China’s Hydrocarbon Strategy and Top Crude Suppliers

CHINA’S HYDROCARBON STRATEGY-2019

Key Takeaways

> China’s interest in ensuring reliable, cost-effective, and diverse energy sources to support its economic growth drives its overseas investments.

> China hopes to diversify energy suppliers and transport options.

China’s interest in ensuring reliable, cost-effective, and diverse fuel sources to support and sustain its economic development has led it to participate in oil and natural gas projects in more than 40 countries. In 2018, China imported oil to meet approximately 71 percent of its needs. This figure is projected to grow to approximately 80 percent by 2035 according to the International Energy Agency (IEA). In 2018, China met 44 percent of its natural gas demand with imports, which is projected to grow to 46 percent by 2035 according to the IEA. China looks primarily to the Persian Gulf, Africa, Russia, and Central Asia to satisfy its growing oil and gas demand.

China relies on SLOCs such as the South China Sea and Strait of Malacca for the majority of its hydrocarbon deliveries. In 2018, approximately 78 percent of China’s oil imports and 16 percent of natural gas imports transited the South China Sea and Strait of Malacca. Despite China’s efforts to diversify energy suppliers, the sheer volume of oil and liquefied natural

gas imported from the Middle East and Africa will make securing strategic SLOCs a priority for China for many years.

New or upgraded crude oil pipelines from Russia to China and Kazakhstan to China demonstrate China’s interest in increasing overland supply. In early 2018, China doubled the capacity of its pipeline to Russia from 300,000 to 600,000 barrels per day. In April 2017, the Burma-China crude oil pipeline was commissioned. This 440,000 -barrels per day pipeline bypasses the Strait of Malacca by transporting crude oil from Kyaukpyu, Burma, to Kunming, China. The pipeline is completed; however, it will be operating at partial capacity for 1-2 years while the Kunming Refinery still operates in a testing capacity. Saudi Arabia and other Middle Eastern and African countries supply the crude oil for the pipeline.

In 2018, approximately 28 percent of China’s natural gas imports (46.7 billion cubic meters) came from Turkmenistan by pipeline via Kazakhstan and Uzbekistan. This pipeline is designed to carry 55 billion cubic meters per year with Turkmenistan and China planning to expand it to 80 billion cubic meters per year in 2020. A natural gas pipeline connecting China to Burma can deliver 12 billion cubic meters per year, but only 3.04 billion cubic meters of gas were shipped in 2018. As of September 2018, Russia completed about 93 percent of the Power of Siberia pipeline that will deliver Russian natural gas to China by December 2019. The contract for this pipeline is for 30 years and provides that 38 billion cubic meters of natural gas be delivered to China each year.

Several Chinese companies, often in pursuit of China’s economic development goals, are also interested in gaining access to advanced technologies to try to improve efficiency, obtain and deploy clean energy technologies, and increase profits.

CHINA’S TOP CRUDE SUPPLIERS IN 2018

Source: Annual Report to Congress-Military and Security Developments Involving the People’s Republic of China