China’s Omnipresence in the Global Oil Market

This invited paper was presented at the 14th IAEE European Conference in Rome, Oct. 28-31, 2014.


Mamdouh G. Salameh*
Oil Market Consultancy Service
(Haselmere, UK)


China is the new factor in global politics and economics. The much-heralded advent of China as the other superpower is now a reality. On issue after issue, China has become the second most important country on the planet. Since 2007 China has been contributing more to global growth than the United States, the first time another country had done so since the 1930s. It has also become the world’s largest consumer, eclipsing the United States in food, primary energy and industrial commodities.

China is also the United States biggest external creditor.1 The United States could not be running an annual current-account deficit estimated at $1 bn a year without consistent selling pressure on the dollar if Chinese purchases of US Treasury bills and bonds were not so high.  Moreover, China is now the world’s second largest user of crude oil after the United States and in September 2013 China overtook the United States to become the world’s biggest importer of crude oil according to the US Energy Information Administration’s (EIA) August 2013 Short-term Energy outlook (see Figure 1).




Figure 1

Net Oil Imports for China & the United States (mbd)

Source: Courtesy of EIA Short-term Outlook, August 2013.


China’s economy stood at $9.24 trillion in 2013 in market exchange rates.2 It is the second largest economy in the world after the United States’. However, based on a purchasing power parity (PPP) used by the World Bank and the International Monetary Fund (IMF) as a measuring stick, China’s GDP is projected to overtake the  United States’ this year to become the biggest economy in the world and by 2020 using market exchange rates. China’s real GDP is projected to increase by 5.7% annually between 2011 and 2035.3

However, China’s robust economic growth and its status as an economic superpower would falter without oil. China’s global oil strategy is, therefore, geared towards ensuring that this never happens.

The global oil market is at a crossroads. Current global trends in oil supply and demand are patently unsustainable environmentally, economically and socially. It is no exaggeration to claim that the future of global economic growth and, indeed, the future of human prosperity depend on how successfully we handle the two central challenges facing us today: oil supply security and the pace at which we develop alternatives to oil.

Oil is the world’s most viable source of energy and will remain so probably throughout the twenty-first century even under the most optimistic assumptions about the pace of development and deployment of alternative technology.  The surge in oil prices in recent years culminating in the price spike of 2008 coupled with much greater price volatility, have highlighted just how sensitive prices are to market imbalances. They have also alerted people to the ultimately finite nature of oil resources. In fact, the immediate risk to supply is not one of a lack of global resources, but rather a lack of investment where it is needed.

Cumulative investment of more than $13 trillion is needed between now and 2030 in oil exploration and expansion of production capacity worldwide.4 The projected increase in global oil production hinges on adequate and timely investment. Some 64 million barrels a day (mbd) of additional capacity – the equivalent of almost seven times the current Saudi oil production – needs to be brought on stream between now and 2030.  This figure makes allowance for the annual oil production depletion.

On the supply side, conventional oil supplies are depleting as evidenced by a major drive into the exploitation of high-cost deep-water oil reserves and unconventional oil resources such as shale/tight oil and Canada’s oil sands. So what are the potential solutions? Managing both oil supply and demand is not a short-term game. However, the key buyer, China, with the greatest demand growth and the biggest user, the United States, seem to have been reading from different scripts.

China is taking the long-term view, making massive investments in both conventional and renewable energy to meet its burgeoning demand while at the same time aiming to improve energy efficiency. It has to with a GDP growth of 8% in 2012. China reported 18 million light vehicle sales in 2010 versus 13.6 million in 2009 (compared with 12.6 million in the US in 2010). Accordingly, Chinese oil demand grew at 10.5 percent in 2010, one third of total global oil demand growth.5 In the future, China may have to outbid the rest of the world for oil supplies, forcing up oil prices as a result.

So we remain in the horns of a dilemma. The global economy needs a price of oil of less than $100/barrel. However, it seems that the only way we can restrain demand is by prices far greater than $100/barrel and the present disarray in OPEC suggests that will be the case.

