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Tim Daiss

Tim Daiss

I'm an oil markets analyst, journalist and author that has been working out of the Asia-Pacific region for 12 years. I’ve covered oil, energy markets…

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China’s Achilles Heel Is Its Soaring Energy Demand

China continues to set records in numerous sectors, but there are some records better left alone, including drawing near to becoming the all-time global crude oil imports leader. The country imported 10.68 million barrels per day (bpd) of oil in April, according to China’s General Administration of Customs, falling just 0.8 percent off the all-time record set by the U.S. back in 2005 at 10.77 million bpd. This growing oil dependency will be exacerbated since China’s oil fields continue to mature and harder to reach and develop offshore oil resources to make up the shortfall will have to be tapped in the geopolitically volatile and contested South China Sea.

As a corollary, the U.S. has rescued itself, at least in part, from over-reliance on foreign oil by the U.S. shale revolution which has seen the country become the top global oil production leader, recently pumping a record 12.3 million bpd, with that amount likely to increase as more production comes into play in the Permian Basin in western Texas and southeastern New Mexico as oil majors enter a play that was once reserved for smaller and mid-sized players. In fact, if the Permian basin was a country, it would be one of the largest oil producers in the world at nearly 4.1 million bpd pumped in April.

China’s Achilles heel

China, however, doesn’t have the equivalent of a Permian basin nor anything even close to other U.S. unconventional plays or even the equivalent of U.S. offshore production in the Gulf of Mexico. The Federal Offshore Gulf of Mexico had the second highest crude oil producing figure in February with 1.719 million bpd. Related: Iran’s Master Plan To Beat U.S. Sanctions

For Beijing, this spells problems not only in the mid-term but in the long-term. China’s growing hydrocarbon thirst, including its insatiable natural gas and LNG demand as it replaces dirtier-burning coal, will see more Chinese funds transferred to oil and gas players, a predicament the U.S. found itself in after 1970 when oil production in the country peaked, then started heading south, just as consumption was gathering steam from an unprecedented amount of drivers and automobiles on the road.

The loss of the Texas Railroad Commission’s role as global oil markets swing producer in the early 1970s also largely set the stage for American foreign policy for the next half-century as the country had to rely on geopolitically charged crude oil imports from Saudi Arabia and other middle eastern players whose political goals and ambitions were often at odds with Washington. Not only did the U.S. safeguard, and still does, global shipping lanes, including the volatile Start of Hormuz, to help the Saudis and others get oil to market, both to the U.S. and globally, but the unprecedented transfer of wealth over several decades made Saudi Arabia one of the richest nations in the world whose geopolitically clout exceeded its ability to manage that power successfully on the world stage. Case in point: the recent Jamal Khashoggi killing and Riyadh’s fumbling the ball the entire time after the news broke.

Going forward, the U.S. is still changing its geopolitical playbook in large part due to both its ramp up in oil production and its growing role in LNG markets. Yet, China's growing reliance on oil and gas imports will weaken Beijing’s hand just as it seeks to rival the U.S. on the world stage by its all-encompassing Belt and Road Initiative and as the country feverishly tries to develop a Blue Ocean Navy that could in time rival the U.S. Navy on the high seas.

Moreover, in future trade negotiations, not just the ongoing trade debacle between Washington and Beijing, but with other nations and trading blocks, China will come to the table with a weaker hand due to its insatiable oil and gas needs.

By Tim Daiss for Oilprice.com

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  • Mamdouh Salameh on May 09 2019 said:
    This is the price China has had to pay to become the world’s largest economy based on purchasing power parity (PPP) which both the World Bank and the International Monetary Fund (IMF) use to measure the economies of the world.

    As a matter of fact, China’s oil imports this year are projected to hit more than 11 million barrels a day (mbd).

    However, I don’t regard China’s soaring energy demand as its Achilles Heel for three reasons. The first is that it is a sign of a fast-growing economy projected to grow by 6.4% this year. The second is the Belt and Road Initiative (BRI) with which more than 130 countries among them many top oil-producing nations have already signed contracts of cooperation. This enables China to secure all its energy needs at ease. Furthermore, the BRI has enabled China to become almost totally integrated in the global trade system. This explains why the trade war between the US and China has so far hurt the US economy far more that China’s.

    The third reason is the strategic partnership between Russia and China which will be shaping the world in coming years in the field of energy and also economically and geopolitically supported by China’s BRI and Russia’s energy prowess. The cooperation in the energy field between the world largest importer of both oil and gas and the world’s largest producer of oil and also largest exporter of natural gas is like a marriage made in heaven.

    China doesn’t need the equivalent of a Permian basin when it has Russia in particular and the whole world to tap for its energy needs. The whole US shale oil industry will be no more in ten years.

    The claim by President Trump that the United States protects the oil-producing countries of the Arab Gulf is a brazen and crude attempt of blackmailing these countries and getting US hand on their money and oil. The only threat facing these countries is Israel which is provided with money and the most sophisticated weaponry by the United States to maintain its threat and military supremacy in the Middle East. America and Israel are one and the same and they pose the most serious threat to countries of the Middle East.

    Another discredited claim is that the US is protecting the global oil supplies and global sea shipping lanes. The US is in the Gulf to ensure that it controls global oil supplies on the premise that whoever controls these supplies and oil’s shipping lanes and chokepoints controls the global economy.

    China will get the bulk of its oil and gas needs from Russia. That is why it has been investing heavily in Russia’s oil and LNG projects. Economically, under China’s BRI, Russia has become one of the biggest recipients of Chinese investment receiving so far $46 bn in Chinese funding for BRI projects, the latest of which was the Yamal LNG project and the Arctic LNG 2 in Russia’s Yamal Peninsula.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London
  • Ronald Wagner on May 09 2019 said:
    Yes, China will want to use less coal due to pollution problems but it will not let that get in the way of economic growth. China is using more coal than ever despite the smokescreen messages it keeps giving about wanting to go with renewables, oil, and natural gas. If they had to they could make liquid fuel out of the coal. They are also struggling to develop their own resources.

    One way they want to develop "their" oil and gas is to steal ocean resources from its neighboring countries.

    The way to handle China is to minimize trade with them while strengthening their neighbors by trading more with them.

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