China and the
Global Energy Uncertainties
Victor Z. Gao
October 30th, 2014
InterContinental London Park Lane
Global Uncertainties in O&G
• Uncertainty of gas supply from Russia to
Europe in the Ukrainian crisis;
• Uncertainty as to whether the Western
sanctions against Russia would lead to a
new cold war;
• Uncertainty re ISIS’s impact on O&G supply in
Africa, the Middle East and beyond;
• Uncertainty re how the US will deal with ISIS;
• Uncertainty in Libya;
• Uncertainty in Syria;
• Uncertainty in Israeli-Palestinian relations;
• Uncertainty in the US position towards Iran;
• Uncertainty about Ebola’s impact on O&G supply
in West Africa and beyond;
• Uncertainty about if Ebola would expand into
other parts of Africa and globally;
• Uncertainty in the East China Sea;
• Uncertainty in the South China Sea;
• Uncertainty in the US “Pivot to Asia”;
• Uncertainty in the shale gas (and shale oil)
prospect in the U.S. and other parts of the world;
• Uncertainty about the price of oil;
• Uncertainty about whether O&G will remain as a
commodity, or become a geopolitical weapon;
• Etc.
Uncertainty About Uncertainty
• Uncertainty about how some major O&G
producing countries in the Middle East will
react to the uncertainty in the US policy
towards Iran; ISIS; Syria; etc.;
• Etc.
One Big Certainty
• President Xi Jinping is fast becoming a paramount
leader in China, with vision, courage and wisdom;
• Xi Jinping = Xi BigBig;
• China will have coherent and unified leadership at
the top;
One Big Certainty
• China’s steady and increasing demand for
O&G, especially imported O&G, will be a
major certainty in the world.
The Known and the Unknown
• Regardless of many unknowns and
uncertainties in the global O&G market, the
most important known and certainty is
China’s continued demand for O&G, and
its continued dependence on O&G imports.
How Big Is China’s Economy?
Official GDP = US$9.31 trillion
PPP
= US$ 13.37 trillion
(End of 2013)
China’s GDP as % of USA
• Using official exchange rate: 55.68%
• Using PPP:
79.96%
(End of 2013)
Greater China As % of USA
(Greater China = Mainland + HK + Macau + Taiwan)
• Using official exchange rate: 60.52%
• Using PPP:
88.07%
(End of 2013)
When Will China Surpass USA?
• Already!
– By Financial Times on October 8, 2014;
– “China’s GDP (based on PPP) will reach
US$17.6 Trillion in 2014, vs. US at US$17.4
Trillion”.
When Will China Surpass USA?
• Before the end of 2014
– (based on PPP).
– By the International Comparison Program of the
World Bank on April 30, 2014.
When Will China Surpass USA?
• By 2021.
– By the Economist’s website on August 22, 2014.
The Chinese Perspective
• The surpassing depends on which
benchmarks to use;
• The surpassing will not be a single event;
• The surpassing will be a process;
The Chinese Perspective
• The surpassing will be an accumulation of
surpassing in many categories and by many
different measurements, some of which have
already taken place;
• The surpassing is just a matter of time;
The Chinese Perspective
“China is getting increasingly closer to
the center of the world stage.”
By President Xi Jinping of China
Expectation of Surpassing
• As a matter of fact, the expectation of the
surpassing to take place, and sooner rather
than later, already forms an important part
of that surpassing itself.
How Much Bigger Than USA?
• At its maturity, China’s GDP may be:
• 1 China = 2 USA; or
• 1 China = USA + EU;
• On a per capita basis, however, China will
be approximately half of USA, or
• 2 China = 1 USA.
Mega Trends in China’s Energy
• Oil: Demand is increasing fast; need to add
200 to 300 million tons to oil consumption by
2020;
• Gas: Government has ordered gas
consumption to double in five years;
Mega Trends in China’s Energy
• Coal: Consumption needs to go down: down
to 65% in 2014;
• Nuclear: Will go up; 26 NPSs being built;
Close to 30 NPSs being planned; Nuclear
power increasing to 5% or 10% of total power?
Mega Trends in China’s Energy
• Hydro: How much more can it grow?
