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A tale of two energy giants: Oil import dependence in the United States and China Peter Kiernan Lead

Analyst, Energy
15th October 2013

Introduction
China and US are two largest oil consumers, two largest oil importers China will overtake the US as the largest net oil importer US: growing oil output and stagnating oil demand China: rapidly growing oil demand and incremental oil supply growth Impacts on both energy markets, and on the oil market globally Impacts involve economic, environmental and geopolitical factors

US: Declining share of oil imports

US oil supply: Growing domestic production

US oil demand: decline and stagnation

US: Declining net oil imports

US: Declining market share of net crude oil imports

China: Rising consumption, rising imports

In 1993 China became a net oil importer In 2003 China became the second largest oil market In 2009 China became the second largest net oil importer China to become the largest net oil importer Higher oil demand: economic growth, urbanisation, living standards In 2010 China became the largest market for new car sales

China: Oil consumption rising ahead production

China: The rising share of oil imports

US and China: Net oil import trends

US: Oil production and consumption forecast

China: Oil production and consumption forecast

Middle East: Oil supply importance to China and the US


US has been less dependent on OPEC Persian Gulf than Japan, China The US will rely less, while China will rely more, on the Middle East

Middle East accounts for more than half of Chinas imports


US import contraction: less imports from OPEC West Africa

Over time US imports from OPEC Persian Gulf will fall


US will rely more on regional suppliers such as Canada

Chinas policy responses: Domestic and international


Diversification of supply: Russia, Central Asia, Africa, Latin America NOC acquisition of upstream assets and JVs with IOCs

Bilateral oil for loan deals and stock building for a strategic reserve
Curbing demand growth (fuel efficiency and non-oil transport options)

Exploration of unconventional hydrocarbons (shale gas and CBM)


In 2007 China became a net gas importer

The geopolitics of China, US and the Middle East


US will rely less on the Middle East but will maintain strategic role Rationale for US presence: global oil supply and threat containment

To date Chinas role in the Middle East has been mainly commercial
US-China tensions have arisen out of Chinas bilateral relations (Iran)

Share of global oil trade through Straits of Malacca will increase


US LNG exports, bilateral investment & technology co-operation

US and China: Oil trade deficits


Both US and China have substantial deficits in their net oil trade US: High oil prices have reduced impact of lower import levels

In 2012 US net oil trade deficit was still $295bn


In 2006 China net oil trade deficit was $65bn, up to $220bn in 2012

China to remain in balance of trade surplus despite higher oil imports


Sustained drop in oil prices will reduce the US oil trade deficit

Conclusion
China will displace the US as the largest oil-importing economy The Middle East will remain important to China as a source of supply China aims to diversify sources and reduce demand growth US to maintain role in the Middle East despite less reliance on region Trends have implications for US-China relationship in Mideast and Asia Chinas oil deficit is growing, for US deficit is lower but prices are high Areas of potential tension, but also for co-operation as well