A storm of protest has erupted over China National Offshore Oil Corporation's $18.5 billion bid for Unocal, a US oil and gas company with large investments in Asia.

Outraged US lawmakers have loudly complained about the Chinese company's bid, pointing out that CNOOC is state-owned, has access to a line of funding from Chinese banks at below-commercial rates and that the deal would be a threat to America's energy security.

Unocal has large-scale oil and gas interests in Alaska and the Gulf of Mexico, and holdings in Azerbaijan, Myanmar, Thailand and Indonesia.

Tying up oilfields

CNOOC's bid is the latest in a series of investments made by China aimed at tying up access to oil and gas resources to feed its ravenous energy needs. Here are a few examples of China's global hunt for energy:

In Sudan, China is the single largest shareholder in the consortium that dominates the country's oil industry

China oil firm makes $18.5bn bid for Unocal   

In Iran, China has a 50 percent share in the Yadavaran oil field

Sinopec has invested $1 billion in a joint venture with Petrobas for the construction of a gas pipeline that will cross the entire length of Brazil

China National Petroleum Corporation, China's largest energy company, owns 60 percent of Kazakhstan's Aktobemunigaz, and plans to build a pipeline to move the Kazakh crude into western China.

India, in contrast, has been a late mover in the game to take over energy assets overseas. While Oil and Natural Gas Company has invested around $3.5 billion in overseas exploration since 2000, CNPC has made overseas investments of an estimated $40 billion. But Indian oil [Get Quote] companies haven't been sitting idle.

ONGC [Get Quote] has invested in offshore gas fields in Vietnam, as well as energy projects in Algeria, Kazakhstan, Indonesia, Venezuela, Libya and Syria. Reliance [Get Quote] has a stake in an offshore field in Yemen. ONGC Videsh Ltd holds a 20 per cent stake in Russia's Far Eastern Sakhalin-1 field.

The competition for energy resources is far from being limited to India and China. One widely accepted explanation for the US invasion of Iraq has been its interest in Iraqi oil. An expose in the UK newspaper The Guardian documented how in the African state of Equatorial Guinea, BG plc (formerly the British Gas state company) has closed a deal to buy up the country's production of liquefied natural gas for the next 17 years.

In Angola, one of the leading UK banks has been accused of damaging the country's economy by providing multibillion dollar loans that give a stranglehold over future oil production. The oil-rich Caspian region has seen oil companies across the world jostling for a share of the pie.

The hunt for raw materials

It's not just oil and gas fields that are in demand. Once again, China has been at the forefront. For instance, Chinese state and private companies have pumped $100 million into Zambia, mostly in its copper industry.

Four Chinese leading iron and steel makers have signed a landmark deal with BHP Billiton to acquire 40 percent shares of an iron ore field of the Australian company. China is financing copper and coal mines in Mongolia, and a nickel project in Cuba.

Aluminium Corp of China (Chalco) was recently given a $2 billion credit line by the Export-Import Bank of China to fund overseas acquisitions. And in a twist of irony, China is even helping re-open disused mines in the US -- a Chinese company helped buy and reopen a bankrupt mine in Minnesota, sending its ore to Canada to replace raw material bound for China.

Again, Chinese companies are by no means the only ones that are taking stakes in mines abroad. Japanese steelmakers, for instance, have for years had special relationships with Australian and Brazilian iron ore companies.

Indian companies, too, have been acquiring mines overseas. According to the terms of a recent deal with Iran, Tata Steel [Get Quote] will develop iron ore mines in that country. Gujarat NRE Coke [Get Quote] has acquired a 30 per cent stake in Zinico Resource, an Australian mining company.

National Thermal Power [Get Quote] Corporation Ltd is scouting for partners to acquire coal mines abroad. Vedanta Resources owns two copper mines in Australia and acquired a 51 percent stake in Zambia's Konkola mines and smelter. Hindalco [Get Quote] has acquired the Nifty copper mines in Australia.

Conversely, global companies are eyeing India's substantial reserves of iron ore and bauxite, with Posco's decision to set up a steel mill in Orissa being a case in point. Mittal Steel has been considering building a steel mill in Jharkhand to tap new iron ore deposits. BHP-Billiton has been eyeing Orissa's bauxite reserves.

The reasons

So why have companies and countries become so keen to tie up energy and other raw material resources? After all, it wasn't so long ago that consultants advised oil companies to stick to the lucrative marketing side of the business, leaving the dirty work of getting the oil out of the ground to others. Economists used to routinely wail about the falling prices of commodities, which affected the growth prospects of developing countries.

But all that is history. In recent years, the rapid growth of countries like India and China has led to a boom in commodities. Prices of commodities such as steel, aluminium, copper, zinc, nickel have zoomed. But even the production of steel and aluminium can be increased, albeit after a lag.

That is precisely what is happening for steel at the moment, with increased Chinese production driving prices down. What is difficult to increase, however, is output from mines and oilfields. Finding new sources of metals and oil takes time, and low commodity prices in the past few decades led to very little investment in new mines or oilfields.

The upshot has been a steep rise in the prices of primary materials. This year, for instance, international iron ore contracts were renewed with a 70 per cent hike, while those for coke had hikes of over 110 per cent.

Faced with this situation, corporations are re-discovering the virtues of vertical integration and are scouting around the world to tie up their energy and raw material needs.

The political concerns

The trouble is that, especially in China's case, this desire to control energy and raw material supplies is seen to be intimately connected with national policy. The rise of China Inc is being viewed with alarm.

Parallels are also being drawn to the parcelling out of the world in the 19th century among the major European powers, each of which was trying to make sure that it had secure access to raw materials. At that time, the hunt for raw materials had led to a scramble for Africa.

The stage is now being set for another such rush. Typically, however, access to raw materials is now sought, not by colonising a country, but by ensuring that there are friendly governments in place.

To take one recent instance, in July 2003, an attempted coup in Sao Tome and Principe, a small African state rich in oil reserves, triggered immediate US mediation. Three months later, oil companies, mostly US ones, offered more than $500 million to explore the deep waters of the Gulf of Guinea, shared by Nigeria and Sao Tome and Principe.

US companies Exxon and Chevron are major partners in the scheme to pump Chadian oil to Cameroonian ports on the Atlantic. The race for securing energy resources is also seen in the Caspian region, where the US has been wooing the former Soviet republics, offering them aid and military bases.

The competition is not limited to the Western oil majors -- Japanese and Chinese companies have also taken stakes in the oil consortia, and Iran, Russia and Turkey have been competing to become the main transport route for Caspian oil out of the area.

Closer home, the US disapproves of Indian negotiations with Iran over a pipeline to India. India's wooing of oil-rich Venezuela is also viewed with dislike. At the same time, the race for raw material and oil security could also bring about greater co-operation between countries.

The proposed gas pipeline from Myanmar to India, which will pass through Bangladesh, is seen as a major boost to ties between these nations. Ditto for the Iran to India pipeline, which may pass through Pakistan. China, India and Iran are jointly developing the Iranian oilfields.

But perhaps the best example of international co-operation can be seen from the development of the Sakhalin oilfield. The largest single foreign investment in Russia has been Exxon-Mobil's $4-billion commitment to develop oil and gas at Sakhalin Island.