The Chinese challenge
Global geopolitical changes are posing serious challenges as well as opportunities all over. The most salient factor of these changes is that China is about to take over the US as the world’s top economy. More significant for this part of the world is that China has already taken over as the top crude oil importer, surpassing the US.
According to preliminary figures published earlier this month in the Foreign Policy magazine by Robin Mills, the US crude oil imports amounted to 6 million barrels per day (bpd) last December, the lowest figure in 20 years. At the same time crude oil imports by China stood at 6.12 million bpd during the same period.
Thanks to the sustained Chinese economic growth on the one hand and to the surge in domestic hydrocarbon production in the US given application of fracturing technology that allowed for the release of gas and oil from shale rocks on the other, the high prices have made such ventures commercially viable.
This development adds more focus on the world’s new top consumer so as to have a clear picture about future implications of this trend, which is expected to expand with the improved and growing use of technology.
With more than one billion people, China has only proven oil reserves of some 20 billion, barrels according to last year’s available figure. Though this figure has shown an improvement of 4 billion barrels of what it was three years earlier, production seem to be flattening. It stood at 4.3 million bpd currently and is forecasted to rise by 170,000 bpd by the end of this year and the US Energy Information Administration (EIA) expects that it could reach 4.7 million bpd in two decades time.
On the imports side, they stood at 5.5 million bpd two years ago, peaking to 6 million by the middle of last year.
The annual increase of 0.8 million bpd is calculated to account for more than 60 percent of the world’s projected demand growth during the two years up to 2013. And this allows China to be one of the most important factors affecting the oil price.
Though oil constitutes a smaller percentage in the energy mix compared to coal, which occupies the dominant 70 percent share, oil has only a 19 percent stake. But EIA expects that China will import 75 percent of its oil needs by 2035.
Already the Middle East oil exporters are supplying more than 50 percent of China’s oil imports, or 2.6 million bpd, followed by Africa’s 1.2 million bpd, or 24 percent.
Both Saudi Arabia and Angola are the top exporters to the Chinese market, with Riyadh leading with more than one million bpd. And that may increase if plans to fill a Chinese strategic petroleum reserve are carried out.
However, aside from the growing figures of the Chinese hydrocarbon needs there are two areas that need special attention.
The first is to keep a close eye on various developments in that country particularly in the energy field.
Unlike the US where there is glut of information and up-to-date figures are more or less available, China is completely a different story where there are barriers of language, and political, economic and administrative set ups that are more inclined against being open and transparent. Because of that secrecy, the world was taken by surprise last decade when a strong unexplained demand pushed prices up. Available figures from Western capitals at the time, however, painted a different story.
But more important than this is whether the new fracturing technology will find its way to China as well, as there are some unconfirmed reports about availability of shale oil and gas in the world’s most populous country. If these reports are proven correct, the question then is when and not if.
Again that will not mean the end of oil export business even if China is to tap its hydrocarbon resources with new technology following the steps of the Americans.
After all other emerging economies in Asia, South America and even the Middle East will constitute a comfortable market for oil exports.
But that will bring to the fore the issue that has been on the table for decades — how to diversify the Gulf economies, change their dependence on this depletable resource and, more important, how to make best use of this situation and prepare for rainy days ahead.
Plans and strategies vary from creating funds for future generations to real investment in human development, which seems to be the most credible alternative to enable young generation of being able to compete in the age of globalization.
Oil and other natural resources are to be the means to ensure sustained socioeconomic development and not the end.
Email: [email protected]
