CHINA: FAST GROWING

Country Analysis Brief Overview

China is the world's most populous country with a fast-growing economy that has led it to be the largest energy consumer and producer in the world. Rapidly increasing energy demand, especially for liquid fuels, has made China extremely influential in world energy markets.

China is the world's second-largest consumer of oil and projected to move from second-largest net importer of oil to the largest in 2014.

China's national oil companies dominate the oil and gas upstream and downstream sectors, although the government has granted international oil companies more access to technically challenging onshore and deep water offshore fields. China revised its oil price reform legislation in 2013 to further reflect international oil prices in the country's domestic demand.

China's largest oil fields are mature, and production has peaked, leading companies to invest in techniques to sustain oil flows at the mature fields, while also focusing on developing largely untapped reserves in the western interior provinces and offshore fields.

China's national oil companies have rapidly expanded their purchases of international oil and gas assets since 2008 through direct acquisitions of equity and financial loans in exchange for oil supplies in order to secure more oil and gas supplies, make long-term commercial investments, and gain technical expertise in more challenging oil and natural gas plays.

Substantial oil demand growth and geopolitical uncertainties have increased pressure on China to import greater volumes of oil from a wide range of sources.

China is making headway on improving its domestic oil pipeline network to integrate its oil supply and demand centers and to diversify its oil import sources through pipeline links with Kazakhstan, Russia, and Myanmar.

As part of its goal to diversify crude oil import sources and meet oil product demand, China has steadily augmented its refining capacity, which climbed to more than 13 million bbl/d in 2013.

China's plan to construct crude oil storage through both state-owned strategic petroleum reserves and commercial crude oil reserves is part of its need to secure energy in light of its growing reliance on oil imports. The government intends to build strategic crude oil storage capacity of at least 500 million barrels by 2020.

Although natural gas production and use is rapidly increasing in China, the fuel comprised only 4% of the country's total primary energy consumption in 2011. Heavy investments in upstream development and greater import opportunities are likely to underpin significant growth in China's natural gas sector.

China contains several natural gas-producing regions, including the western and central parts of the country as well as offshore basins. While eager to develop older natural gas fields, China's oil companies are exploring more frontier plays such as deep water, shale gas, and gas derived from coal seams. The country's first deep water field is expected online by 2014.

China continues to invest in natural gas pipeline infrastructure to link production areas in the western and nothern regions of the country with demand centers along the coast and to accommodate greater imports from Central Asia and Southeast Asia.

Robust growth in natural gas demand in recent years, particularly in the urban coastal areas, has led China to become the third largest LNG importer and to accelerate development of its LNG and pipeline infrastructure.

China is the largest producer and consumer of coal in the world and accounts for almost half of the world's coal consumption.

China was the world's largest power generator as of 2011. Fossil fuels, particularly coal, continue to be the leading sources of the country's electricity generation and installed capacity.

China's electric generation is controlled by state-owned holding companies, although limited reforms have opened up the electricity sector to some private and foreign investments. China is seeking to improve system efficiency, facilitate investment in the power grids, and alleviate power shortages.

The Chinese government has prioritized the expansion of natural gas-fired and renewable power plants as well as the electricity transmission system to connect more remote power sources to population centers. Also, the Three Gorges Dam hydroelectric facility, the largest hydroelectric project in the world, started operations in 2003 and completed construction in 2012.

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