Everyone knew this day was coming, and it’s finally here.
According to the U.S. government’s Energy Information Administration (EIA), last month China surpassed the U.S. as the world’s largest net oil importer.
“China's steady growth in oil demand has led it to become the world's largest net oil importer, exceeding the United States in September 2013,” the EIA said in a report this week. Specifically, last month China’s consumption was 6.3 million barrels per day higher than its production, compared to the U.S. where consumption outstripped production by 6.1 million bpd.Enjoying this article? Click here to subscribe for full access. Just $5 a month.
This was not the first month that China has imported more oil than the U.S. In December of last year China’s oil imports also topped the America’s imports for that month. But this was largely an anomaly in a month that is often volatile.
What is significant about the EIA’s findings for September is that it expects this new trend to continue into 2014.
Ultimately, China seems destined to rely far more heavily on foreign oil than the U.S. is in the decades to come. This is due in no small part to the United States’ rising production levels, greater efficiencies and the fact that its economy isn’t likely to grow as fast as China’s economy, assuming Beijing avoids a hard landing. Even the imports the U.S. does maintain are likely to be overwhelmingly from North America and the Western Hemisphere, whereas China’s will have to pass through long maritime shipping routes on their way to Beijing from the Persian Gulf, Western Hemisphere and Africa.
It’s important to note that this does not mean that the U.S. is becoming insulated from global energy prices. Oil is largely traded on the open market, and a net decrease in supply or net increase in demand will cause the price of oil to rise for all. Nonetheless, North America’s energy revolution is strategically important in ensuring that the U.S. will have access to crucial oil supplies during times of emergencies (such as war) without having to maintain access to the Persian Gulf.
It is similarly important to note that China’s energy consumption in absolute terms and per capita is still significantly lower than the U.S. figures. According to the latest EIA data, the U.S. used 18.6 million bpd of oil and other liquid fossil fuels in September, while China only consumed 10.9 million bpd. This is a particularly stark difference in per capita terms given that China has over a billion more people than the U.S.
In this sense, the new Chinese leadership’s goal of urbanizing Beijing’s inland provinces and cities, if successful, is likely to see China’s energy consumption continue to skyrocket. This may be tempered somewhat if China can reap greater energy efficiencies. Indeed, for all that’s been made about North America’s surge in energy production, much of the decline in imports is a result of achieving greater energy efficiencies since the 1970s (when the U.S. became the largest oil importer). As Time magazine recently reported: “The U.S. gets twice as much economic value out of a single unit of energy today as it did in 1980, and we'll keep getting more in the future.”
This is a model that China would be wise to copy.