China’s turning point

Kang Wu, vice chairman for Asia at energy consultancy FGE, said ‘the turning point that we’ve been searching for, for years, is happening now.”

The problem stems from China’s aging onshore oil fields and its inability to make up for these production declines. Approximately 80% of current Chinese crude production capacity is located onshore, while 20% of its crude oil production is from shallow offshore reserves as of 2014, according to the U.S. Energy Information Administration’s (EIA) latest analysis of China’s energy sector.

The Wall Street Journal report added that China’s need to import more oil marks a fundamental shift for a country that not long ago saw energy independence as a key part of national security, deepening China’s exposure to global hot spots, including Saudi Arabia, Russia, Angola and Iraq.

However, this is good news, at least for oil producing countries and companies. As China’s oil imports increase it will have a knock-on effect of putting upward pressure on global oil prices which have roiled the global oil industry for more than two years, with massive lay offs and bankruptcies.

Oil prices breached the $107 mark in July 2014 and are now trading in the mid to high $40s range, with little relief in sight as both Russia (the world’s largest crude oil producer) and Saudi Arabia (the second largest producer) ramp up production in an already over supplied market, in efforts to protect market share in Europe and Asia.