The pressure on the oil price will continue unabated in coming years because of the growing global demand for oil and the dwindling global proven oil reserves. Although a steeply-rising oil price will restrain demand for a short time, the price will resume its surge in the absence of new supplies. The global economy will still need oil to function normally no matter what the oil price is, albeit at a reduced economic growth rate.


China’s Oil Fundamentals

The single most important driver of shifting dynamics in world oil markets is China. It has a voracious energy appetite, still smaller than America’s, but growing so fast that it alone will continue to account for most of the world demand growth throughout this decade and probably the next. At the same time, for several years it has been directly and indirectly responsible for driving global production gains.

China’s spectacular economic growth has significantly altered its position in the global oil market. In 2013, China accounted for more than 12% of global oil consumption compared to 5% in 1996, whilst its share of global production only amounted to 4.8%.6

Since it became a net oil importer in 1993, China has greatly increased its oil imports from 20,000 barrels a day (b/d) then to 7.30 mbd in 2014 accounting for 63% of consumption and this is projected to rise to 76% by 2020 and 84% by 2030. (See Table 1.)


Table 1

China’s Crude Oil Production, Consumption & Imports































Net Imports










Imports as % of Demand










Sources: BP Statistical Review of World Energy, June 2014; OPEC World Oil Output 2013; OPEC Annual Statistical Bulletin 2012; Wood Mackenzie Forecasts as reported by the Financial Times on 21 August, 2013.


This rise in consumption and in oil imports is the result of several factors, including rapid GDP growth of about 9%-10% a year over the past two decades, urbanization, improving standard of living and a sharp increase in the number of vehicles on the country’s roads projected to rise from 60 million in 2010 to 130 million in 2020.7 Another factor is the building of strategic petroleum reserves (SPR) with the intention of stockpiling 50 days’ imports or 500 million barrels (mb) by 2015 and 90 days’ imports or 1053 mb by 2020.8

In 2000, China consumed less than half as much primary energy as the United States. But by 2010, it surpassed America as the biggest consumer.9 And by 2020, China’s demand will increase by another 50% while that of the United States and Europe will remain mostly flat.

In terms of oil, China consumed more than a third of the world’s total production additions over the past three decades. Its demand will increase around 59% more, or 5.83 mbd, between 2011 and 2020 to nearly 15.70 mbd.10

Oil imports already account for 63% of total demand whilst Chinese production is projected to decline from 4.20 mbd in 2014 to 3.40 mbd by 2035. By 2020 more than 76% of its oil demand will have to be imported rising to a projected 86% by 2035.

Wood Mackenzie, the energy consultancy, has said that China is on track to spend $500 bn a year on crude oil imports by 2020 thus exceeding the peak in US oil import bill of $335 bn. Analysts at the Edinburgh-based consultancy, one of the most respected analysts of the oil market, said Chinese net oil imports would rise to 9.2 mbd by 2020.11 That is significantly higher than the 8 mbd of net imports forecast by the International Energy Agency (IEA) in its world energy outlook late last year, or by the EIA in its annual energy outlook in April this year. Though Wood Mackenzie factors in fuel efficiency measures, it expects the number of cars in China to grow so much that it will overwhelm efficiency measures.

Surging Chinese demand for raw materials has been the engine driving commodity markets including oil, in recent years, as the country’s economy has regularly grown at more than 10% a year.

Wood Mackenzie expects the Chinese economy to grow by almost 8% a year in the decade to 2020, compared with the IEA’s scenario of 7% growth.


The Oil Price**

Again, to put these numbers into context, China needs to work very hard to secure enough oil to fuel its economy. Most global demand growth will be Chinese, and as such, it will drive global prices. And in the process China will continue securing supplies through oil-for-cash development projects and investments, a model it has successfully implemented for decades.

As much as China has driven demand, it has also stimulated huge investments in production throughout the world directly or indirectly. Even when its companies are not involved, China’s demand will continue driving investments throughout the decade and beyond.

