China set to become world’s largest oil importer
US crude imports have plummeted in recent years as producers have pumped more oil out of the Bakken and Eagle Ford shales and drivers have chosen more fuel-efficient vehicles
In China, on the other hand, imports have surged as the economy has expanded and more and more of the country’s 1.3 billion citizens get behind the wheel.
As the trends continue, it is only a matter of time before China overtakes the US as the world’s largest oil importer. According to a new report from Wood Mackenzie, a consultancy, that time will come around 2017.
China’s oil imports will nearly quadruple in just 15 years from 2.5 million barrels a day (b/d) in 2005 to 9.2m b/d in 2020, according to a Wood Mackenzie forecast. US imports, on the other hand, are forecast to fall from a peak of 10.1m b/d in 2005 to 6.8m b/d in 2020, similar to the volumes it imported in the early 1990s. Wood Mackenzie expects US import requirements will continue to fall due to weakening oil demand, combined with its growing domestic supply, which continues to surge.
According to North Dakota’s Industrial Commission, Bakken production hit a record 756,980 b/d in June, up from 746,340 b/d in May. North Dakota’s overall oil production reached 821,410 b/d, a ten-fold jump since June 2008.
As US consumers look closer to home fore its crude supplies, China will have to look farther afield. By 2020, China will rely on imports to meet 70% of its demand, according to Wood Mackenzie. That reliance will cost the country. China’s oil imports are expected to cost it a staggering $500bn by 2020, far eclipsing the annual peak of $335bn that the US paid for oil imports. The US’ crude import bill is forecast to fall to $120bn.
Wood Mackenzie says the high cost to China will be compounded by the fact that it will pay a higher price for imports, which will track closer to Brent than the US because of its growing North American supply options.
Wood Mackenzie sees the trend reordering the geopolitics of energy. “The US is becoming more North America-centric for its supply needs and China more dependent on Middle East and Opec crude. Opec suppliers, who traditionally focused on the US for crude sales compelled to shift their focus towards China,” says William Durbin, Wood Mackenzie's Beijing-based president of global markets.
At present, both countries source about half of their oil imports from Opec countries. By the end of the decade that share will rise to about two-thirds for China and fall to about a third for the US, according to Wood Mackenzie. Canadian crude is expected to account for 60% of all US oil imports according to the report.
As the Financial Times notes, Wood Mackenzie’s forecast for Chinese oil imports is far more bullish than the International Energy Agency (IEA), which expects Chinese imports to reach around 8m b/d in 2020.
The US Energy Information Administration believes China’s emergence as the world’s top oil and other liquid fuels importer is imminent. It said earlier this month that Chinese imports would top the US’ on a monthly basis in October this year and on an annual basis in 2014.
China is going through one of its most challenging economic transitions since it started opening its economy to the outside world three decades ago, which has heightened concern over the outlook for economic growth, which will feed through to oil demand. The Chinese government is targeting 7.5% growth for this year, and has said that it is confident it will hit that target.
But growth is unlikely to match the torrid rate seen over the past decade as the government pushes reforms to reorient the economy onto a more consumer-driven growth path.
Slower growth over the first half of this year and expectations that demand for raw materials in China will slow has seen prices for many commodities fall, but crude prices have not been affected.