The People’s Republic of China is the elephant in the room of the global energy industry despite not having great reserves of its own.
That’s because it imports huge amounts of oil and natural gas to support its burgeoning economy and it buys the rights to produce from some of the world’s richest oil and gasfields.
Odessa oilman Kirk Edwards, Waco economist Ray Perryman and 2023 Permian Basin International Oil Show President Larry Richards say it’s a ruthlessly competitive scenario.
“China is the second-largest consumer of oil in the world, importing some 11.8 million barrels per day and reversing the previous two years’ decline to exceed 2020’s record of 10.8 million b/pd, according to analysts from industry consultancies Wood Mackenzie, FGE, Energy Aspects and S&P Global,” Edwards said.
“They produce around five million b/pd internally and their demand keeps growing as more and more of their people understand what energy can do for them in their daily lives. In the United States we use 10 times more oil per person because our country is just that much more developed.”
Edwards said China’s domestic production will never keep pace and it will always be a big crude oil importer because its demand will keep increasing as it gets more and more modernized.
“This has resulted in China’s making agreements with Russia, as has India, to buy Russian oil when other countries are trying to boycott it,” he said. “China is doing little to show it’s a team player when it fully supports Russia’s invasion of Ukraine.
“China will continue to grow in its search for oil and natural gas, especially liquefied natural gas, in years to come, which of course will be great for the Permian Basin and the United States energy industry in particular.”
Perryman said China “produces a lot of oil but not enough.
“The primary driver of its increased demand is the development of its economy and while the pandemic and related shutdowns caused the expansion to falter, growth over the next few years is likely to increase significantly,” he said.
“China is projected to account for about half of the increase in global oil demand this year and growth in Chinese imports will reduce any slack in the global supply of oil.”
Combined with the recently announced OPEC-Plus production cuts, Perryman said, there should be an increase in prices as the worldwide supply tightens.
“It remains to be seen, however, the degree to which expanding demand for fuel from developing nations will offset more sluggish growth in other parts of the world and therefore where crude prices will land,” he said.
“The Eurozone is seeing declining output while growth in other parts of the world is modest. There are many contravening factors at work, as almost always seems to be the case in the oil market, but China will be a major factor for the foreseeable future.”
Richards said China is the world’s biggest oil importer this year and the second-largest economy behind the U.S.
“While a top global competitor, China is also our largest trading partner, making the relationship both strategic and complex,” he said. “China’s oil and gas reserves are modest, No. 14 in the world, compared to their growing demand.
“As a result, the China National Petroleum Corp. has gone on a huge buying spree over the past 20 years, purchasing the rights to produce huge swaths of oil-rich leases across the developing world.”
Richards said he first saw Chinese companies controlling big oilfields on trips to Venezuela some years ago.
“It’s believed that Venezuela has the largest oil reserves in the world and its broken political system makes it a prime target,” he said. “China has a successful history of extending huge loans to the developing world and then demanding payment with offsets of oil and other natural resources.”
Richards said China ranks No. 1 for annual oil purchases, historically buying from Venezuela and Iran at below market prices.
“Even though Venezuelan oil is currently under U.S. sanctions, much of it finds its way to Chinese refineries,” he said. “It was reported late last year that China had selected one of its top defense industry firms to begin handling the transportation of sanctioned Venezuelan crude to China following the unusual sale of three massive crude tankers from PetroChina to the firm.”
Richards said American businesses are used to competing internationally by a different set of rules, “but many Chinese competitors take it to an entirely different level.
“Most Americans don’t realize they’re competing against a company in which the Chinese government is basically a silent partner, especially in oil and gas,” he said.
“I was asked several years ago to present at an international conference in Beijing that focused on sharing the best global technologies for reducing methane emissions and flaring,” he said. “Their industry experts’ forum had companies represented from all over the world and I was honored to be on the stage.
“A few weeks after the conference, we were informed that apparently the entire U.S. delegation had had the hard drives of our laptops copied, including several U.S. government employees.
“It was pretty brazen to send someone into the rooms of a five-star hotel in Beijing and copy the hard drives of the presenters while they were giving presentations in front of 800-plus attendees.”
Richards related another experience that sharpened his skepticism, saying, “Later that same trip my colleague and I had dinner with executives from the CNPC.
“After telling me how impressed they were with our gas capture technology, they explained how they would need to have us prove the technology by sending one unit for free for them to test, assuring us that once the test was complete, orders for additional units would be in the hundreds,” he said.
“I chuckled to my team after the meeting that at least in the 1990’s the CNPC had had the courtesy of buying at least one unit before reverse-engineering our products.
“We didn’t send them a free unit. China is an amazingly beautiful country that has some truly wonderful people. However, U.S. businesses should proceed with caution and their eyes wide open.”