From energy security point of view, one of the biggest threats to maintaining a stable oil price in the long run will be satisfying growth in Chinese demand. That is what is putting pressure on prices. It is helpful to the extent that Chinese companies are investing in additional production capacity. On balance, it is zero-sum if they compete but still bring oil to the market place. And you have a net positive in oil flow if China invests in developing deposits that, for reasons of profit or politics, are not attractive to international investors.12

Energy security, especially for the United States, has become more a question of price, a trend that will deepen throughout this decade. There is a broad consensus that economic growth is directly related to oil prices. Indeed, inflation tracks oil prices. And economic growth is inversely proportional to inflation, broadly speaking. That is the higher oil prices are, the less money available to spend on everything else, which means the economy slows.

Every $10 increase in the price of oil reduces US GDP by 0.2%, according to a report published by the Congressional Research Service in April 2011, entitled “US Oil Imports: Context & Considerations”.13

Record high oil prices in the past few years and renewed bullish trends in 2012, remind us that energy security is no longer so much about oil embargoes or the ability to find resources. It is about prices.

How long can the US economy sustain $150 a barrel, or $200 a barrel, when half of the country’s oil supply is bought overseas? And how many leaders are willing to accept the political cost of rising oil prices? For every $10 increase in the price of a barrel of oil, Americans spend $30 bn more, according to IHS, the global energy consultancy.14

The global economy can at most sustain oil prices that represent just about 6% of GDP translating into $130 a barrel of Brent crude in 2012, $138 by 2015, $157 by 2020 and $239 by 2035 (see Table 2).


Table 2

The Link Between Global GDP, Oil Demand & Maximum Sustainable Oil Prices







Global GDP (US$ Trillion)






Maximum 6% of GDP on oil expenditure






Global Oil Demand (mbd)






Sustainable Oil Price (US$)







Sources: IMF World Economic Database 2012; OPEC: World Oil Outlook 2013; IEA, World Energy Outlook 2012; BP Statistical Review of World Energy, June 2014; EIA, Energy Outlook 2012 /Author’s projections. (Author’s estimates of GDP growth during 2012-2035 based on an annual rate of 2.5%.)


The global economy thus depends heavily on keeping oil as cheap as possible and since demand is harder to tackle, supply is the only real way to influence prices.

Imagine if there was a disruption to Iranian oil exports? Or instability in Saudi Arabia? The current spare capacity would send prices through the roof and the world into chaos. Any long-term disruption would be impossible to meet. The Libyan war put OPEC to the test and it failed.

Looking into the future, global demand will outstrip supply during most of this decade (see Table 3). In the latest IEA medium term forecast to 2016, geopolitics and increasing demand couple to reduce spare capacity. Prices will be between $15 and $20 per barrel higher through 2016.15


Table 3

 World Oil Demand & Supply (2012-2035)











World Oil Demand









World Oil Supply



























Demand/Supply Deficit (See Note)










 Sources: OPEC: World Oil Outlook 2013; IEA, World Energy Outlook 2012; BP Statistical Review of World Energy, June 2014; EIA, Energy Outlook. 2012; Author’s projections.

Note: The demand/supply deficit is accounted for by stock changes, consumption of non-petroleum additives and substitute fuels. Otherwise it will be reflected in higher oil prices.


A good barometer to follow though is the world’s spare capacity. While non-OPEC producers are currently producing at full capacity, OPEC’s spare capacity (world’s capacity) continued to shrink as a result of steeply-rising domestic consumption particularly in the Arab Gulf countries and slow additions to capacity. In 2012 it stood at 1.00 mbd. However, this spare capacity could disappear altogether by 2015 if no measures are taken to add to it or to reduce domestic consumption (see Table 4).


Table 4

OPEC's Spare Production Capacity (2009-2015)









Spare Capacity








 Sources: Petroleum Review, (various issues 2006-2010); OPEC; US Joint Operating Environment (JOE)–2010).


