Chinas Oil Imports Continued Their Gallop in 2009

by Xina Xie and Dr. Michael J. Economides

It was supposed to be a year of economic slowdown and unavoidably lower energy demand. The United States after years of increasing oil demand even declined a bit, not by as much as people claimed but enough to measure, about 5 percent from just about 20 million to about 19 million barrels per day. (To view a full report from the U.S. Energy Information Administration, click HERE.)

But not China. After posting an imposing economic growth of 10.7 percent in the fourth quarter and 8.7 percent for the entire 2009, the country is now poised to overtake Japan as the world’s second largest economy. It also increased its oil consumption from 7.83 million barrels per day in 2008 to almost 8 million barrels per day. This included two very slow months in January and February, following the economic crisis of November 2008.

More significant is that crude oil imports in 2009 reached 4.1 million barrels per day, a record high. The National Energy Board released 2009 oil data on January 22, 2010. China’s annual oil production was 1.38 billion barrels and net imports were 1.49 billion barrels. This means that for the first time in the country’s history more than half, exactly 51.8 percent of oil consumption was imported. The second significant fact is that China produced domestically 0.5 percent less oil in 2009 than in 2008, even after very extensive and expensive efforts to boost production. More is coming. It is estimated that there will be a 10 percent increase in 2010.

The psychological 50 percent threshold made China’s “energy security” an inevitable issue in its national press, think tanks and the authorities. The deputy director of the National Energy Board Wu Ning warned in an article that “now the most acute problem in China is the increased importation of crude oil.”

Of course the events of 2009 were unavoidable. Since China became a net oil importer in 1993, the amount of oil from overseas increased from 6 percent to over 50 percent in merely 16 years. According to China Social Science Academy, China’s oil consumption could reach 10.6 million barrels per day by 2015, and the imported oil is likely to reach the US level of 65 percent of total consumption by 2020. It is estimated that China may need 16.1 percent of the tradable oil in the world market by 2020.

The dilemma for China is how to maintain economic development, even by tolerating environmental problems, while its domestic oil production cannot increase and it may have already peaked. Thus, some Chinese energy experts have proposed a “ceiling” for Chinese oil imports. But such ceiling will depend on China’s economic and societal development, as well as international situations. Since almost all of China’s oil is used for transportation and chemical processing, with the country having just 15 cars per thousand people (compared to almost 500 per thousand people in the US) a ceiling to limit oil use will definitely curb economic development but also affect the strong Chinese notion of catching up to the country they look up to.

Energy security for the Chinese takes a different hue than it does in the United States. Although the US relies heavily on imported oil, it is perceived as controlling the international oil prices and through geopolitical interventions it can become master of its destiny. In contrast, China views itself as a neophyte in energy geopolitics and is uncomfortable at any prospect of geopolitical disturbance where it is a mere bystander as is the case in Iran and earlier in Iraq. Thus, the strategy for China’s oil companies is to acquire more international oil reserves and the government is openly encouraging those moves. Expect massive purchases of foreign oil reserves by the Chinese in the near future.

China oil import each month in 2009: China Energy Network