China Oil Dependence Sparks Concern

China's dependence on foreign oil reaches 50-percent mark for first time.
By Michael Lelyveld
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BOSTON--China passed an energy milestone in 2008 as its oil imports equaled domestic production for the first time, according to industry reports.

In separate estimates, state-owned China National Petroleum Corp. (CNPC) and its PetroChina subsidiary said the country's crude oil imports rose to 189 million tons last year, the same level as domestic oil output, official media reported.

The figures mean that China now relies on foreign sources for half of its crude oil consumption of 7.6 million barrels per day.

As import dependence passes the halfway mark, reliance on foreign oil sources represents an increasing challenge to China's leadership and policies, said Mikkal Herberg, research director of the energy security program at the Seattle-based National Bureau of Asian Research.

"It's probably a seminal point for the leadership, as they look at their future oil policies, that they're at that point of 50 percent and going over," Herberg told Radio Free Asia.

"I think they're definitely reacting to that concern."

Production slows

While domestic oil production has remained stagnant for years, China's imports have been growing steadily to meet the country's surging demand. On Jan. 1, the official Xinhua news agency reported that production at China's oldest and largest oilfield at Daqing fell 3.6 percent last year to 40.2 million tons, or 807,000 barrels per day.

Oil imports have more than doubled since 2003, when foreign sources represented 34 percent of consumption, according to customs and National Bureau of Statistics (NBS) data. China's domestic output has grown by less than 11 percent since then, while consumption has soared 44 percent, making it more import-dependent with each passing year.

In November, the Paris-based International Energy Agency forecast that China will rely on imports for nearly three-fourths of consumption by 2030. Domestic production grew by only about 1 percent in each of the past two years.

China's energy appetite and its limited resources have been critical factors behind the government's "go-out" policy of investing in neighboring oil producers like Kazakhstan and controversial countries like Sudan over the past decade.

As import dependence has grown, China has faced ever-tougher decisions on energy policy. Herberg cited the government's long-delayed step to impose a system of consumption taxes for motor fuels on Jan. 1 in an attempt to cool market demand.

China's military doctrine for the People's Liberation Army (PLA) also includes the goal of safeguarding energy supplies for the first time, he said.

"Security issues related to energy, resources, finance, information and international shipping routes are mounting," said a State Council white paper on national defense, issued in December 2006.

Reserves not enough

"This may also have something to do with going to the Gulf of Aden," said Herberg, referring to China's recent decision to send two destroyers to fight piracy in waters off the coast of Somalia. "I think they're stretching their reach a little bit and thinking long-term about securing those sea lanes."

Herberg said the changes represent a realization that China's domestic oil reserves will not be able to protect the country against reliance on international sources and markets.

"I think they've been constantly hopeful that there would be an improvement in domestic production. That's why every time there's a field discovery, you see it trumpeted through the state media," he said.

"They're hoping for some miracle, a giant field that might help bail them out," said Herberg. "But they have to be getting pretty realistic that there are unlikely to be any big domestic production breakthroughs."

Although domestic coal remains China's biggest resource and mainstay for power production, the country needs oil imports for transport and agriculture. Herberg said the responses of China's leadership have been growing in proportion to the import needs of those vital sectors.

"I think once they got to levels of 30 and 40 percent import dependence, the leadership was becoming extremely concerned about the security of the future import stream," he said.





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