China’s domestic oil production has lagged the rapid growth in the country’s oil consumption since 2000, leading to a large, and growing, reliance on crude imports to meet demand. Factors including China’s current market structure and regulatory environment impede further development of the country’s oil industry, despite a number of policies aimed at protecting domestic producers. Using a short-run equilibrium model of China’s oil and gas supply industry, calibrated to 2016 data, the authors assessed the impact of market access barriers on China’s domestic production. Key findings included: Lifting all import constraints could have increased China’s import demand by around 0.29 million barrels per day in 2016. Opening China’s market to cheaper oil imports in 2016 could have saved approximately $2.8 billion, equivalent to 1.7% of the country’s oil supply costs, primarily due to import substitution for the roughly 9% of domestic production that operates uncompetitively. Improved utilization of the country’s pipeline network could cut China’s oil transportation costs by up to $600 million. The level of uneconomic oil production in China is highly sensitive to the international oil price. At $50/bbl about 9 million tonnes of domestic supplies are found to be uneconomic, accounting for about $2.5 billion of additional costs. At an average $80/bbl the number drops to 6.6 million tonnes, at a cost of $1.1 billion. Rising crude oil import prices since mid-2017 may allow policymakers to further deregulate China’s domestic oil sector.May 28, 2019
Kang is the program director for Markets and Industrial Development at KAPSARC, with many years of energy research and consulting experience. His ongoing research covers a variety of issues related to economic, energy (particularly oil and gas) and environmental developments in China and the rest of the Asia-Pacific region. Kang speaks at international conferences, forums, workshops and training programs, and his research has been cited by international media, including Time magazine, the Wall Street Journal, New York Times, the Asian Wall Street Journal, International Herald Tribune, Far Eastern Economic Review, Financial Times, Reuters, Voice of America, BBC, CNBC and others. In 2003,
Kang testified before the U.S.-China Economic and Security Review Commission on Capitol Hill in Washington, D.C. on the impact of China’s energy sector and market developments on the rest of the world. He is the author and co-author of numerous company studies, journal articles, research papers, project reports, books, chapters and other publications.