China’s energy plan in volatile world
China’s future energy security strategy is set to be discussed in light of an anti-globalization trend following upheavals in various sectors brought about by the coronavirus pandemic. The nation needs to shore up its storage capacity and its resource acquisition ability in the global market, as well as improve its self-sufficiency.
Though containing the virus and saving the global economy are currently common goals, the world has fallen into a comprehensive structural shakeup that includes global supply chains, geopolitics, culture and ideology, and even race and ethnicity.
The global oil market is one area which could be impacted drastically by the pandemic.
The market is waiting to see if the oil price will stabilize now that major producers have reached an agreement to cut daily output by 9.7 million barrels, which has thus far turned out to be nearly ineffective. Oil prices have continued to fall as the final cut was much lower than the expected 12-15 million barrels per day.
The ineffectiveness of production cuts is now accepted in global markets. According to an earlier estimate from multinational independent think tank Anbound, at least 20 million barrels need to be cut daily for a cut to start taking effect, and 30 million barrels for a cut to be effective.
The ineffectiveness was at first due to the declining demand under the pandemic, which could persist until autumn, and was then due to major oil producers failing to unify on the issuance of production cuts.
China, as one of the largest energy consumers globally, needs to make adjustments for the imminent global change, putting major focus on improving its oil and gas resource acquisition ability, including through investment, mining and transport. It also needs to enhance its ability to secure international energy transport routes.
China could also shore up its oil and gas resource storage capacity, as the establishment of its own reserves is an important strategy to ensure short-term energy security. Enhancing strategic, commercial and other reserves could ensure the country’s energy security within a certain period of time.
China needs to set increasing its energy self-sufficiency as a long-term target, since only a high degree of self-sufficiency could guarantee the country’s energy security. As suggested by Fu Chengyu, former chairman of state-owned oil giant Sinopec, China needs to realize basic energy self-sufficiency in about 10 years – meaning over 70 percent of energy can be self-produced. The majority of increased, selfproduced energy would come from new and renewable sources of energy, which will be of great strategic significance to China in the future.