• New & Renewable: We have to keep faith and
spare no efforts. But, alas, how much can they
really contribute to China’s staggering energy
demand?
The Great Variables
• Shale Gas: When and how can SG be
developed en masse?
– SG as a bonus and an insurance policy.
• Improving Energy Efficiency:
– How to improve? How much to improve?
Achilles’ Heel: Oil Import
• China’s Oil Consumption:
– 500 million tons in 2013;
– Oil import at 300 million tons;
– Total oil consumption to increase to above 700
million tons by 2020.
Achilles’ Heel: Oil Import
• Dependence On Oil Import:
– Has increased from 32% around 2000 to
above 58% in 2013;
– May go up to above 70% by 2020.
Achilles’ Heel: Oil Import
• Potential Dangers:
– Maritime security for oil shipping;
– Safety and security of cross-border O&G pipelines;
– Major fluctuations in imported O&G prices;
– Insufficient strategic reserves.
New Achilles’ Heel: Gas Import
• China’s gas consumption:
– 2001: 27.4 Billion cm;
– 2013: 167.6 Billion cm;
(An increase of 13.8% over 2012.)
– 2020: ≈ 350 Billion cm (too conservative).
New Achilles’ Heel: Gas Import
• Natural gas accounted for 5.9% of China’s
energy production in 2013.
• Only 4% of China’s populations use natural
gas by the end of 2013.
New Achilles’ Heel: Gas Import
• Dependence On Gas Import:
– China became net gas importer in 2006;
– Total gas import in 2013 @ 53 trillion cm;
– Gas import was at 31.6% of total gas
consumption in 2013.
New Role for Gas in China
• China has declared war on pollution.
• Gas has become one major new weapon
against pollution:
– to increase the use of gas;
– to decrease the use of coal.
Major O&G Infrastructure Projects
•
•
•
•
China has built multiple, major O&G pipeline projects linking with many
Central Asia countries, all the way to Turkmenistan;
Major O&G pipelines linking with Myanmar (direct access to the Indian
Ocean);
Major O&G pipelines linking with Russia:
– The Eastern Pipelines;
– The Western Pipelines;
China continues to build major and many LNG terminals along the Chinese
coast line.
Three Bonanzas for China
• America Achieving “Energy Independence”!
• Russia Going East (mainly to China)!
(accelerated as a result of the Ukrainian crisis.)
• Oil Price Declines!
The New Triangular Relations
• The Ukrainian crisis is re-shaping the
geopolitical relations in the world for many
years to come.
• It is re-shaping a new triangular relations
among America, China and Russia.
Implications for Global Energy
• Energy will become more strategic and
geopolitical;
• Russia will go east, mainly to China, and
will continue to do so in the future;
Implications for Global Energy
• China will provide a major stabilizing factor
in the global O&G market, providing large,
steady, long-term and increasing demand
for O&G;
Implications for Global Energy
• Politics and geopolitics aside, major O&G
producing countries (and major producing
companies) will do so to their own benefit to
lock up such increasing, long-term demand
from China.
China in the Coming Decade
• China will be the largest economy, with
20% of the global economy and global trade.
• China will be the largest importer of O&G,
and will continue to do mega M&A deals in
O&G in the world.
China in the Coming Decade
• China will settle major O&G imports in
Rmb.
• Rmb will become a major reserve currency.
• USA will either export O&G or not, and if it
does, it may export O&G to China.
China in the Coming Decade
• China will have greater democracy and
transparency, and better governance and
rule of law than today.
The Chinese Way of Success
• The Chinese way of success will enable
multiple stakeholders to win;
The Chinese Way of Success
• President Obama said that China has been a
free rider (on USA) for the last 30 years.
• China now calls on other countries to “free
ride” on the Chinese wagon of growth and
development.
Using Alibaba’s IPO As An Example
• The largest IPO in history;
• The largest e-commerce and e-finance
player in China;
• Largest shareholders: (1) Softbank; (2)
Yahoo!; (3) public shareholders;
Using Alibaba’s IPO As An Example
• China sees benefits in the following:
– Promoting e-commerce and e-finance in China;
– Creating more jobs in China;
– Encouraging innovation in China;
– Promoting China’s globalization.
• It is the same case in the O&G sector!