Justin Ko, from the Harvard University – Harvard Law School; University of Macau, Faculty of Law has produced a useful and timely piece on China’s energy dynamic which explains two much asked-of-late questions.
First, why hasn’t China tapped into its oil and gas emergency reserves (this last occurred in 2021) and second, why hasn’t the economy recoiled more sharply from recent events in the Middle East like many Asian neighbors?
Some basic analysis provides quick and useful answers. Viz.:
- Half of China’s imported oil comes from the Persian Gulf but only 7.2% of China’s oil and natural gas imports come via the Straits of Hormuz.
- A quarter of China’s oil demand is now met by domestic production and China is now the world’s fifth largest oil producer behind the U.S., Saudi Arabia, Russia and Canada.
- China is the world’s fourth largest natural gas producer. Half of it’s imports come from Turkmenistan via overland pipe and other suppliers such as Russia and Myanmar also pipe in product.
- Iran is believed to be a big supplier to smaller, non-SOE ‘teapot’ refineries. Not so. Non-SOE refineries obtain only around 10% of their crude from Iran and none are curbing output presently.
- China has no plans to withdraw from coal which not only continues to supply the electricity industry but is increasingly featuring in advanced coal to chemical conversion initiatives.
Mr. Ko dives into the specifics of China’s three largest oil and gas companies; Sinopec, CNPC (Petrochina’s parent) and CNOOC and provides sketches of what they’re up to specifically. Very handy if you’re a holder of any of these.
The dominant leitmotiv is self-sufficiency. Whether this means exploration, production, alternatives, coal to chemicals, carbon capture, green hydrogen etcetera. All of the majors understand the national imperative of weaning themselves off imported everything.
Neither Korea nor Japan have these options and smaller Asian neighbors lack either the know how or capital to make similar moves.
The paper is concise and well written and I’d recommend the full read if you have time. You can access it via the following link How China Aims to Wean Itself Off Foreign Oil.
Happy Sunday.