China’s Energy Dependence To Grow Despite Major Oil Discoveries

Energy independence is an important prerequisite for any country that allows a relatively unbound foreign and economic policy. China's growing reliance on imports for fossil fuels is a major headache for Beijing. Therefore, increasing domestic production is high on the agenda. Despite some successes in exploration and production activities, it is expected that import dependency will increase in the next few years.
Beijing has directed its three domestic energy champions PetroChina, CNOOC and Sinopec to increase spending on domestic resources. Over the next five years, these companies have pledged to invest 517 billion yuan ($ 77 billion), an increase of 18 percent year over year.
These investments have already reversed declining domestic oil production. According to the US Energy Information Administration (EIA), the production of petroleum and other liquids in China has increased to 4.9 million barrels per day (mbpd). Despite the increase, reliance on foreign oil has reached 70 percent and the number is expected to increase.
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Announcements of the discovery of new oil and gas fields are not uncommon in China these days. According to the media company Netease, around 200 million tons (around 1.5 billion barrels) of oil and 300 million tons of gas were only discovered in November.
CNOOC has begun leveraging China's first domestically designed and manufactured self-operated large-scale deep-water drilling rig and the world's largest oil and gas storage platform on the Hainan coast. The company also made a major discovery in the shallow waters of the Pearl River Mouth Basin. The Chinese energy sector is setting new records this year due to growing investments.
Despite these successes, the industry faces an uphill battle due to the insatiable domestic demand for oil. The outstanding economic growth has resulted in a booming energy market, but the dependence on fossil fuels varies. Dependence on coal is limited due to its significant domestic production, and gas has a moderate share of the national energy mix. However, oil is the biggest challenge.
Although the share of natural gas in the energy mix is ​​currently relatively small, strong growth is expected. First and foremost, a change in policy in Beijing is the main cause of the increase in demand. Rising incomes and increasing energy consumption have resulted in widespread air pollution in most parts of China. Many households still use coal for heating. The Chinese coal-gas policy is to be gradually converted to cleaner natural gas.
Due to increasing demand, natural gas will make up around 10 percent of the energy mix by the end of this year. This will increase to at least 15 percent by 2030. The Chinese energy market has been reformed to lower the entry threshold for foreign and smaller companies. First, rules were changed, such as requiring a Chinese company to participate in business activities. Second, ownership of infrastructure and production activities has been decoupled, which means that manufacturers cannot own infrastructure to prevent discrimination against competitors.
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Despite these reforms and growing domestic production, the Chinese market is increasingly dependent on imports. Almost 50 percent of China's gas origin in 2019 can be traced overseas, imported via pipelines and shipped as LNG.
Over the years, Chinese companies have made significant investments in LNG regasification capabilities. Japan is currently the world's largest importer of LNG. The seemingly insatiable appetite for energy in China will make it the largest import before 2022. Beijing is also examining the possibility of a second gas pipeline from Russia, while the first power in Siberia is just starting up.
While the world is still focused on defeating Covid-19, the Chinese economy is back on a growth path. Last year, the Asian giant's market was one of the few bright spots in the global energy market. According to Reuters, the Chinese economy is expected to grow by 2.1 percent in 2020 and rise to 8.4 percent in 2021. This means that dependency will remain a serious problem for the Chinese leadership for the foreseeable future.
By Vanand Meliksetian for Oil Genealogie
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