Very necessary to promote the diversification of China’s oil and gas imports

Very necessary to promote the diversification of China's oil and gas imports

Recently, international oil prices hit a new high in 2016. In this context, China’s oil and gas imports are diversifying, especially Sino-Russian oil and gas cooperation.

The main significance of Sino-Russian energy cooperation (especially oil and gas pipelines) can be summarized as two points, one is the complementarity of the resource market, and the other is the security of energy transportation provided by the intersection of the borders. China and Russia are highly complementary in energy resources and energy markets. On the one hand, Russia is rich in energy resources and is one of the major natural gas and oil exporters in the world. Energy export is an important aspect of foreign trade. Due to the influence of geopolitics and the shale gas boom in the United States, the European market has increased competition and its share in Russia’s energy export market has tended to decline. The recent geopolitical conflict has also brought more pressure on Russia’s energy exports to Europe. So there is enough incentive to seek potential buyers for energy products. On the other hand, Sino-Russian energy cooperation can achieve a win-win situation. At present, China is the most potential buyer. Strong economic growth means huge market potential, which not only provides a market but also helps stabilize Russia’s economic growth; China’s imports can accelerate the construction of infrastructure related to Russia’s oil and gas exports, creating a considerable number of jobs for Russia.

From China’s point of view, Sino-Russian energy cooperation helps to meet the growing demand for oil and gas, ensure energy security, and ensure economic development. Energy security is closely related to sustainable economic development. On the one hand, China needs Russian natural gas to support the low-carbon and clean transformation of its energy structure, and the cooperation between China and Russia “Power of Siberia” and LNG is conducive to China’s energy structure adjustment. At present, natural gas accounts for about 8% of China’s energy consumption structure. With the strengthening of urban environmental governance, the demand for natural gas has grown rapidly under the background of “reducing coal and increasing gas” and environmental governance. On the other hand, the Sino-Russian gas agreement is of great significance to ensuring China’s energy security. China’s energy import security needs to meet at least two basic preconditions: First, the source of energy imports should remain basically stable, and the second is the safety of energy transportation channels. Russian oil and gas meet the above conditions, the supply is stable and adjacent to China’s land, there is no channel safety problem, and lower-cost imports will also help China reduce the energy cost of clean transition.

The main sources of China’s oil imports include the Middle East, Africa, Russia, and Central and South America, all of which account for more than 10% of imports. Among them, oil imports from Middle East countries accounted for more than 40%. In addition, there are certain safety risks in the oil and gas inlet channel part. The sources of China’s oil imports are divided into sea and land routes, of which land transportation includes railway and pipeline transportation, accounting for a small share. Maritime transportation is the main mode of transportation for China’s oil imports, mainly including routes from the Middle East, Africa, Latin America and Southeast Asia. The key geographical units passed through include the Strait of Hormuz, the Strait of Malacca, the Strait of Mozambique, the Panama Canal and the Pacific Ocean. Among them, the Strait of Hormuz is known as the “lifeline of the world’s oil”, and almost all Chinese imports from the Middle East All oil passes through the strait. But safe navigation in the strait is closely tied to the geopolitics of the Middle East. Another key geographic unit for China’s maritime oil transportation is the Strait of Malacca. The Strait of Malacca is the shortest route for sea transportation of goods from the Middle East and Africa to Asia. At present, nearly 70% of China’s oil imports need to pass through the Strait. As the nearest sea transportation channel to China, the Strait of Malacca has important economic value. Therefore, Sino-Russian energy cooperation is an important part of China’s import diversification.

China’s natural gas imports mainly include liquefied natural gas (LNG) and pipeline natural gas (PNG), accounting for 66% and 34% of imports in 2020, respectively. The main sources of LNG imports are Oceania, with Southeast Asia and the Middle East as the key. The main source of pipeline gas imports is China’s onshore neighbors. Among them, Australia is China’s main source of LNG, and Turkmenistan is the main source of PNG.

The Americas (mostly the US), Eurasia (mostly Russia) and the Middle East are forecast to be the largest net exporters of natural gas by 2050.

Although China’s domestic natural gas production has increased year by year, the dependence on natural gas imports may continue to rise for a certain period of time. At present, the international oil and gas supply pattern has undergone profound changes. In this context, Sino-Russian oil and gas cooperation is very necessary. Ensuring the diversification of China’s oil and gas imports and the complementarity of resources in the Sino-Russian market is a solid foundation for Sino-Russian oil and gas cooperation. Oil and gas cooperation is also conducive to promoting mutual investment between the two countries, as well as exchanges and cooperation between enterprises of the two countries, and can also promote in-depth cooperation in oil and gas exploration, development and trade, chemical project construction and services, and equipment manufacturing.