Global spare capacity this decade will thus remain strained even while the oil industry runs at full steam. Even with huge additions in the Middle East, Canada and Brazil, it will remain tight. The fact that most of the global output growth for the remainder of the decade is expected to come from Canadian oil sands, Brazilian and Angolan deep-water offshore, American shale/tight oil, and Venezuelan heavy oil, all of which are unconventional or cost significantly more to produce, augur a more bullish future for oil prices.

The optimistic price range, one that doesn’t take politics into account, will hover between $100 and $130 a barrel. Rising budgetary needs in OPEC countries, as well as higher production costs in non-OPEC countries, mostly for unconventional oil, have set an $80 floor on oil prices in the short term, according to the Bank of America-Merrill Lynch midterm oil forecast.

In a supply-constrained world, however, oil is unlikely to spend much time hovering around its price floor. This suggests that prices will continue to spike over the next five years occasionally reaching $200/barrel in order to keep oil demand in check.

Furthermore, as the Libyan war has exposed, the world is no longer sufficiently supplied to sustain future supply disruptions like war, nor will it be for the remainder of the decade. The unprecedented release of oil supplies from the developed nations’ emergency reserves in 2011, led by the United States as the Libyan war raged, highlights just how sensitive oil markets are and how concerned governments remain. The fact that the United States and its allies have considered once again turning to emergency reserves as tensions rose with Iran and over the civil war in Syria, illustrates the limited options available to Western governments at this juncture. 

Both China and the United States need to pursue a similar energy security strategy. The two face this decade under different circumstances. The United States owes nearly $15 trillion, nearly 100% of its GDP. In contrast, China’s public debt was less than 20% of its GDP in 2010 and it has $3 trillion in foreign reserves, a world record that swells every year. The United States has had a trade deficit for decades while Chine has annual trade surpluses. America’s economy will struggle to grow and China will continue expanding rapidly. The American public deficit is increasing, while the Chinese one is decreasing.16

This is not to say China and the United States will literally fight for oil any time soon. There will be no need to. But China should still plan for increased competition. With decades of advantage, American requirements to improve energy security are smaller than those of China, but then again China is in a better position to advance its interests this decade than the United State.


China’s Oil Diversification Policy

China’s diversification strategy is to limit its oil dependence on the Middle East, and it has aggressively used its financial reserves to offer billions in development credit, underwritten with oil, especially in Africa, Latin America, and even Russia. Suffice to say that Chinese oil demand is already a challenge to US energy security, not in terms of securing volumes, but in terms of prices.

China needs to secure more oil – and most other commodities – than any country in the world to maintain its growing economy. Its efforts over the last three decades stretch to Asia, on to Africa and the Middle East, and eventually to America.

Examples abound.  Consider China’s courtship of Canada. In April 2005 Petro- Canada and Enbridge signed a memorandum of understanding to build a $2-billion ‘gateway’ pipeline to move oil from Alberta to the Pacific Coast.  Petro-China is to get 200,000 b/d through this pipeline. Moreover, the Chinese oil company, Sinopec, has acquired a 40% stake in Synenco Energy’s $4.5 bn Northern Lights Oil Sands project with projected output of 100,000 b/d, while CNOOC has acquired 16.9% stake in MEG Energy Corporation, which operates the Christina Lake project, near McMurray.17

In Latin America, China secured long-term commodity supply deals while slowly taking up positions in production of everything from copper and coal, to oil. Around 90% of China’s $45 bn invested so far in Latin America, with billions more already agreed, has gone to the commodities sector, mainly oil. Beijing offered cash-for-oil swaps in Venezuela, Brazil, Ecuador and several more countries. Billions of loans were signed, underwritten with long-term oil supplies. Brazil and Venezuela alone received $40 bn combined. The money was critical and did not affect debt levels as oil was the exchange currency.18

China’s presence in Latin America has aroused great concern and anxiety. In fact, China’s interest in Latin America is not to challenge the US dominance in the region, its “back-yard”, but to promote cooperation with the continent in the economic sphere. Naturally, as a region with large market and an abundance of resources, Latin America is highly complementary economically with China.

