costs are estimated in the 12 billion Canadian dollar range – which is why no new refineries are planned for North America.

New SuezMax super-tankers cost between 500 and 900 million dollars a copy, depending on how many barrels of oil they carry and whether they are single-hulled ships or an infinitely safer design – the double-hulled super-tanker. Some super-tankers carry over 1 million barrels of toxic dilbit. Expect China to run 24 – 32 new super-tankers between the west coast of Canada and China 365 days per year.

After refining in China, SuezMax super-tankers will return the finished products to North America for distribution throughout the western United States and Canada’s western provinces.

Even with all these additional transportation costs and other activities – the gasoline, diesel and other products will cost 30% less than when compared to Canadian or American oil refineries performing the same refining operations here.

It remains to be seen whether the oil companies will pass along those cost savings to consumers.

John Brian Shannon writes about green energy, sustainable development and economics from British Columbia, Canada. His articles appear in the Arabian Gazette, EcoPoint Asia, EnergyBoom, Huffington Post, the United Nations Development Programme – and other quality publications.

John believes it is important to assist all levels of government and the business community to find sustainable ways forward for industry and consumers.

Check out his personal blog at: http://johnbrianshannon.com

Check out his economics blog at: https://jbsnews.wordpress.com

Follow John on Twitter: https://www.twitter.com/#!/JBSCanada

It’s Time for a Canadian Strategic Oil Reserve System!

by John Brian Shannon

The United States of America keeps a 90-day supply of low-refine oil (also known as bunker fuel) in vast underground reservoirs located all over the U.S. as part of their Strategic Oil Reserves program, so that in the case of any interruption of oil imports (presumably originating in the Middle East) the U.S.A. could continue to function for the duration of that interruption.

The reasoning behind this is that once people can’t drive back and forth to work, buses can’t run, and other transportation is affected (jets, trains, ships) effectively the economy just stops! The U.S. can’t risk that – and neither can other countries. Most of them keep their own economies going by selling America resources and manufactured goods in huge volumes.

That is why the U.S.A. maintains a 90-day supply of low-refine oil – a type of oil which is easily and quickly refined into either diesel or gasoline and other products when required.

For decades, a significant benefit for the United States has been that the Strategic Oil Reserve has been used to ‘even out’ the worst oil price spikes as they occur in the marketplace – almost in real-time!

Don’t think of the strategic reserve as a static 180 – 225 million barrels – or any other amount of oil. That amount changes hourly, daily and weekly.

The many underground reservoirs located all over the country continuously move oil IN and OUT of their reservoirs, to (1) to ensure refineries have sufficient feedstock to allow continuous refining 24/7/365 and (2) to act as a shock absorber to market price spikes by adding supply – thereby slightly lowering the price at the gas pump. It’s all about ‘even-ing out’ the price, so that prices don’t jump up and down by 20% or more, many times per month.

The American government, which operates the U.S. Strategic Oil Reserve system have, from time to time, quite rightly punished some predatory-type oil speculators by suddenly dumping millions of barrels of oil into the market via the Strategic Oil Reserve system – lowering prices dramatically and costing speculators billions of dollars of losses in the mercantile market system.

Finally, in any sudden military attack against America, the U.S. military would need to tap that oil and have it refined quickly in order to fuel it’s jets, ships, tanks and almost all other military vehicles, etc… The public might not see gasoline or diesel for a while in that scenario, but protecting the country from invasion or attack takes precedence over and above keeping the economy going.

Maintaining a strategic oil reserve of low-refine oil in any country is always a good idea, but especially for Canada – an oil exporting country.

What? Yes, in case of terrorist attack, military attack or other delivery problems, if Canada had a large enough strategic reserve system it could quickly substitute the reserve oil to our Asian or American customers -and the government-run strategic reserve system could be simply ‘topped up’ once the supply problem or delivery system is repaired.

Many oil-exporting nations have this arrangement, including the U.S.A. and the world’s largest oil exporter, Saudi Arabia.

Think of the benefits of Canadian government involvement here;
1) A large pool of easily available and easily refine-able oil to supply our Canadian Forces during the first 90 days of any surprise military attack.
2) In case of any supply problem – low-refine can be substituted and the SOR oil tanks can be ‘topped up’ later.
3) The ability to ‘even out’ the worst supply shocks in regards to gasoline and diesel prices at the pumps.
4) The ability to punish predatory oil speculators who could virtually hold a country hostage and who also set the dates imported oil arrives at any North American oil refinery. (Remember an oil refinery is just an expensive collection of pipes and burners, when it is sitting idle waiting for a supertanker running behind schedule)
5) Aside from SUPPLY problems, a strategic reserve can ALSO assist during periods of high DEMAND such as the summer months and also in the dead of winter when home heating oil usage peaks.
6) We buy insurance for our cars. Sometimes we are actually glad we have insurance, when an accident or theft occurs, for example. The same applies here.
7) SOR countries are able to maintain exports and keep their customers happy and not lose them to other oil producing nations – when a pipeline breaks or a well-head is damaged, for example. When those or other problems occur, they instantly solve the problem with strategic reserve oil – and the affected oil company replaces that oil once the pipeline or well-head problem is repaired.

**Countries which rely on oil can be a fickle lot, if you can’t supply them – even once, they just phone someone more reliable and you lose them as a customer – permanently.**

Canada needs a strategic oil reserve system similar to the United States, scaled to our much smaller population to ensure Canada’s military could function for at least 90 days in the event of an imported oil collapse, so that Canadians have sufficient protection from unforeseen disruptions in the oil supply and demand equation and a realistic cushion from price spikes caused by market fluctuations and predatory speculators, while maintaining the ability to cover supply problems with regards to oil exports to our American and Asian oil customers.

Follow John Brian Shannon on Twitter: https://twitter.com/#!/JBSCanada