By Chris Dalby. Cross-posted at Oil Price.
As the heir-in-waiting to the title of world’s largest economy, China finds itself in a strange position in terms of its oil consumption.
In September 2013, China became the biggest net importer of crude, beating out the U.S. for the first time. This came as no surprise, given how rapidly China’s thirst for oil has grown, although landing in top place happened a little ahead of U.S. Energy Information Agency (EIA) predictions that it would take place in 2014. However, where the U.S. has been shoring up its own internal production, China has lagged behind. Between 2011 and 2014, U.S. oil production rose by 31 percent, as opposed to China, which saw its own production increase by a little more than 5 percent over that time. This leaves China utterly dependent on oil imports, a vulnerable position to be in at a time when its economy is beginning to wobble.
China’s demand for black gold is only set to increase, causing it to spend a staggering $500 billion a year on imports by 2020, according to Wood Mackenzie. This increase is being fueled largely by an explosion in car ownership. But who will be the faithful bartender, refusing to cut China off?
In the first six months of 2014, Iran’s oil exports to China shot up by 48 percent over 2013, reaching 630,000 barrels a day (bbl/d). This might represent only 10 percent of the country’s international crude imports, but it sends a clear message. Unburdened by the need to look tough against unsavory regimes, China has made it clear that it will continue to rely on Tehran for the foreseeable future. This is a stunning reversal from 2010-2011, when China tried in vain to fight sanctions on Iran at the United Nations’ Security Council. It ultimately relented under pressure from Russia, when even Moscow could no longer deny the seriousness of Iran refusing to provide guarantees about its nuclear program.
This led China to turn to two other regions of the world to shore up its oil supply. Africa had long been a trusted source with Angola, Libya and Sudan being seen as regular contributors. However, ongoing troubles in Libya, Sudan and South Sudan have made Beijing nervous. Rightly foreseeing the consequences that an unsteady oil flow would have on market confidence in the Chinese economy, the government has sought to shore up relations with trusted partners like Angola, the second largest source of oil imports to China. Iraq and Venezuela have also benefited from Beijing’s renewed attention.
While this has been happening, a coincidental trend has made these countries even more welcoming to Chinese advances: the United States’ own production levels have made it less reliant on its traditional foreign oil partners. The result has been swift and immediate. Besides imports from Iran going up 48 percent, those from Iraq went up 50 percent in 2013. Forty percent of Angolan exports now go to China, as opposed to just 15 percent to the U.S., while Venezuela has sworn it will double its provision of oil to China from 500,000 bbl/d to 1 million over the next few years.
Of course, China’s geopolitical skills are too finely honed for this not to come at a price for oil producing countries. Earlier this week, Venezuela’s President Nicolás Maduro and China’s President Xi Jinping signed a raft of agreements that will see Beijing build infrastructure and housing, as well as selling goods such as electronics to Caracas. But stunningly, Venezuela is not expected to pay for these in cash, but in oil. This precise round of agreements costs it 100,000 bbl/d. China’s masterful oil bargaining is now laid bare for all to see. A doubling of exports to China will see Venezuela exert major efforts to please its trading partner, but the economic assistance it is getting in return has been dismissed as being little more than petty cash, which will not stop the Venezuelan economy’s descent into recession.
Unlike Angola and Venezuela, Saudi Arabia seems to have been left out of China’s new oil-buying bonanza. It accounts for a very respectable 19 percent of China’s oil imports, and is the country’s top oil trading partner, but this level is remaining steady from 2013 to 2014 at 1.17 million bbl/d, but this looks set to drop in the future. Two new refineries in Western China will be running on crude obtained from Russia and Central Asia, but not Saudi Arabia. This shutting out effectively leaves Riyadh unable to renegotiate its contributions. Traders feel that this situation is not due to any animosity but because of China refusing to be too close to one single supplier.
