The Red Dragon’s Insatiable Thirst For Oil

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Illustration by: Paul Blow

By: Rakan A. Alsheikh

While the World watches closely the shale boom in America, China is facing its own energy concerns. In a recent report, The U.S. Energy Information Administration (EIA) estimated that China will replace the U.S. as the World’s largest net importer of oil in 2014. Even though the World’s most populous economy is ranked 4th in oil production globally, the growth in output just can’t keep up with domestic demand.

“As China’s oil demand continues to outstrip production at home, oil imports have increased dramatically over the past decade, reaching record highs in 2013” the agency said in a recent report.

China’s oil demand grew by 4% in the last year, consuming 10.7 million (bbl/d) barrels per day compared to 10.3 million bbl/d in 2012. The EIA forecasts that oil demand would grow to 11.1 million bbl/d as imports should increase from 6.2 million in 2013 to 6.6 million in 2014. The main factors fuelling this growth are transport, trade, power generation, and refining.

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The ever-widening rift between oil production and consumption is what raises the alarm bells for China’s energy security going forward. Production is only expected to grow from 4.5 million bbl/d in 2013 to 4.6 bbl/d in 2014. This is definitely raising concerns and calls for the only other alternative, energy efficiency in the fuel-hungry economy. Probably the Dragon finally needs some sort of diet to avoid a stroke in the form of an oil shock, particularly when considering the ever-growing instability of its vital oil-exporting partners in the Middle East (60% of oil imports).

However, the economy is expected to go through a deleveraging process after excessive local state government debt and overcapacity in manufacturing in recent years, which only adds to speculation over slower economic growth and raises the need to finally emphasize on energy efficiency.

But the deleveraging process might not be enough to curb demand as CNBC analyst Graham-Wood puts it “There’s a one year waiting list for a decent car in China. It’s like 15 years ago when we went from bicycles to motorbikes, and people don’t understand that,” Therefore, changing social patterns and particularly a growing middle class in China are still driving demand even though the economy as a whole is expected to go through with its readjustment process.

The government already has a cap on oil imports not to exceed 61% of demand by 2016, but this number is not considered attainable with oil imports already constituting 58% of oil demand in 2013. As the new  administration under ambitious President Xi Jinping comes into grips with the situation, it is yet to be seen how the potential economic reforms would benefit China’s long-term sustainability and oil self-sufficiency.

References:

http://www.eia.gov/countries/cab.cfm?fips=CH&scr=email

http://www.cnbc.com/id/101311394

http://www.mining.com/china-the-worlds-biggest-energy-consumer-and-producer-72513/

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