It has become a bit of an economics meme to joke about how important China is in the oil and natural gas demand equation and, indeed, there is quite a bit of substance under the proverbial hood. When it comes to the let’s say recent past, China has been the worldwide leader in terms of oil and natural has demand, even if 2018 represented an exception in light of the fact that the United States took over. Still, it is fairly safe to say that as far as the recent past is concerned, China is the number one game in town when it comes to demand for resources in general and oil as well as natural gas in particular.
This led to another mega-trend, one that the Chinese authorities consider deeply worrisome: the fact that China has grown increasingly dependent on energy imports. While Chinese leaders enjoy referring to the monstrous Chinese demand for resources because it highlights the economic dominance of China, they are far less enthusiastic when thinking about the fact that self-sufficiency in this respect has deteriorated.
For example, over the past six years, China has dealt with a bit of a predicament: reconciling the fact that for example oil demand has risen by 30% with the reality that oil production has fallen by almost 15%. Even prior to the previously mentioned six-year period, the situation in terms of import dependence was anything but stellar but at this point, the fact that imports account for approximately 3/4 of China’s oil needs is deeply problematic.
When it comes to natural gas, the situation doesn’t seem as dire, with China only being 45% dependent on natural gas imports and with domestic natural gas production having essentially doubled. However, the trend can be considered worrisome in light of the fact that the percentage in question was close to zero not that long ago. Furthermore, we need to understand that natural gas represents clean(er) energy and as such, Chinese demand is likely to go up, especially since at this point in time, natural gas accounts for less than 10% of China’s energy consumption, with the percentage in question being approximately three times higher for more developed nations such as the United States.
For any nation, being dependent on energy imports represents a natural security issue due to the fact that in dire geopolitical situation, the proverbial cord can be pulled, resulting in economic and even humanitarian damage that can be very difficult to quantify. Of course, as European countries can attest to (given the degree to which they rely on Russian natural gas, for example), being dependent on resources is hardly a problem that is unique to China.
However, the Chinese tend to consider it more problematic in light of the fact that self-sufficiency has been either a goal or even the status quo for thousands upon thousands of years. As those who have read the history-oriented articles that have been published on ChinaFund.com can confirm, China has pretty much always embraced a somewhat isolationist approach. There is a wide range of historical evidence (including evidence that is impossible to ignore such as… you’ve guessed it, the Great Wall of China) which makes it clear the Chinese have always considered self-reliance a significant component of their national security strategy. The let’s call it post-Deng-Xiaoping period which has been characterized by an unprecedented willingness to trade is an exception if we are to put China’s history under the microscope, definitely not the norm.
Before ending this article, it is worth pointing out that China is aggressively exploring a wide range of energy alternatives to oil and natural gas. Quite effectively so, in fact, with China currently being the number one producer of solar and wind energy. From green energy to electric vehicles, it would be a sign of ignorance to assume that China is 100% stuck in 20th century thinking when it comes to energy, that is most definitely not the case.
Still, it is very likely that for the foreseeable future, China will continue representing the world’s #1 source of oil and natural gas demand. The increased dependence of energy imports is ultimately a price that has to be paid if the Chinese economic growth success story is to continue, even if it is unlikely to continue at the pace we have been accustomed to due to reasons which revolve around sustainability.
On that note, while China can be considered the #1 source for global oil and natural gas DEMAND and that is unlikely to change, it doesn’t necessarily mean it has to also be the world’s #1 DEMAND GROWTH example. With countries such as India being more than eager to catch up (with five Indian households being required to consume as much energy as one Chinese household currently consumes) and the catch-up game in question being downright necessary, let’s just say that while it might be a cliché statement to make, change is indeed the only constant when it comes to global energy trends.
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