China’s Door to Openness in the Energy Sector Will Remain Open

The “seven necessities” of daily life—firewood, rice, oil, salt, soy sauce, vinegar, and tea—place firewood first. From the perspective of ordinary people, “firewood” represents energy. From burning firewood to coal, and now to oil and gas, China’s energy consumption at the household level has continuously upgraded. “Nobody wants to go back to lighting a stove and cleaning coal ash. Now, you just turn the valve, and with a ‘whoosh’ the fire is on. It’s clean, convenient, and safe,” said Zhang Nan, a resident of Shunyi District, Beijing.

Behind this energy upgrade, apart from the rapid development of China’s energy enterprises themselves, international energy cooperation and openness have played an indispensable role.

Since the reform and opening-up, and especially in recent years, China’s openness in the energy sector has been steadily expanding:

• Deepening policy communication in the energy sector: Over the past five years, China has established 56 bilateral energy cooperation mechanisms with relevant countries, participated in 29 multilateral energy cooperation mechanisms, and signed more than 100 cooperation agreements.

• Strengthening energy infrastructure interconnectivity: Influential projects such as the China-Central Asia Gas Pipeline (Lines A/B/C), the China-Kazakhstan crude oil pipeline, and the China-Russia crude oil pipelines (including the second line) have been successfully implemented.

• Enhancing energy trade connectivity: In 2017, China imported 420 million tons of crude oil from Russia, Saudi Arabia, Angola, Iraq, Iran, and other countries, a year-on-year increase of 10.1%; 94 billion cubic meters of natural gas from Turkmenistan, Australia, Qatar, Malaysia, Indonesia, etc., a year-on-year increase of 26.1%; and net coal imports of 250 million tons from Indonesia, Australia, Mongolia, and Russia, up 3.2% year-on-year.

Despite the scale of international energy cooperation, China’s oil and gas supply remains relatively tight. For example, during last year’s gas shortage, the shortfall in the China National Petroleum Corporation system alone reached 4.8 billion cubic meters, affecting the daily lives of residents in some regions.

Enterprises have also been affected by the gas shortage. “After switching from coal to gas, for the same production capacity, gas costs in 2017 were reduced by over 6 million yuan compared to 2014. However, fluctuations and seasonal tightness in gas supply have somewhat affected production stability,” said a production manager from a soy products company in Zhejiang Province.

Some may ask: can China rely solely on domestic energy production? Energy experts explain that over 40 years of reform and opening-up, although China’s energy output has increased significantly, the rapid growth of the economy and rising living standards have driven energy demand to outpace domestic production. It is now very difficult to fully meet energy needs independently. Moreover, in today’s world, openness and cooperation are an irreversible trend in the global economy. To secure China’s energy supply, deepening global energy cooperation is a necessary complement to domestic development.

This choice is also determined by China’s energy endowment. Zhang Shaoqiang, Chairman of the China Coal Processing and Utilization Association, said, “Among China’s proven fossil energy reserves, coal accounts for over 94%, while oil and natural gas account for only about 6%.” The main drawback of a coal-dominated energy structure is environmental pressure. “Natural gas is a green, clean, low-carbon energy. Promoting the coal-to-gas transition is the main direction, and there is consensus on this,” said Zhou Dadi, Executive Vice Chairman of the China Energy Research Society. Reducing coal consumption is an irreversible trend, and with the global share of oil and gas rising, strengthening international energy cooperation is necessary to gradually adjust and optimize China’s energy structure.

How should China deepen international cooperation in the energy sector? An official from the International Cooperation Department of the National Energy Administration said: “It is necessary to continuously expand channels for energy resource imports according to our development needs, ensuring sufficient and clean energy to meet the needs of people’s better lives.” Globally, countries’ energy resource endowments, production capacity, technology, and equipment development are complementary. Strengthening China’s cooperation with the world allows countries to leverage their advantages, achieve mutual benefit, and drive global economic and energy development.

How can energy security be ensured under such openness? Wang Zhongying, Deputy Director of the Energy Research Institute at the National Development and Reform Commission, believes that on the one hand, international cooperation must be strengthened based on domestic conditions, including exploring domestic potential to increase reserves, stabilize production, and even raise output. On the other hand, energy imports must be diversified. “Last year, China imported 94.63 billion cubic meters of natural gas, up 26.9% year-on-year. The ratio of imports to domestic production expanded from 0.4:1 in 2012 to 0.6:1. In 2017, China surpassed South Korea to become the world’s second-largest LNG importer, second only to Japan. With the acceleration of LNG terminal construction, China’s LNG imports have expanded from a single source—Australia—to more than ten countries. Natural gas imports will continue to grow significantly in the near future, including shale gas from the United States.”

Wang Zhongying noted that the U.S. Energy Information Administration’s 2018 Annual Energy Outlook predicts U.S. natural gas production will reach 920 billion cubic meters by 2020, 1,070 billion cubic meters by 2030, and 1,140 billion cubic meters by 2040. The rapid increase in U.S. gas output is driving the country from a net gas importer to a net exporter. “Deepening China-U.S. energy trade and expanding energy imports from the U.S. not only help improve China-U.S. trade relations but also enhance China’s energy security.”

“Of course, although China has huge natural gas demand and the U.S. has substantial export potential, the two countries are far apart. The scale of LNG cooperation will depend on the economic viability of subsequent LNG projects,” Wang Zhongying said.

An official from the International Cooperation Department of the National Energy Administration emphasized that China’s door to openness in the energy sector will remain open. China will further expand openness, engage in international energy cooperation at a broader, higher, and deeper level, promote facilitation of energy trade and investment, continuously improve the business environment, build a more open, stable, and sustainable global energy market, and advance international cooperation in energy production capacity.