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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