China Passes U.S. to Become World’s Top Oil Importer
According to the U.S. Energy Information Administration, last month China imported more oil than any other country in the world, including the United States. China had to import 6.30 million more barrels of oil than it produced domestically, while the United States only imported 6.24 million barrels.
China’s new status will have a number of important ramifications for the country, as it has exposed both the country’s growing strength as well as its weakness.
Americans still use the most oil per day at 18.6 million barrels, while China uses around 11 million barrels. However, America is able to domestically produce 12.5 million barrels of oil a day whereas China can only produce 4.6 million. Furthermore, the United States is bringing down the amount of oil that it is actually using as it takes advantage of other energy sources; particularly the discovery of vast amounts of shale gas (such as the Marcellus Shale in Pennsylvania).
China’s middle class is projected to grow to a massive size over the next few years, and as its citizens become more affluent the more goods and products they will want to consume. This has already translated into more cars on the road, and the country is already the world’s largest automobile market by units sold. In August, this market grew by 11 percent, and that was a slow month. Further, the vehicles produced run almost entirely on oil, and many of the vehicles sold do not come even close to meeting Western emissions standards.
As it expands its search for oil sources, China is becoming much more reliant on politically unstable and morally suspect regimes as primary sources of energy. One need only take a brief look at U.S. history in the Middle East to know how dangerous this overreliance can be. Without a reliable domestic source of energy, China will find itself at the mercy of international markets and the whims of foreign governments. The U.S. is currently gingerly extracting itself from the Middle East and from its overreliance on the energy that the region provides; the geopolitical advantage that this gives the United States over China cannot be overstated.
It is clear that China must find a way to boost its domestic production of oil and other fossil fuels, as well as pursue alternative forms of energy such as solar and wind. The Chinese government has allocated billions of dollars to develop its alternative energy industries and the country is home to some of the largest solar panel companies in the world (such as Yingli Solar and Trina Solar). However, these alternative energies only make up a small part of China’s energy mix.
It is important that the new automobiles being produced incorporate the use of energy such as electricity and natural gas. Domestic companies such as BYD and Kandi, which are already pursuing new energy vehicles and the accompanying infrastructure to go along with them, must be singled out for further support. Many local governments have signaled their support for partnering with these types of companies in the building of charging stations and other infrastructure.
China must also spend more on promoting domestic energy conservation through increasing efficiency by, for example, greatly increasing fuel standards such as quality and miles-per-gallon. Certain regions in China, such as Beijing, are already tightening their environmental regulations, but there is still no countrywide standard.
To offset its growing reliance on oil, China is also pursuing other conventional sources of energy. The country has the world’s largest shale gas reserves and it has the third largest shale oil reserves. However, it has not been able to fully take advantage of these resources due to poor infrastructure and technical difficulties in actually accessing the oil and gas deposits. This is a situation that cannot be allowed to continue if China wants to be able to deal with its continually-increasing energy needs. Multinational companies such as Shell are already poised to take advantage of these massive deposits once China becomes serious about accessing them.
Aside from the clear economic impact that this growing oil consumption is having on the country, there is also the environmental impact. While China is making great steps to implement environmentally-friendly energy policies, all one has to do is look out a window or take a breath of air to know how far the country still has to go to achieve Western standards. The growing middle class will demand more cars, and China must do its best to drive these new consumers to the more “green” products. To achieve this, the country must continue, and expand, its tax incentives for both the producers and buyers of new energy vehicles.
Another interesting possibility that may come out of China’s growing reliance on imported oil alongside America’s decreasing reliance, could be that the RMB becomes a much more attractive reserve currency for a number of central banks around the world. This is due to the decreased outward flow of U.S. dollars (for buying oil) and an increased outward flow of RMB. The RMB has recently moved up to the eighth most-traded currency according to the Society of Worldwide Interbank Financial Telecommunications, and China is rapidly expanding the number of countries it has swap agreements with. China should continue these positive actions as well as further opening up the currency.
China’s growth has been massive and fast-paced and oil has proven the perfect lubricant for this growth. But oil cannot be the end-all and be-all when it comes to energy. When a country is too reliant on one energy source – particularly one it does not control – it creates much weakness within itself. To its credit, the Chinese government has recognized that it must further develop alternative energy sources so that the country can achieve a more sustainable growth model. Oil will continue to be the dominant energy source for some time to come, but it is clear that China is determined to restrict that growth in the future.