The Unforeseen Consequences Of China's Insatiable Oil Demand

Authored by Tim Daiss via Oilprice.com,

While it’s true that China's crude oil imports recovered slightly in July, it was still among the lowest so far this year due to a decline in demand from smaller so-called independent “teapot” refineries.

However, for the first seven months of the year, China imported some 8.98 million barrels per day (bpd) of crude oil, up 5.6 percent from a year earlier. Total natural gas imports, including both pipeline gas and liquefied natural gas (LNG), rose to 7.38 million tonnes during the same period, up 28.3 percent from a year ago, according to customs data.

Moreover, amid both economic growth as well as Beijing’s mandate that gas make up at least 10 percent of the country’s energy mix by 2020 to offset the effects of rampant air pollution from dirtier thermal coal power production, the long term trajectory for both China’s natural gas consumption, as well as oil usage, will continue to increase, posing both a geopolitical and financial dilemma for the country that the U.S. and many western powers grappled with for decades.

Gas matters

Going forward, China’s gas demand is projected by the IEA to rise by 60 percent between 2017 and 2023 to 376 billion cubic meters (bcm), including a spike in its LNG imports to 93 bcm by 2023 from 51 bcm last year. The IEA has also projected that China will become the world’s top natural gas importer (both pipeline and LNG) by next year.

This marked increase in Chinese LNG procurement has changed the global LNG market from one that was projected to remain in a supply overhang scenario until around 2022 or even later to one that is now projected to have possible shortfalls of the super-cooled fuel around the same time frame. It has also ushered in new confidence for global LNG producers and talk of pushing ahead more greenfield LNG projects to meet this demand, a possibility unheard of just a year ago.

This increase in gas usage will also mean that China's domestic gas output, though it will be the world’s fourth largest gas producer by 2023, will be unable to keep up, with China increasingly becoming more reliant on gas imports from both established LNG producers like Australia, the U.S. (current trade tensions notwithstanding) and Russia, but also more geopolitically volatile producers such as Qatar, still the world’s top LNG producer, Yemen, Oman, Papua New Guinea, in time Mozambique, and others.

Stellar GDP growth

However, even more problematic for China than its increasing gas consumption projections will be its continued oil thirst. China's oil usage continues to increase amid a GDP growth rate that has been the envy of the western world. Admittedly, China’s economic growth is slowing but the question has to be asked, slowing from what level?

China had double-digit real GDP growth for much of 1980–2005, and energy demand more than tripled during that time. In 2010, China’s GDP grew at a stellar 10.61 percent, followed by 9.4 percent the next year. In 2012 and 2013 China’s GDP growth for both years reached nearly 8 percent, followed by an average GDP growth rate of 6.925 percent between 2014 and 2017. China’s economic growth rate did slip in Q2 this year but it still came in at an impressive 6.7 percent. The U.S., for its part, has not posted a GDP growth rate above 5.12 percent since 2006.

Oil thirst remains problematic

China surpassed the U.S. in annual gross crude oil imports in 2017, importing 8.4 million bpd compared with 7.9 million bpd for the U.S. China had become the world’s largest net importer (imports minus exports) of total petroleum and other liquid fuels in 2013.

Last year, 56 percent of China’s oil imports came from OPEC members. Though that was a marked decline from a peak 67 percent in 2012, it still represents over half of the country’s demand derived from OPEC members. Moreover, as China prepares to decrease imports of U.S. crude oil, OPEC imports, in addition to Russia, will increase to replace lost U.S. barrels.

This over reliance on imports from individual OPEC members puts China in a geopolitically precarious situation.

Though China could indeed see oil demand growth slow in coming months, in part due to the ongoing trade row with the U.S., in the mid to long term China’s oil consumption thus its reliance on foreign oil will continue to grow. The IEA said recently that China’s oil demand could reach 15.5 million bpd by 2040, after peaking in 2030.

Along with supply risk attributed to over reliance of imported foreign crude, there is the issue of transfer of wealth, again something that plagued the U.S. for nearly 40 years and forced its hand as it became involved in countless military endeavors in the Middle East.

Oil demand problems for China are being exacerbated by its maturing onshore oil fields and the inability to discover and develop new fields in sufficient quantity to offset these production loses – perhaps one reason China has pushed so hard recently in the thought to be oil and gas rich South China Sea.

Comments

asiya789 LawsofPhysics Fri, 08/10/2018 - 11:59 Permalink

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In reply to by LawsofPhysics

Blue Dog The_Juggernaut Fri, 08/10/2018 - 13:02 Permalink

China is already a superpower. They'll overtake the US in GDP within 10 years.

It doesn't matter if a country imports more food than they export. Russia, Sweden, the UK, and Finland are also countries that do that. Agricultural use is a very inefficient use of land. You'd be better off building a factory and generating 1000 times as much income from manufacturing than farming.

