- Sho Magario
China and Russia's Oil
As Europe and US shunned Russian oil as a part of economic sanctions, Russian oil showed a lower price. Faced with the discount of the enormous energy source, China, as well as India, increased their imports of oil from Russia significantly, which can be diminishing the effect of the sanction. A report by Centre for Research on Energy and Clean Air revealed that India, China, the United Arab Emirates, Egypt, and Turkey saw the most significant increases in imports driven by crude oil imports in July-August, compared with the start of the invasion.
Source: Centre for Research on Energy and Clean Air
China became the biggest importer of fossil fuels from Russia and Russia became China’s biggest source of crude oil with Saudi Arabia, formerly the biggest source, falling into second place. China has been also increasing coal imports from Russia. Why is this phenomenon happening?
China is struggling to secure enough energy to meet the soaring demand. Its energy consumption is increasing rapidly, especially these years. According to the researcher Hannah Ritchie and Max Roser in the Global Change Data Lab, the country consumed 43791 Twh in 2021, which figure demonstrated a significant increase from the consumption of 29054 TWh in 2010. And in 2000, the energy consumption marked 11800 TWh, which means it increased fourfold in the past two decades.
Satisfying this soaring demand can be quite a difficult challenge for the government. Some areas or companies in China have sometimes experienced a blackout due to the lack of electricity. A power outage prevents many factories from running and has serious effects on them and therefore on the local economy.
Given the huge demand for energy and its necessity for economic development, it is integral for the Chinese government to secure stable access to energy sources. As a part of measurements to address the lack of energy, the Chinese government implemented a significant coal push in 2021. China is one of the largest coal sources in the world and coal has accounted for by far the largest part of its energy source until now.
However, coal-reliant methods can have negative impacts on the Chinese long-term strategy of energy production because coal is the most polluting fossil fuel, which can obstruct progress toward a carbon-neutral mission for China.
In addition to that, the capital investment required for the expansion of coal production is quite large, and power facilities and human resources will become stranded assets after the shift from fossil fuels to green energy in the near future. From the perspective of governmental finance and long-run energy management strategy, the government has the incentive to seek other sources of energy than coal to reduce economic and environmental sunk costs.
Among those other sources is clean energy. China is investing vast resources into clean energy industries to realise its promise to reach peak carbon emissions before 2030 and to become carbon neutral before 2060. Private companies, as well as the government, have been playing an important role in developing new technologies and constructing clean-energy or low-carbon systems.
Despite those notable efforts, it is still impossible to meet the world-largest amount of energy demand only by clean energy. The share of primary energy from renewable sources marked no more than 14.5%, though this demonstrates a dramatic increase, especially since the beginning of this century. It will take a while to complete the shift from fossil fuels to green energy, which means that before the accomplishment of zero- emissions, the country inevitably needs to rely on other sources including fossil fuels.
As seen in the chart above, the amount of energy consumption has seen a rapid increase, especially in the last two decades. The invasion of Ukraine accelerated this trend significantly. China increased the imports of oil from Russia, taking advantage of the offered heavy discounts by Russia alongside the Western reluctance to purchase Russia’s oil.
Generally speaking, excessive energy dependence on another country is risky in terms of energy security, as revealed in the case of Germany, which is facing a significant economic crisis due to the import cut of Russian oil. However, China’s relationship with Russia tends to be relatively stable compared to the tense relationship with Western countries accompanied by several political and security issues. And it is unlikely that Russia will make an enemy of China provided the antagonistic relationship with Europe and US.
Therefore, in terms of Chinese energy security, reliance on Russia’s oil is considered to be considerately free from any serious risk or rather safer for the time being than relying only on supplies from Saudi Arabia and other OPEC countries which are susceptible to their unstable relationship with the Western countries and unpredictable Middle-East affairs.
The reasons mentioned above could explain why China is now importing more oil from Russia than before. Importing Russia’s oil brings about two economic merits for China; saving capital investment into coal production, which will become useless in the future, and saving financial resources by purchasing more cheaper Russian oil on top of crude from Saudi Arabia. And oil emits less carbon dioxide when generating electricity than coal, so substituting oil for coal as a temporal energy source is more effective to approach the emission goal.