One of the key problems for Chinas economy is its shortage of oil and its reliance on coal.
China became a net importer of crude oil in 1993.China’s oil dependency reached 45 percent in 2006 and has grown at two percent every year after that.
China is the world’s second-largest oil importer, behind the USA.
Unlike the US it has not previously built up strategic reserves, it is only now doing so and this will not be completed until 2020. It has never experienced an oil supply shock before and the concerns over the Arab spring disruptions has exposed its vulnerability (although only 3% of Libya’s exports of oil were to China).
Analysts believe that by 2020, nearly 65 percent of the oil consumed in China will have to be imported.
Hence the States focus on rail and not freeways as an optimum transport solution. It realises that mass car-ownership on an american scale would bankrupt it because of the export-land effect.
None the less its growth is inevitably fuelling demand for oil, 60% of which is used by vehicles, so how does it secure its supplies?
China imported a total 203.8 million tons of crude oil in 2010, up 13.9% from 2009.
The follow data of oil imports by country.
- Saudi Arabia … 5.7 million barrels, up 15.1% from 2009 (20.5% of total)
- Angola … 4.4 million barrels, up 7.6% (15.8% of total)
- Iran … 3.2 million barrels, up 8.6% (11.4% of total)
- Russia … 2.1 million barrels, up 31.5% (7.5% of total)
- Sudan … 1.7 million barrels, up 16.1% (6% of total)
- Oman … 1.6 million barrels, down 19.5% (5.8% of total)
- Iraq … 977,190 barrels, up 285.1% (3.5% of total)
- Kuwait … 965,279 barrels, up 20% (3.5% of total)
- Libya … 865,557 barrels, up 98.9% (3.1% of total)
- Kazakhstan … 819,389 barrels, up 5.9% (2.9% of total)
- Venezuela … 718,523 barrels, down 18.5% (2.6% of total)
- Republic of Congo … 557,931 barrels, down 6.5% (2% of total)
- Brazil … 553,574 barrels, up 34.3% (1.99% of total)
- United Arab Emirates … 451,163 barrels, down 27. 8% (1.6% of total)
- Indonesia … 441,256 barrels, up 132.3% (1.59% of total)
We know a number of these arrangement are below world market price.
Iran nominally exports oil to China at market price however with $60 of Chinese investment in increasing capacity in Iran since 2008 China effectively gets a major subisdy through being able to take the refining cut. Its long terms deals (25 years) are undoubtedly at a discount. nAcoording to the Middle Eastern Policy Council
if you convert natural-gas reserves into barrels of oil equivalent (boe), Saudi Arabia has 302.5 boe, and Iran has 301.7 [reserve supplies]. Russia’s hydrocarbon reserves, the world’s third-largest, are 198.3 boe. This means Iran’s hydrocarbon resources are almost equal to those of Saudi Arabia and much greater than those of Russia. What makes Iran’s future energy potential even more impressive is the fact that, in contrast to its vast reserves, Iran’s extraction rate is relatively low. Given the proper amount of investment and technology, Iran would have the capacity to boost its production substantially and become an even larger provider of energy for China.
As for Angola Beijing secured a major stake in future oil production in 2004 with a $2 billion package of loans and aid that includes funds for Chinese companies to build railroads, schools, roads, hospitals, bridges, and offices; lay a fiber-optic network; and train Angolan telecommunications workers.
China gets oil from Russia at about $60 per barrel, less than half the current global price. Many of the Siberian oilfields are remote from the sea and piping through China gives them a monopolistic position, able to dictate price.
It also get below market price oil from Venezuela in return for a $20 billion investment. According to the Energy Tribune, the Chinese secured deals throughout Latin America in 2010 worth at least $65 billion in stakes of projects that could eventually produce over 1.3 million barrels of crude oil a day. Chavez has on several occasions threatened to cut off all oil exports to the US – which gets 10% of its oil from Latin America.
The need to secure foreign reserves undoubtedly impacts on its foreign policy, with it for example unwilling to impose sanctions on Sudan or Iran. The US is equally if not more vulnerable, being being a democracy cannot afford such a ruthlessly selfish policy. As the MEPC concludes
According to some scholars, there is an emerging “axis of oil” constituting Russia (a major producer), China (a growing consumer) and the nationalist oil-producing states (most notably, Iran, a major producer). Their interests converge, and they are now challenging U.S. hegemony on a wide range of issues globally
New sources of oil from Africa and South America will not come on stream for some time, and in the meantime China has to compete on the global market. For the time being the proportion of Chinas oil imports secured below world market prices is small, but will grow over time. China has lacked expertese in this field so has conducted much of its negotiations with Petronas, controlled by the Malaysian Government.
Decisions, Decisions, Decisions 