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Rising energy demand won't impact globally
By Xie Ye (China Daily)
Updated: 2004-06-22 08:48

China's increasing oil consumption is not a decisive factor behind price rises on the global market, according to experts.

Part of the reason is that China's consumption only makes up a small slice of the world's total, they said.

And also, the increasing global demand for oil is just one of many factors behind price spike.

Security concerns in the Middle East and market speculation, as well as strikes in Nigeria and Venezuela are significantly affecting prices, they said.

The crude oil futures hit a 16-year-high of US$42 a barrel in early June, but has eased since the Organization of Petroleum Exporting Countries, or OPEC, decided to raise its output.

Some foreign analysts have claimed that the higher-than-expected increase in global demand, especially from China, is among the major reasons behind price rises.

"The global oil, gas and coal industries and increasingly power as well are now coming to terms with China's emergence... as one of the most decisive factors in their markets," said a report by Cambridge Energy Research Associates, an influential energy consultancy group.

"In a decade, China has gone from self-sufficiency to being the most dynamic factor in the world oil market and one of the main elements in today's US$40-plus per barrel price."

Others, however, disagree.

"The impact of China's consumption has been exaggerated," said Han Wenke, deputy director of the Energy Research Institute under the National Development Reform Commission (NDRC).

"China's slice in the total consumption of the world is too small to be significant."

China's oil consumption is expected to rise by 14 per cent this year to 6.28 million barrels a day, making up 7.7 per cent of the world's total, according to the latest report from the Paris-based International Energy Agency (IEA).

In comparison, the demand in the United States will total 20.58 million barrels a day this year, or one-quarter of the global total.

According to Han, China's oil consumption is expected to increase to 10 million barrels a day by 2020.

It will still be less than 10 per cent of the world's total at that time.

Even though China is now the second-largest oil consumer after the United States, it mainly relies on its domestic supply to satisfy consumption. Domestic production covers two-thirds of its consumption.

"China is the world's second-largest energy producer and the world's fifth-largest petroleum producer. Our crude imports are still way below the main importing nations," Zhang Guobao, NDRC's vice-minister, said at a recent international conference.

Last year, China imported 86 million tons of crude oil, or 1.7 million barrels a day.

The oil imports make up 5.5 per cent of the world's oil trade volume, as compared with 11 per cent for Japan and 30 per cent for the United States.

Experts admit that China is playing a bigger role in the global market, given its recent rapid oil consumption increase.

In the first five months, China's crude oil imports - driven by infrastructure construction, an auto buying spree and power generation - rose by 38 per cent year-on-year to 49.8 million tons, or nearly 2 million barrels a day.

IEA's report expects China's demand growth will account for 34 per cent of the global increase this year.

"China has contributed, in part, to higher oil prices," said Richard McKean, president of Montureux Energy, which is a Swiss-based organizer of energy investment strategic forums. "But increased demand for oil in China is not the only reason for increased prices. And China is not the only country with a growing demand for energy."

India's demand jumped by 11.3 per cent in March to a record 2.57 million barrels a day.

"There are too many factors that weigh on the market such as the fluctuation of currencies, concerns over terrorist attacks and speculations," said Yu Jiao, a researcher at the Economic and Development Research Institute of Sinopec - the nation's second-largest oil company. "China is only one small factor."

Zhang Kang, a senior geologist from Sinopec's Exploration and Production Research Institute, says China's growing demand is not an unfavourable factor for the rest of the world.

Stable demand will attract investment in the oil sector, encouraging oil companies to explore more reserves.

Zhang said the global supply was sufficient enough to meet consumption, even with China's growing demand factored in.

In this sense, China will be an important force in stabilizing the global demand in the long term.

McKean agreed, saying the growing demand "should not be seen as good or bad for oil markets but as a reflection of the development of important economies."

However, experts also said that the rapid increase of energy consumption should be reined in.

China will step up efforts to reinforce energy conservation in a bid to sustain its economic development.

"We cannot afford to have huge energy consumption," said Sinopec's Zhang.

According to the government, China plans to only double its energy consumption while quadrupling its gross domestic product growth by 2020.

McKean suggests that China should improve the efficiency of its power plants, and increase the consumption of renewable and clean energies in transportation,

"The most effective thing China can do to conserve energy and improve the environment is to educate its managers, the public and school children on the importance of the subjects," he said.

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