China is not to blame for rises in oil prices Niu LiChina Daily Updated: 2005-10-27 05:53
On October 13, the credit ratings agency Standard & Poor's released a
dramatic report, claiming that China's overseas energy strategy is one of the
factors destabilizing global oil markets and pushing up prices. Some domestic
experts predict that China's dependence on foreign oil will by 2020 surpass that
of the United States. This is incorrect and is contributing to the so-called
"energy threat from China."
As a matter of fact, big energy consuming countries such as China, the United
States, Japan, Germany, the Republic of Korea (ROK) and India are all
contributing to rising oil prices. But in terms of total volume, the rate of
increase or the energy sector per se, laying the blame at China's doorstep is
not a compelling position.
First, let us look at total volume. According to BP's Statistical Review of
World Energy 2005, China consumed 310 million tons of oil in 2004, accounting
for 8 per cent of the world total, whereas the United States guzzled 938 million
tons - a quarter of the global total and three times China's consumption.
In the same year, China's net imports were less than 149 million tons,
accounting for 6 per cent of the world total trade, while the United States took
in 590 million tons - four times China's net imports. This shows, as far as
volume is concerned, China was not the most crucial factor affecting global oil
prices.
Next, a brief examination of the structure of the industry. China is the
world's sixth largest oil producer, and 60 per cent of its oil consumption is
domestically produced. Oil makes up only 23 per cent of the country's total
energy consumption, far less than coal, which accounted for 68 per cent, and
also less than the world average, which is 40 per cent.
By contrast, countries such as Japan and the ROK relied almost completely on
the international market for their oil, and the United States, the world's
largest oil importer, bought 60 per cent of its oil on the international market.
This proves that China, in terms of demand-and-supply structure, was not the
major force behind the rising prices.
However, those that blame China for stimulating international oil prices can
always point to growth rates. Indeed, oil consumption for 2004 grew by 15 per
cent and imports of crude oil shot up by 34.8 per cent.
But this year's figures tell a different story.
The International Energy Agency estimated the growth of China's oil
consumption for 2005 has so far been a mere 3.2 per cent, and the growth of
import of crude for the first nine months of the year was 4 per cent, while
exports of the fuel increased by 27.1 per cent. For processed oil, imports
dipped by 16.4 per cent and exports climbed 38.2 per cent.
It is obvious that pointing fingers at China is groundless.
Rises in oil prices have more complicated explanations. Fundamentally, supply
and demand in the global oil market is rather fragile and a primary estimate
suggests that, based on supply and demand alone, the price for crude oil should
be around US$40 per barrel.
Next is the "terror premium" - the fear of emergencies such as acts of
terrorism that bump up oil prices. It is reckoned that this accounts for
US$10-15 of the current per barrel cost.
The "speculation premium," adds another US$15-20.
As for the comparative dependence on oil in China and in the United States,
some facts should be clarified. BP's review states that US dependency in 2004
was 63 per cent, and the US Energy Ministry has issued a report that predicts it
will reach 72 per cent by 2020.
Let's not envision China's dependency for 2020, but even if it grows to be 60
per cent, it will still be below that of the United States today or in the
future.
Of course, we should not deny that as China's economy maintains its growth
and consumption escalates, the country's dependency on foreign oil will grow
gradually and a problem of energy source guarantees may emerge.
It is, therefore, important to study the problem and raise alerts. But
inaccurate statements only serve those who want to suppress China.
In the long run, China's energy supply has a lucid strategy, which is
"reliance on domestic supply and conservation." After that comes "peaceful
development," which means co-operation with international partners and
utilization of foreign resources.
The author is an economist at the Economic Forecasting Department of the
State Information Centre
(China Daily 10/27/2005 page4)
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