Business ties with Venezuela are heavily weighed on by cash diplomacy, but most of China’s inroads in the continent are through corporate, market-based channels. However, the most significant deals have been in Brazil. Early in 2011, Sinopec bought a 40% stake in the integrated Brazilian operations of Repsol, the Spanish oil major. Months later, Sinopec also bought a 30% stake in the Brazilian unit of Portugese oil company Galp. China’s Sinochem agreed to buy a 40% stake in a Brazilian offshore oil field operated by StatoilHydro.  China has become Brazil’s largest export destination, primarily importing raw commodities – crude oil, iron ore and soybeans. Brazil’s exports to China in the first seven months in 2011 totalled $24.4 bn, a 46% rise over 2010.19                    

To sustain its spectacular economic growth, China is racing to secure Middle East deals, putting it on a possible collision course with US interests in the world’s most volatile region. China is now the biggest importer of Saudi oil, the second-biggest of Iranian oil, and the largest player in the Iraqi oil game. China’s national oil company, CNPC, shares equally with BP the contract to develop Iraq’s biggest oilfield, the ‘Rumaila’ in the south with estimated proven reserves of 17.8 bb. This is the biggest contract signed by the Iraqi government so far.20 China is putting a lot of money on the bet that having ownership of oilfields is a better guarantee of supply than buying oil on the open market.21

Chinese activity in Africa is increasing at an exponential rate. According to the China-Africa Business Council, China is now Africa’s third most important trading partner behind the United States and France.  In 1999 the value of China’s trade with Africa was $2 bn; by 2005 this has grown to $39.7 bn. Sources at the Chinese Ministry of Commerce predicts that trade volume between China and Africa could top the $100 bn mark by the end of the decade.22

Driven by a desire to obtain sources of energy and raw materials for China’s continuing economic growth and open up new export markets, Chinese expansion into Africa is attracting more and more attention from policy-makers in the West.

Of particular interest to the West is China’s growing expansion into Africa’s oil markets. It should be pointed out that although oil is a major and obvious source of Chinese interest in Africa, it is far from being the only one. China is actively seeking resources of every kind: copper, bauxite, uranium, aluminium, iron ore and manganese, among others, are being sought acquisitively by Beijing.23 Partly as a result of China’s interest in Africa – particularly in African oil – the continent’s annual growth rate has increased to 4.5% per annum.

In Kazakhstan, China is looking to secure more Kazakh oil supplies having built an oil pipeline (nicknamed the ‘new silk road’) which brings crude oil from central Kazakhstan to Xinjiang province in China.24

China has already agreed to buy more than $350 billion worth of Russian crude in coming years. China’s crude imports from Russia now represent 12% of its total crude imports.

And on 21 May 2014, China signed with Russia what may be described as the deal of the century, according to which Russia will supply 38 bcm of gas to China annually for 30 years under a contract valued in excess of $400 bn. This marks a major shift in energy flow from West to East, at a time when the EU is trying to reduce reliance on Russian gas.



The single most important driver of shifting dynamics in world oil markets is China. It alone will continue to account for most of the world demand growth throughout this decade and probably the next. At the same time, for several years it has been directly and indirectly responsible for driving global production gains.

From energy security point of view, one of the biggest threats to maintaining a stable oil price in the long run will be satisfying growth in Chinese demand. That is what is putting pressure on prices. 

The optimistic price range, one that doesn’t take politics into account, will hover between $100 and $130 a barrel. However, in a supply-constrained world and with OPEC’s spare capacity continuing to shrink, oil is unlikely to spend much time hovering around that price range. Instead, prices will continue to spike over the next five years occasionally reaching $200/barrel. 

The global economy can at most sustain oil prices that represent just about 6% of GDP translating into $137 a barrel of Brent crude by 2015, $157 by 2020, and $239 by 2035.

China’s steeply-rising oil demand, its search for new sources of oil and its acquisition of oil assets around the world will ultimately give it the final say on the oil price globally.


