By Irina Slav
China is among the most import-dependent large oil consumers, but imports, it seems, are not its only problem when it comes to oil. Apparently, production from assets the Chinese state oil companies own abroad now exceeds domestic production, increasing the country’s dependency on foreign oil.
That in itself is not the problem, writes Michael Lelyveld in an analysis for Radio Free Asia. The problem is that much of the oil produced by these foreign assets does not end up in China for various reasons, including shipping costs and the difference in revenues if it gets exported to another market rather than imported into China.
The problem with foreign oil dependence is aggravated by the fact that domestic production is falling and will continue to fall. In its latest five-year oil market forecast, the International Energy Agency estimated that China’s domestic production of crude oil will only be enough to cover 29.7 percent of demand this year, which will further slide to 25 percent by 2023.
This means that China will have to rely on imports and foreign production assets for as much as 75 percent of its demand. That’s too much for any country to feel comfortable with. Yet China does not have a lot of options, since the decline in local production is mainly a result of natural field depletion.
True, China has staked a major claim for the resources of the South China Sea, but in addition to facing territorial disputes from its neighbors there, these resources may not be as large as Beijing expects. China also has substantial shale oil and gas reserves, but these could prove to be too expensive to develop.
So, it’s back to the foreign assets and imports. China did good business during the oil bust, upping imports to fill its strategic reserves. But demand continues to grow and so do imports. China is now the biggest oil importer globally, but it has been lucky to reap the benefits from the escalated competition between OPEC and the United States, which has resulted in a diversification of imports as OPEC curbs production to prop up prices, not to mention a pumping rampage in the United States.
China’s oil expansion abroad is bound to continue, however. The country simply does not have many other options. China is already one of the biggest oil field operators in the North Sea, for example. It also has a significant presence in Kazakhstan, as well as in Latin America, most notoriously in Venezuela, where China is one of the two biggest lenders to the troubled South American nation, and it holds most of the debt in oil-for-cash deals.
Now, China is looking north as well. Together with Russia, the country is probing the potentially vast untapped hydrocarbon potential of the next frontier, made more accessible by climate change. It is precisely climate change that has sparked China’s interest in Arctic oil and gas: as the polar ice melts, new transport routes open up, making the commercial use of Arctic oil and gas viable for China.
Will that be enough to satiate the nation’s hunger for oil? Certainly not. Arctic oil and gas exploration is a long-term undertaking. But in the light of China’s dependence on foreign oil, it becomes a lot more understandable why Beijing is so eagerly pushing renewable energy and electric vehicles—anything to reduce its heavy dependence on oil.