Booming demand squeezes global oil stocks, boosts prices
China, which has already overtaken Japan as the world's second-largest oil importer, surprised industry analysts last year with a huge increase in oil imports, prompting concerns that the country may not be able to afford its fuel bill for much longer, Radio Free Asia (RFA) reports.
"I can't think of any country where oil imports have increased so rapidly both in relative and absolute terms, and the consensus seems to be that this growth will continue, at least in absolute terms," Robert Ebel, of the U.S.-based Center for Strategic and International Studies, told RFA in a recent interview.
"You have to wonder, can they continue to afford buying the oil that they need to support their economy, particularly if prices of oil stay where they are at today's level — ; 32 or 33 dollars a barrel?" Ebel told special correspondent Michael Lelyveld.
China's oil imports soared far above official forecasts last year, prompting concerns that the energy deficit could damage the country's economy. Crude oil imports rose by 31 percent in 2003 to more than 91 million tons, compared with the previous year. And the overall bill for foreign oil rose by 55 percent year-on-year to almost U.S.$20 billion.
Firstly, domestic production simply cannot keep up with demand. PetroChina's output increased by less than one percent last year, while production at the country's biggest resource, the Daqing oilfield, actually fell.
Secondly, the war in Iraq and recovery from the SARS outbreak brought bumps and shocks to China's oil demand, which is having a global impact, boosting demand and prices — ; and adding more to China's energy costs.
Edward Morse, an energy analyst at Hess Energy Trading Company, says that China can afford the growing cost of oil imports in the near term, but that there may be problems sustaining such import levels in the longer term. "I don't think it's getting to be a problem in the short run. The problem comes from compounding the rate of growth over a few years," he said.
Morse predicted that China's fleet of cars and trucks would double over the next five years, resulting almost certainly in a doubling of fuel consumption for transportation purposes.
"Looked at in the perspective of five or 10 years from now, the current trend really could cause them to rethink whether they can afford to do what they're doing," he told RFA.
What's more, China's booming oil demand is in itself contributing to higher costs by driving up global prices. "Their growth in demand this (past) year was surprising," said Jason Feer, Singapore bureau chief for the oil industry weekly Petroleum Argus. "China alone accounted for a third of the overall world growth in demand for oil. So, that certainly had an impact on price."
"And I think there's certainly a valid point that the more they demand, or the faster their rate of growth, the more impact that will have on their own economy," Feer said, adding that China's plans to build an emergency crude reserve would exacerbate the effect, if implemented.
Last year, the cost of foreign oil rose to 1.4 percent of GDP from one percent a year before. Total consumption of crude oil was equal to nearly four percent of GDP. The figures do not include the cost of refined fuels or other energy sources like coal, which have also grown.
And China so far has shown few signs of addressing energy efficiency issues which might ease the situation. "So far, the government has swung back forth with arguments about whether the economy is overheated or not," Ebel said. "In the meantime, the economy has powered ahead with unrestrained growth in sectors like auto manufacturing despite energy shortages, leaving no option but to buy more foreign oil."
Plans to impose new rules for better fuel mileage in new cars are in the pipeline, but the effect may not be felt for years, he said.