 

 

 

In reply to by The_Juggernaut

NidStyles Blue Dog Fri, 08/10/2018 - 14:07 Permalink

Implying that I somehow represent China? 

Suggests that Royal Families don’t run the US, but even the news agencies know this isn’t accurate? 

What happened to the London fix? 

Every president has been related to the Windsor’s for how long?

Somehow I am yellow? I look pretty white.

In reply to by Blue Dog

shortonoil Free This Fri, 08/10/2018 - 13:42 Permalink

The IEA is having another one of their moments. According to BP world NG production peaked in 2016. Coming up with an additional 256 billion cubic meters is going to be a little difficult since it doesn't exist, and most likely never will. But for the IEA that is not a problem; just plot the line, and extrapolate without regard to any other data. It is the scientific approach that was developed in Europe, and bastardized by a bureaucracy. According to the Chinese their electrical consumption is going down as they display this incredible growth. The IEA probably believes that one also. The same group of "experts" are undoubtedly running their immigration policies.

In reply to by Free This

shortonoil css1971 Fri, 08/10/2018 - 14:05 Permalink

I would give it a 95% probability over the next 3 years; if not right now. The only reason it did not occur in 2012 was because of shale. To keep shale production constant will require the drilling of $7.3 trillion in new wells over the next 5 years. At today's prices they will get about $2.2 trillion in product for the effort. Whether Trump will allocate $5 trillion in losses seems doubtful. He doesn't like red ink by the car load. Of course the world has been pumping out of the same puddle for the last 158 years as fast as it could. It also was always taking the very best that it could find. What is in the bottom of that barrel is starting to look a little crappy.
BW
http://www.thehillsgroup.org/

In reply to by css1971

silverer Fri, 08/10/2018 - 12:00 Permalink

Time for China to build some new, safe thorium reactors.  The US considered it many years ago when testing and creating reactor designs, but crapped on the idea because the reactors used now by the US could produce bomb grade materials, and thorium could not.  So, naturally, the wonderful US government planners thought of destruction as the first priority.  Check it out on Wikipedia.  The US government is all about empire and kill, kill, kill.

BrownCoat silverer Fri, 08/10/2018 - 13:24 Permalink

I did check out Wikipedia (Liquid fluoride thorium reactor). Under disadvantages there were 22 bullet points. According to the article, thorium reactors are still experimental

Remember when Obama wanted geothermal power? That was going to be the next great thing since sliced bread. Unfortunately, geothermal can cause earthquakes!

You are just ahead of your time. So STFU about nuclear until there is a workable, safe solution.

In reply to by silverer

RationalLuddite lnardozi Fri, 08/10/2018 - 14:44 Permalink

Fuck this annoys me. Deliberate deception. It is still experimental and isn't the wonder solution as you lyingly counter.

No mate . You're gaslighting. You simply don't know what you are talking about. The previous poster was precisely correct in their initial comments,  as even 15 minutes reading by someone with technical literary will quickly discover.  Stop the magical thinking and dishonest dismissing of people.

https://whatisnuclear.com/articles/thorium_myths.html

 Nuclear scientist dispelling the Thorium myths

"Lastly, those who believe that Thorium Reactors are better and will be the ENERGY SAVIOR of our future, this is delusional thinking at best.  I am sorry to be so blunt… but there it is.  Thorium reactor technology is still decades from reaching commercial status… if ever.  Unfortunately, we have run just run out the clock."

http://thoriummsr.com/intro/pros-and-cons-list/

In reply to by lnardozi

Cloud9.5 Fri, 08/10/2018 - 12:14 Permalink

I was in China this summer.  Their transportation system is booming.  Demand for cars and SUV’s is going exponential.  The traffic in Shanghai was absolutely amazing.  The number of high rises was even more amazing.  Given unlimited supplies of oil, this would be China’s century.  Like the rest of us, without oil their center will not hold.

It may very well cross their minds to turn out the lights here in the US.  That would leave what is left of American production in the ground.  It would also end our competition for world oil as well.  We like them are major importers of oil.

RationalLuddite Everybodys All… Fri, 08/10/2018 - 14:58 Permalink

No. Not net exporter, never will be, and the situation will get increasingly bad from here on out, first in about 3 years time as the nonconventional sources begin to fall off, and then diabolically after around 2030. The whole LNG export claims too are just pure insanity.  Anyone who says otherwise is simply innumerate and/or simply doesn't know the basic details. 

E.g. one of the main unconventional source fracking geologists who in the USA telling you as it is. Just listen to the final 15 minutes if you're short on time.

https://youtu.be/weYeLqwX_w0

Shale gas oil insanity.

ZH comments are great for diverse ideas on most topics, but unfortunately the utterly pig ignorant tend to gaslight or are delusional  on even the basics of energy here.

 

 

In reply to by Everybodys All…