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China Increasing Investment in Oil to Reduce Foreign Imports

"The establishment of a national oil and gas pipeline company would be subject to the reform of (the) national petroleum and natural gas system, and the proper timing of unveiling the national oil and gas pipeline company is under discussion"

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Tugboats dock an oil tanker on a crude oil quay at a port in Zhoushan, eastern China's Zhejiang province, Nov. 11, 2016. Pixabay

China is increasing investment in oil exploration to limit its dependence on imports, but forecasts say domestic production will keep declining as the country’s demand grows.

After years of warnings, it appears that China’s government is now taking the strategic implications of import dependence as a higher priority, spurred by rising reliance on foreign natural gas as well as oil.

On March 6, the South China Morning Post reported that China National Petroleum Corp. (CNPC) plans to boost its exploration budget fivefold this year to 5 billion yuan (U.S. $745 million), citing an interview with chairman Wang Yilin by the company’s online newsletter “China Petroleum Daily.”

The increase is aimed at reversing declines in domestic oil output, which has stagnated for over a decade due to diminished returns from aged oilfields and China’s difficult geology.

In 2018, production fell 1.4 percent to an average of 3.79 million barrels per day (mbpd), according to the National Bureau of Statistics (NBS). At the same time, China’s apparent oil demand rose 5.3 percent to 13.52 mbpd, Platts Commodity News said.

Using those figures, China’s import dependence for oil reached 72 percent, slightly more than CNPC’s calculations and those based on International Energy Agency (IEA) data.

Wang put the ratio at “almost 70 percent.”

Variations aside, China’s reliance on foreign oil has risen sharply since it first crossed the 50-percent threshold in 2008.

Yet, Wang’s remarks suggest that the national oil company (NOC) sees the deterioration of China’s energy security as a “political” issue driven by the government’s concerns.

“As energy is a lifeline of the economy, CNPC as a key state enterprise and the nation’s largest oil and gas supplier must carry out the political task of enhancing national energy security by having a sound resource development strategy,” Wang said.

While the rise of import dependence has been rapid, it shows few signs of changing course, according to projections.

In data released with its Oil 19 medium-term forecast on March 14, the Paris-based IEA estimated that imports will account for 72 percent of China’s oil demand this year, rising to 76 percent in 2024.

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Lin held out little hope for gains in domestic oil production and instead urged increases in the amount of oil held in China’s strategic petroleum reserve (SPR). Pixabay

Domestic production will drop to 3.58 mbpd by that time, the IEA said. While demand is expected to grow by 10 percent during the period, production in China is slated to fall by more than five percent.

In a long-term forecast in November, the IEA projected the import proportion will hit 82 percent by 2040, even though demand growth is expected to slow.

 

No reason for optimism

Despite the increases in investment, there seems to be little confidence that more exploration spending will turn the situation around.

Edward Chow, senior associate for energy and national security at the Center for Strategic and International Studies in Washington, wondered whether the announced budget expansion would be devoted solely to domestic exploration or also to overseas resources.

“I don’t see any reason for optimism on large new domestic discoveries,” Chow said. “It isn’t like they hadn’t been looking before.”

Confidence may be lacking at the corporate level, as well.

Although the fivefold increase in the budget may make a numerical impression, the planned investment pales in comparison to the billions that CNPC promised to invest in foreign oil exploration and development in the 1990s under the government’s “go out” strategy.

In late 2017, CNPC argued that it would soon have rights to production of four mbpd overseas, or more than China’s output at home.

The suggestion was that import dependence was nothing to worry about, since nearly two-thirds of China’s demand would be covered by a combination of domestic production and foreign “equity oil.”

But from an energy security standpoint, the ownership of foreign oil may make only a marginal difference since it is still subject to cross-border risks and transit uncertainties on the high seas.

The government’s concern appears to have grown along with signs that import dependence for gas is quickly following the same pattern as authorities promote fuel-switching from coal to fight urban smog.

In his interview, Wang said that China’s reliance on foreign gas reached 45.3 percent last year. Based on RFA calculations from consumption figures, the import share stood at 39.2 percent in 2017.

Last year, domestic gas production rose 7.5 percent while consumption climbed 18.1 percent, the NBS and the National Development and Reform Commission (NDRC) said.

The IEA has said that dependence on foreign gas will reach 54 percent in 2040, but if the current pace persists, that level could come much sooner.

“What is clear is that China has been unsuccessful in arresting the trend of increasing oil import dependency, which has now extended to gas,” Chow said by email.

“Short of technological breakthroughs in producing domestic energy or reducing demand, this has clear energy security and foreign/defense policy implications,” he said.