* Dr Mamdouh G. Salameh is an international oil economist, a consultant to the World Bank in Washington DC on oil & energy and a technical expert of the United Nations Industrial Development Organization (UNIDO) in Vienna. He is director of the Oil Market Consultancy Service in the UK and a member of both the International Institute for Strategic Studies in London and the Royal Institute of International Affairs. He is a member of the Energy Institute in London and a also a visiting professor of energy economics at the ESCP Europe University in London.

** Since writing and presenting this paper at the recent the 14th IAEE European Energy Conference in Rome, crude oil prices have come under severe pressure causing them to fall from $105-$107 a barrel in September to around $83 a barrel now. That steep fall resulted from many factors, prominent among them are the rising US shale oil production, a slowdown in economic growth particularly in China and the European Union (EU) and the fact that the armed rebellion in Iraq has failed to stop Iraq’s oil production and exports. These factors have converged to create a temporary gut in the global oil market, hence the fall in prices. - Such low prices could not, however, be sustained for long as they could undermine US shale oil production and the global oil industry as they have already forced the top Western oil majors to cut investments and to sell a lot of their assets thus reducing their future oil production. These majors need a price of $120-$130 a barrel to balance their books. Furthermore, the Arab Gulf producers could not sustain such low prices for long as they need a price of $100 a barrel or above to balance their budgets. They may decide at their OPEC meeting at the end of November to cut production to bolster the oil price.


1     Lanxin Xiang, China & the Pivot , Survival Volume 54, Number 5, October-November, 2012, p. 119.

2     IMF Global Economic Outlook database 2012.

3     Mamdouh G. Salameh,  The Changing Oil Fundamentals: Impact on the Global Oil Market & Energy Security (a paper given at the ECSSR 17th Annual Conference, November 1-2, 2011, Abu Dhabi, UAE).

4     Petroleum Review, July 2011, p.2

5     Ibid., p.2.

6     BP Statistical Review of World Energy, June 2014, pp. 8-9.

7     Mamdouh G. Salameh, “China’s Global Oil Diplomacy: Benign or Hostile?” (a paper presented at the 31st IAEE International Conference, June 18-20, 2008, Istanbul, Turkey).

8     According to the International Energy Agency (IEA) as reported by Bloomberg News on 14 May, 2013.

9     According to BP Statistical Review of World Energy, June 2011-2014, China’s primary energy consumption amounted to 1038 million tonnes oil equivalent (mtoe) in 2000 compared with 2314 mtoe for the United States. But in 2010, China’s consumption reached 2338 mtoe compared to 2281 mtoe for the United States.

10  IEA, EIA and other projections.

11  Financial Times, 21 August, 2013.

12  Andreas Cala & Michael J. Economides,America’s Blind Spot”. London: Continuum International Publishing Group, p. 117.

13  www.fas.org/sgp/crs/misc/R41765.pdf.

14  IHS report from February 2011: www.ihs.com/products/global-insight/industry-economic-report.aspx?id=1065929077.

15  Andreas Cala & Michael J. Economides,America’s Blind Spotp. 89.

16  Ibid., p. 114.

17  Mamdouh G. Salameh, “China’s Global Oil Diplomacy: Benign or Hostile?

18  Andreas Cala & Michael J. Economides,America’s Blind Spotpp.144-145.

19  Ibid., pp. 145-146.

20  This was reported by the Associated Press (AP) News Agency on 5 November 2009 quoting sources at the Iraqi Oil Ministry.

21  Babak Dehghanpisheh, “China’s Middle East Oil Lust”, Newsweek, May 17, 2010, p. 8.

22  Mamdouh G. Salameh, “China’s Global Oil Diplomacy: Benign or Hostile?

23  David Zweig, The Foreign Policy of a Resource-Hungry State”, Hong Kong University of Science & Technology.

24  Christopher Pala, “China Pays Dearly for Oil & Goodwill in Kazakhstan, Petroleum Review, July 2006, pp. 22-23.