The Chinese dragon has woken up and with it has gone up its energy needs — adding a new dimension to the already strained global energy balance. In an era where security of supplies is a crucial, top national objective for major crude importing nations, China cannot and is not oblivious to its future needs. After all, to continue fuelling growth and its rise to a superpower status, economy managers in Beijing need to ensure regular, smooth crude supply.
China’s crude oil dependency is expanding rapidly and is now expected to exceed the 50 percent mark. “China’s demand for oil is expanding steadily and it is an inevitable trend for oil dependency to exceed 50 percent,” Dai Yande, deputy director general of the Energy Research Institute of the National Development and Reform Commission, said.
Chinese domestic output has failed to pace with its rising demands. Beijing became a net importer of oil some 10 years ago and became the world’s second largest oil consumer in 2002 following the United States, overtaking Japan in the process, Dai said.
As per the Energy Development Report of China - 2007, the country will be dependent on crude imports to meet more than half of its energy needs by 2010 and around 60 percent by 2020. Key measures to optimize China’s energy structure, reduce environmental pollution and achieve sustainable development by working on alternative and renewable energy, remain top objectives today in Beijing. Some efforts in the direction seem to be under way already.
To maintain stability in domestic markets in the wake of fluctuating markets and ominous developments on the global energy chessboard, China is now undertaking steps to enhance its oil strategic reserves capacity. Earlier the month, China released a draft of a long-awaited energy law that called for the country to keep larger reserves of oil, uranium and other key resources and to set up a new government department.
One major focus of the draft law is energy security — a comparatively new obsession for a country growing increasingly dependent on imports of oil, coal and other key commodities. As per the draft, still to be ratified by the National People’s Congress, Chinese oil companies would have to build their own oil reserves to supplement a government-owned inventory that begun last year as a buffer for supply crunches.
Such a requirement would definitely add to pressures on China’s oil and refining companies, whose profits already have been squeezed because government price controls prevent them from passing surging costs for crude oil on to consumers.
The new reserves would be in addition to the companies’ existing operational reserves and would be subject to state supervision and management, the proposed law stated. The mandate would apply to oil firms with businesses either in crude oil or oil product imports, processing and sales.
The draft landmark law reflects Beijing’s goal to better control a sector that is critical to China’s rapid economic growth amid increased risks over global supplies and sharp price fluctuations that affect imports, accounting for half of China’s total demand.
Last August, China began filling a series of reserve tanks to build an initial estimated oil reserve capacity of about 15 million tons.
China does not release data on the status of its commercial or state-owned oil inventories, which are a cornerstone of its energy security effort. But a senior official with China’s National Development and Reform Commission was quoted as saying in September that strategic tanks contained about 3 million tons, or 22 million barrels. In October 2006, Beijing confirmed it had begun pumping crude into tanks near its largest refinery, Zhenhai, in eastern Zhejiang province. China plans to complete tanks comprising the rest of its first phase — in Aoshan in Zhejiang, Huangdao in Shandong, and Dalian in Liaoning province — by the end of 2008.
In order to boost its energy security, Beijing is working on a number of fronts. It has been seeking enhanced relations with Saudi Arabia and other Gulf Arab states. Chinese crude imports from Saudi Arabia are on the rise. The relationship between Riyadh and Beijing has also taken a strategic turn, with crude acting as a major binding force between the two.
Beijing has also been emphasizing on developing its relationship with the oil-rich states in the African continent. A third of China’s total crude imports currently is from Angola, Sudan, Congo, Gabon, Equatorial Guinea, Chad and Nigeria.
China has also been stressing on inking long-term relationship with some of these oil-rich countries with more than $6 billion of investments there, mostly in energy and infrastructure projects. Angola, sub-Saharan Africa’s second largest oil producer after Nigeria, narrowly overtook Saudi Arabia to become China’s top crude oil supplier in February 2006.
Crude is now a major plank of Chinese foreign and economic policy. In the race to dominate the now available energy resources, Beijing has indeed outsmarted many of its competitors and appears far ahead of them. After all Beijing, as it is dubbed today, is the rapidly emerging next global superpower.