A worker fills an oil truck at a China Petroleum & Chemical Corp. filling station in Shanghai, China, March 22, 2018.
A worker fills an oil truck at a China Petroleum & Chemical Corp. filling station in Shanghai, China, March 22, 2018. RFA

‘A very unsafe source of risk’

Although the government is apparently pressing CNPC to do more, a commentary in the Communist Party-affiliated paper Global Times argued that the efforts are not enough.

Citing an interview with Lin Boqiang, dean of Xiamen University’s China Institute for Studies in Energy Policy, the paper said the estimate of 70-percent oil dependence may be “conservative.”

“More importantly, the government should be aware that such high oil dependency is actually a very unsafe source of risk,” the commentary said.

Lin held out little hope for gains in domestic oil production and instead urged increases in the amount of oil held in China’s strategic petroleum reserve (SPR).

The emergency stockpile is believed to hold only enough oil to cover 40 to 50 days’ worth of imports in case of disruptions, less than half of the coverage of SPRs in Japan and the United States, Lin said.

The timing of Wang’s interview on the sidelines of China’s annual legislative sessions is a sign that the exploration push is part of the government’s larger reform plan for the oil and gas sector.

 

It is unclear whether or how much the NOCs would be paid for their infrastructure assets, or whether they would be rewarded with shares in the new pipeline company.

But the proceeds from the pipeline spinoff could be used to fund exploration and development of more promising but challenging resources of shale oil and gas.

The South China Morning Post suggested that the restructuring could at least free up exploration funds.

“After the establishment of the new pipeline company and selling its pipelines to the firm, (CNPC subsidiary) PetroChina will no longer have to fund their expansion and have more capital to plow into resources exploration,” the paper said.

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Xinhua cited remarks by CNPC’s Wang that suggested a more gradual approach.

“The establishment of a national oil and gas pipeline company would be subject to the reform of (the) national petroleum and natural gas system, and the proper timing of unveiling the national oil and gas pipeline company is under discussion,” Xinhua quoted him as saying. (RFA)

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‘Big Steps To Reduce Carbon Emission’ Apple Expects Cooperation With China on Clean Energy

It's right for the Chinese government to remain "vigilant about making sure material really doesn't end up being dumped"

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In response to a question over whether Apple is planning to deploy the Daisy robot system in Asia, especially in China, Jackson said Apple is looking at unique recycling solutions in China "because we have manufacturers there". Pixabay

Apple is expecting more cooperation with China on clean energy as it released its 2019 Environment Report that outlines its climate change solutions ahead of Earth Day, which falls on April 22.

In the “Environmental Responsibility Report”, Apple has set an ambitious goal to “make products without taking from the Earth” and vowed to adopt “big steps” to reduce emissions of carbon dioxide from its business operations.

Apple said 44 of its suppliers have committed to 100 per cent renewable energy for their production of Apple products, Yonhap news agency reported late on Thursday.

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Apple announced that it will quadruple the number of outlets in the US to recycle used iPhones returned by US customers, which will be disassembled by its recycling robot, Daisy.
Pixabay

Among them, “the majority of clean supply chain, clean energy suppliers are in China in terms of both attaining the clean energy goal and cooperation in the use of safer materials and smarter chemistry”, Lisa Jackson, Apple’s vice president of Environment, Policy and Social Initiatives, said at a recent event promoting the company’s environment initiative.

As one of Apple’s biggest manufacturers and markets in the world, China is critical to success in all of Apple’s environmental initiatives, she said.

“I think it’s important to know Chinese manufacturers can be partners in the innovation because the Chinese manufacturers have real expertise and applications which they can bring to the table,” she added.

In order to promote circular economy, Jackson said Apple is working with a number of partners including the China Association of Circular Economy to enable the movement of materials in a way that not only “protects the environment, protects innovation, but also moves us forward in reusing materials”.

Apple announced that it will quadruple the number of outlets in the US to recycle used iPhones returned by US customers, which will be disassembled by its recycling robot, Daisy.

Daisy can disassemble 15 different iPhone models at the rate of 200 per hour, according to Apple.

Apple
In the “Environmental Responsibility Report”, Apple has set an ambitious goal to “make products without taking from the Earth” and vowed to adopt “big steps” to reduce emissions of carbon dioxide from its business operations. Pixabay

In response to a question over whether Apple is planning to deploy the Daisy robot system in Asia, especially in China, Jackson said Apple is looking at unique recycling solutions in China “because we have manufacturers there”.

“We need to do a lot more work in China. We need to work really closely with governments to move materials around,” she said.

“I would expect that we’re going to have some unique recycling solutions for China, and that would be great,” Jackson added.

Also Read: Researchers Develop, New Adhesive Patch That Can Minimize Heart Attack Damage
It’s right for the Chinese government to remain “vigilant about making sure material really doesn’t end up being dumped”, said Jackson.

“We don’t ever want that to happen with any of our products. So we have to continue to work to find a way that allows us to move forward and is respectful,” she noted. (IANS)