Being so spoilt for choice, one would imagine China would feel secure about its oil future. But its behavior nearer to home seems to point to just the opposite. It is widely believed that China’s territorial posturing in the South China Sea is hiding a country in need of rapid resource grabbing. In May, Vietnam was alarmed when a massive oil rig belonging to CNPC appeared in its waters, near the Paracel Islands, which Beijing claims control of. The issue escalated rapidly until the offending rig was moved back to Hainan Island on July 15. This seems to show that no matter how much oil China obtains through realpolitik, it would still much rather secure its own sources. What price it is willing to pay for that goal has yet to be revealed.
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“Traders feel that this situation is not due to any animosity but because of China refusing to be too close to one single supplier.”
The Saudis have maybe a half a million bbl/d production headroom before they bump into their maximum recorded production (which iirc was achieved with more rigs than they have open right now). Even if the Chinese wanted them to, they couldn’t credibly make a Venezuela-type commitment to increased production.
What is little articulated when discussing energy….. wealth of a nation is directly proportional to energy consumption. What is also correlated is C02 emissions, especially when the energy is from fossil fuel sources. In other words, to grow wealthy more energy is needed. That is why it so important to pay attention to what China and India are doing. Growth rates in both countries are expected to continue to increase. However, burning their way to prosperity can be a disaster. What is urgently needed is a way to de-couple wealth from fossil fuel consumption.
I think this is a reason why India seems very intent on getting thorium reactors to work, as i think they have a big pile of it in the ground.
And that’s the reason why I do not now and never have believed that there are these “secret” means of producing super cheap and abundant energy but for the machinations of the evil oil companies. I remember having this conversation 25 years ago in grad school. I said, if such means existed, the Russians, the Japanese, the Germans or the French would use them in a heartbeat to boost their economies and military potential. Just throw in India and China today and you still have a matrix of states that would take advantage of such technology if it really existed. And that is why whatever the theoretical possibilities of zero point energy, or cold fusion, or thorium reactors, I am positive that they do not work today.
Real wealth is clean water and functional ecosystems. Every other definition of wealth is frankly delusional and also apparently suicidal, judging by current trends.
“What is urgently needed is a way to de-couple wealth from fossil fuel consumption.” A moratorium on the manufacture and use of automobiles would be a good start. Maybe decentralized, specialty factories closer to both labor and markets would also help. Did anybody see this coming in 1920? The world fell in love with cars and is still infatuated. Instead of cars, we should find other means of transportation. Lots more bicycles and tricycles and bike taxis, etc. For some reason the source of the problem is never addressed. If you say abolish automobiles, people laugh. All the way to the cemetery. Really, would Robert Rubin, the great goofy neoliberal spinmeister, ever promote a ban on cars? No. Of course not. Because our entire global economy is based on an automobile lifestyle. We’ve really got a big problem.
There is more going on here.
http://www.resilience.org/stories/2014-07-25/iea-oil-market-forecast-optimistic-assumptions-and-an-economy-unable-to-grow-out-of-its-problems
Maybe you should specify just what those “guarantees” are and how Iran is refusing to meet them or why that is serious. As for Russia’s motives there could be others. Russia is after all an oil/gas competitor.
And by “you” I guess I mean Oilprice. Some authorship confusion on my part.
China learns from the USA, the price of foreign oil dependency. The flip side to the neo-colonial policy of extracting raw materials, crude in this instance is exposure to losing the supplier in the over extended overseas supply chain. It is the weak link in Imperial Overreach. Here is what oil imports to the USA look like today:
Over Half of U.S. Petroleum Net Imports Come from the Western Hemisphere
In 2011, about 22% of our crude oil and petroleum product net imports came from the Persian Gulf countries of Bahrain, Iraq, Kuwait, Qatar, Saudi Arabia, and the United Arab Emirates. Our five biggest sources of net crude oil and petroleum product imports were:
Canada (29%)
Saudi Arabia (14%)
Venezuela (11%)
Nigeria (10%)
Mexico (8%)
in 2012. About 29% of our imports of crude oil and petroleum products came from the Persian Gulf countries of Bahrain, Iraq, Kuwait, Qatar, Saudi Arabia, and United Arab Emirates. Our largest sources of net crude oil and petroleum product imports were Canada and Saudi Arabia.
