The prolonged slump in world energy prices has produced a mix of benefits and looming risks for China, according to recent reports.
The relative abundance of energy that followed the development of shale oil and gas in the United States has helped to ease energy security concerns in China and other Asian nations, according to studies published last month by the Seattle-based National Bureau of Asian Research (NBR).
But low energy prices have also forced cuts in investment and domestic oil output by high-cost producers like China, raising the risk that supplies could tighten again, the studies said.
The result could be excessive dependence on low-cost producers in volatile regions like the Middle East.
"Hence, anxieties over energy insecurity in Asia could return soon as oil markets tighten over the next several years. Recent history suggests that this adjustment could be very sharp and destabilizing," warned the report, "Asia's Energy Security Amid Global Market Change."
The series of studies was prepared before the Organization of Petroleum Exporting Countries (OPEC) agreed on Nov. 30 to cut oil production by 1.2 million barrels per day starting on Jan. 1.
The OPEC plan was followed by an agreement among non-OPEC nations to reduce daily production by an additional 558,000 barrels in coming months to support higher prices.
World oil prices have responded so far with a moderate rise of about U.S. $10 (69.2 yuan) per barrel, or about 22 percent.
This seems unlikely to be the sharp adjustment that the studies suggest could still be ahead, particularly since producers like Russia have been wary of encouraging U.S. production by setting price targets too high.
Last week, the U.S. Energy Information Administration (EIA) said in an annual report that the United States could become a net energy exporter by 2026, thanks largely to increased supplies of natural gas.
The back and forth battles over prices and production have already had significant effects on Chinese and other Asian energy markets with strategic implications, according to the NBR report.
U.S. development of shale oil has "helped trigger the steepest, longest-lasting price collapse in the history of the oil trade," said one of the studies by Antoine Halff, director of global oil markets research at Columbia University's Center on Global Energy Policy.
Between June 2014 and last January, benchmark Brent crude prices fell by over 75 percent from U.S. $115 (795 yuan) to U.S. $26 (180 yuan) per barrel, the study said.
A mixed blessing
Low prices have been a mixed blessing for China.
The slump has sidelined the country's high-cost production, dragging down domestic oil output below 4 million barrels per day and making China more dependent on imports.
At the same time, it has allowed China to follow the advice of the Paris-based International Energy Agency (IEA) to build up its strategic petroleum reserves at an affordable cost, leaving it less vulnerable to disruptions and external shocks.
Halff noted an unusual effect of the price collapse.
Ordinarily, low oil prices have a stimulus effect on economic growth, but not so for most Asian nations during the prolonged downturn for the exporting countries.
"Economic trouble in oil producers has triggered contagion effects across the world," the study said. "In sum, as the world's largest oil-importing region, Asia would normally be expected to be the prime beneficiary of low prices, but so far the impact has been mixed at best."
Low prices have decimated the economies of countries from Russia to the Middle East, weakening demand for China's exports and helping to forestall recovery from the global recession.
China's economic growth rates have declined steadily throughout the period of the oil price drop.
The cause-and-effect relationship is a bit of a chicken-and-egg proposition since China's weaker economic growth removed one of the few props for world oil demand that had kept prices up.
Another study in the series argued that although low oil prices have not produced higher economic growth rates across most of Asia, they have at least provided some economic boost.
Reduced prices "at a minimum relieved Asian economies of stresses and created important economic opportunities," wrote Meghan O'Sullivan, professor of international affairs at Harvard Kennedy School.
Without unconventional oil production in the United States, "China would have needed to allocate hundreds of billions more dollars to crude oil imports in 2014 and 2015," O'Sullivan said.
The study cited one industry estimate that China's cost savings could have been as high as U.S. $354 billion (2.4 trillion yuan).
O'Sullivan noted geopolitical effects of the price slump that go beyond economic pressures.
Low oil and gas prices have undermined Russia's "pivot to Asia" strategy. Moscow has sought to forge closer links to China and other Asian markets based on both pipeline projects and exports of liquefied natural gas (LNG).
"The prospects for these same projects, however, look much less promising in an environment of low energy prices, particularly at a time when Russia is struggling to gain access to capital," O'Sullivan said.
The reference is a reminder that Russia never received the U.S. $25 billion (173 billion yuan) in advance payments that it expected to get from China under a landmark gas pipeline deal announced in May 2014.
Without China's financing, Russia's work on the "Power of Siberia" pipeline project has proceeded slowly and has reportedly been subject to repeated delays.
Russian gas monopoly Gazprom has so far built 445 kilometers (276 miles) or about 11 percent of the pipeline, CEO Alexei Miller said at a year-end briefing, according to Interfax. The project was originally scheduled to start deliveries to China in 2018.
A secondary effect of plentiful petroleum is that it has reduced energy security risks for U.S. allies in Europe and Asia in imposing sanctions on Russia for the annexation of Crimea and the war in Ukraine, the study suggested.
Lower forecasts for Chinese gas demand have undercut Russia's attempts to play off markets in Europe and Asia against each other, it said.
"Russia's vision that energy could be the cornerstone of a strategic partnership among equals is no longer realistic. At best, energy will be a transactional component of a highly unequal relationship in which Beijing holds nearly all the cards," said the study.
O'Sullivan sees the relative abundance of energy as a force that has transformed China's foreign policy goals under its "going out" strategy, initially aimed at securing energy resources but now broadened with the "One Belt, One Road" (OBOR) initiative to expand investment abroad.
Instead of fixating on energy sources, China has promoted "industrial capacity cooperation" in developing countries in an attempt to export the infrastructure for entire manufacturing segments overseas.
The study said that "arguably, the purpose of these efforts is focused equally on extending Chinese influence and exporting excess Chinese capacity as on delivering energy resources to China."
One notable aspect of the changes in world energy markets is that China's concerns about depending on imported petroleum have lessened although its reliance has grown.
In 2006, China's cabinet-level State Council issued a white paper on national defense, warning of mounting risks for "energy resources, finance, information and international shipping routes."
China reached the threshold of 50-percent dependence on foreign oil for the first time in 2008 after its import share rose sharply from about one-third in 2003.
Since then, China's import dependence has climbed to about 65 percent, but the official warnings about the risks have publicly ceased.
Increasing risks for Asia
O'Sullivan's study says the risks are rising for Asia as reliance on oil from the Middle East grows.
"The Middle East is likely to be an even more volatile region in the face of medium- to long-term low oil prices," the study said.
While China's public concerns may be muted, its growing confidence coincides with its military buildup, particularly with naval power that could help to guard its import routes from the Middle East.
David Bachman, a China scholar and professor of international studies at the University of Washington, finds the silence on energy security curious but he does not believe that abundance has played a major role in easing tensions.
"The reasons for tensions are quite numerous, and energy may be part of it, but it doesn't seem to be one of the real drivers," Bachman said.
"There are plenty of other reasons why China is trying to appear confident and not worried about things when there are plenty of indications that it's worried about a lot of things," he said.
"Some of this, I think, is designed to keep things quiet back in China by not raising them as issues," Bachman said.