In the past decade, the presence of China in the international energy landscape has changed substantially, driven primarily by an average annual GDP grow rate of ten percent. When China鈥檚 economic growth accelerated from the mid 1980鈥檚, demand for oil increased exponentially, and roughly oil demand doubled in every decade since then. China鈥檚 crude oil imports reached a record high level of 7.4 million billion barrels per day (bbl/d) in 2015, rising from 6.2 million bbl/d in 2014, and increasing by an average of 450,000 barrels a day, according to data from the Energy Information Administration (EIA).
Rising oil demand and increasing dependence has forced Chinese authorities to take the initiative with a number of policy decisions by establishing Sinopec, China National Offshore Oil Cooperation (CNOOC) and China National Petroleum Cooperation (CNPC), with the aim of boosting domestic production, and increasing investment efficiency of state oil companies.
Despite the fact that China has the largest oil reserves in comparison with other Asian countries, soaring demand continues to outstrip crude production.
As of 2014, oil consumption in China was around 10.4 million b/d increasing from 6.4 million b/d in 2004, of which fifty percent of the supply came from Middle Eastern sources. This booming oil demand already has had major ramifications on both global oil market prices and on China鈥檚 oil-based economy.
Due to unstable and volatile oil prices over the last eighteen months and with the incremental increase in oil demand in the last decade, Beijing has been stockpiling and diversifying its supply sources as part of its security strategy to cope with potential oil shocks. Potential global oil supply shortage and disruption, which is likely to result in job losses, social instability and economic slowdown in China, have put energy security and diversification of supplies to the top of the energy agenda in China.
Recently, prominent leaders of Middle Eastern countries visited China, particularly from the Gulf States. In September 2013, the King of Bahrain made his first official trip to Beijing since the date that two countries established their diplomatic ties in 1987. Later on in March and May 2014, the Saudi crown prince and Iranian president made official trips to China respectively. The prime minister of Kuwait also paid a courtesy visit to China in 2014. 聽
The flock of Middle Eastern leaders to China can be interpreted as the welcome upheld for China in the current political climate for its influence as a diplomatic and strategic partner. Although oil supply security is at the top of the Chinese authorities agenda, China鈥檚 engagement, especially in security issues of the Middle East, has largely been limited. However, deepening energy relations and diplomacy are also advancing in an effort to bolster current ties with the Middle East. Relations between China and Middle Eastern countries include arms sales, exchange of workers, industrial development, construction as well as cooperation in the energy sector. Therefore, the confluence of interests between both parties has reached its highest level in recent years.
Twenty percent of all oil projects in the upstream sector in Iraq were operated by Chinese oil companies. Iraq signed a deal to double the volume of crude exports to China, which began in 2013. Business relations with Saudi Arabia are also ongoing and the parties agreed on a refinery project in the Fujian province in China. Bilateral trade between the two countries has seen a significant tenfold increase since 2002, and has accounted for $74 billion in 2012. These developments clearly reflect the fact that the region has become a source of attraction for Chinese oil majors. Furthermore, China offers expertise in the whole energy supply chain as well as competitive pricing, which has been attractive both for National Oil Companies (NOC鈥檚) and International Oil Companies (IOC鈥檚) operating in the Middle East. 聽聽
For China, there is still room for growth with the country taking on a larger role in regional energy diplomacy and energy issues. No doubt China鈥檚 crude imports, as part of its diversification policy, will continue to evolve thanks to the recently discovered vast shale deposits in China. But having said that, the Middle East is likely to supply a significant volume of crude for the Chinese oil market and keep its leading position as a major exporter to China.