Top sources of net crude oil and petroleum product imports:
Canada (28%)
Saudi Arabia (13%)
Mexico (10%)
Venezuela (9%)
Russia (5%)
The US policy is clear: short supply chain, outside of unstable areas, aka WWIII in the Middle East. If you want to know what happened to Nigeria, the answer is crude by rail from Bakken in the Philadelphia refineries that first just shut down and then were bought out by Delta and The Carlyle group to take the cheap crude. It also answers the question about the delayed and denied request for an Extra Large Keystone pipeline. They already have a regular size one and now the Gulf Coast just has to learn how to share. China will eventually shorten their supply chain, then build a navy to defend it, then extend the territory of China as far out to sea as it can reasonably project its military power before starting a real military conflict. It’s hard out here for a pimp er hegemon, gotta be on top of yr game. Bobbing and weaving, float like a butterfly, sting like a bee!
https://www.youtube.com/watch?v=wN0xK6bgQkQ
Of course the military, whether US or China or Russia or the Kingdom of Brunei, is the greatest consumer of fossil fuels. And paranoid planning drives each military to secure its sources and stockpile a reserve of oil. Otherwise, in a crisis, those militaries will look like Rommel. Running out of gas in the lead tank. It’s absurd but paranoia rules the world. And the US military is the greatest polluter of all. So it’s a sure bet that China will be close behind. So in addition to giving up our favorite technology – automobiles – we need to give up our reptilian fixation on war. It really shouldn’t be impossible. It’s all so circular – war begets pollution, and pollution begets more war.
I agree. It is a great challenge, but it is not impossible.
… “In our every deliberation, we must consider the impact of our decisions on the next seven generations.” —attributed to the Great Law of the Iroquois Nations. [ http://en.wikipedia.org/wiki/Seven_generation_sustainability ]
When the above words were first said, the world was a far different place, of course. Global population was a fraction of what it is today. Today, abundant supplies of oil are key to economic development and even adequate nutrition in a modern society. And global demand for oil is insatiable. But there are alternatives — both in energy sources and in conservation.
As Susan said, war is terribly counterproductive.
I think BRICS Crude Oil Bank is better than BRICS Currency Bank.
[Exports to China]”…from Iraq went up 50 percent in 2013.” So, now I get it! We killed a whole bunch of people and wrecked a country so the Chinese could have oil.
No, we killed all of those people and our own military so China could have an outlet to divest itself of all of the US $$ it makes selling us iphones and plastic walmart crappolla. Payments for crude in US$ then, Iraq has to buy Boeing jets, Lockheed Martin ordinance, Sikorsky copters etc etc. We opened the market for China, Why? Because we can and they can’t.
China could have had access to the oil but the embargo imposed and manipulated by the US before 2003 made it impossible. The idea that oil states won’t sell oil is ludicrous. The suppliers will always sell. This is always about the terms of sale, never sales themselves. The Chinese government is foolish to allow the development of a car culture, because automobile culture is on life support and is doomed. But no one is a position of power anywhere, it seems, wants to admit that. They’ll find out soon enough.
At least they are still maintaining a measure of train culture and even new railroad buildout beyond what our Overlord Governators permit us to do in this country.
“because automobile culture is on life support and is doomed.”
James in what way do you mean it is doomed or on life support?
Seems all US oil Corps are involved in maximizing current profits.
Some years ago i wanted to invest in US Oil Corps that had “in the ground” reserves – and it seem all of the oil Corps have gone after leverage and and fracking and for the most part they are all looking pretty much the same. It this globalization or the result of trading/investing algorithms or just plain greed ? The smartest computers in the world are all likely to come to the same conclusions based on the same assumptions aren’t they. If I was in the oil business, saying, “be patient, the reserves are going to keep getting more valuable probably would have been fired.. Everyone jumped on the instant profit bandwagon.. We’ll see.