SOURCE VOICE
Demand justifies potential rise in energy imports
Even with “black swans” circling global energy markets, China’s crude oil imports recorded a steady increase last year, a sign that the country’s hunger for energy products is far from satiation.
Statistics from the General Administration of Customs showed that the world’s largest consumer of energy imported 506 million tons of crude oil in 2019, a new record and up 9.5 percent from 2018. Meanwhile, China’s dependency on imported oil increased to 72.5 percent, up 1.6 percentage points from the previous year, according to a report released by China National Petroleum Corp’s Economics & Technology Research Institute on Monday.
The growing dependence on foreign oil suggests that China’s energy demand remains robust, which could mean huge possibilities for US-China energy cooperation in the years to come.
While the phase one trade deal between the US and China is expected to include a commitment by the latter to buy about $50 billion in energy goods, according to media reports so far, some are skeptical of China’s ability to absorb such amount of US energy products, given that US energy exports to China were about $8 billion in 2017 and 2018. Such concern may be justified but it underestimates the big picture of China’s demand for oil and gas.
A fresh surge in the country’s energy imports is possible, which could reflect two factors. One is that China needs to accelerate the build-up of a strategic petroleum reserve (SPR), which is of great importance to ensure its energy security. An internationally accepted standard for measuring an SPR is that a country must hold a minimum of 90 days of its net import cover to maintain normal industrial production while relying on domestic storage in the case of unexpected incidents. While China rarely discloses its SPR data, industry experts generally believe its current SPR is equivalent to about 50 days of net imports, indicating room for increased imports.
The second factor is that China’s energy consumption is still growing steadily. In 2019, its apparent consumption of oil rose 5.2 percent year-on-year to 660 million tons, while consumption of natural gas jumped by 9.6 percent, according to the above-mentioned report. Thus, with no major breakthrough in sight for low-cost new energy technology, there is no sign of change to China’s energy consumption trend.
China’s huge energy demand may lay a good foundation for US-China energy cooperation, but that shouldn’t be just limited to buying oil and gas. Technological cooperation should also be considered. China recently announced plans to open up its oil and gas exploration sector to foreign companies, which could also be an opportunity for cooperation.
From the perspective of energy security, China needs to diversify its energy imports. As the world’s largest manufacturing power and major trading power, China surely has a consumption market big enough to maintain diversified import channels.