Managing Economic Change and Mitigating

Question: Discuss about the Managing Economic Change and Mitigating. Answer: Introduction In recent years, Chinas oil demand is growing continuously. The increased oil demand is a symbol of economic growth of the country. But, it is also true that Chinas oil demand is growing slowly. Oil demand growth rate of China was 2.3% in December 2016 that is less than the growth rate of December 2015 (3.1%) and December 2014 (3.8%). Along with this, the economy of china grew only by 6.7% in 2016; that point towards the slowest pace of economic growth in the last 26 years. The economy has been shift from heavy industry to other service industry that condensed the Chinas oil demand in the previous years. In addition to this, this research paper would be beneficial to discuss the economic expansion of China and the impact of peak oil prices on the economic growth of China. It is well known that, China is the largest population country in the world. It is also the largest energy consumer and greenhouse gas emitter in all over the world. Moreover, for the fifteenth consecutive year, China has remained the worlds largest growth market for energy. The country uses crude oil to produce energy and fulfill nations energy need. China offers huge quantity of crude oil to fulfill the people transportation need in an effective manner. Along with this, as per the report of 2015, China has around 713 oilfields and 267 gas fields in the world. In the last 10 years, the overall oil production of China has been enhanced from 1.34 to 1.55 Bbbl (Wang, 2016). On the other hand, in the recent times, China is the 4th largest petroleum producer in the world after US, Saudi Arabia, and Russia. The below table indicates the oil consumption trends of China. For example, the table signifies that the nation consumed 6900 thousand barrels of crude oil daily at the end 2005. The oil consumption of the nation has reached at 11968 thousand barrels at the end 2015. Along with this, in the last decade, China crude oil production was enhanced and reached at 4309 thousand barrels daily at the end of 2015 from 3642 thousand barrels daily at the end of 2005 (Kim, 2016). The table also designates that the Chinas share is 12.90% in the global oil consumption. The major differences in the production (4309 thousand barrels daily) and consumption (11968 thousand barrels daily) indicates that China depends on imported oil to fulfill their national demand of oil consumptions (BP.com, 2016). China Oil Trend Thousand barrels daily 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Change 2015 over 2014 2015 share of total China Oil Production 3642 3711 3742 3814 3805 4077 4074 4155 4216 4246 4309 1.50% 4.90% China Oil Consumption 6900 7432 7808 7941 8279 9436 9791 10229 10732 11201 11968 6.30% 12.90% In addition to this, the above table indicates the past and current trends of the crude oil consumptions by China that points out that demand and import has been rapidly enhanced over the last decade. During the 2005 to 2014, rapid economic growth and industrialization trends of China have contributed in the increased demand of crude oil. During the last decade, Chinas oil consumption raised almost linearly at 4-6 percent. China has defeated the United States and become largest crude oil importer in the world in 2015. China is the worlds largest oil import countries as accounted growth of 6.3% or 770,000 b/d for the largest increment to demand in 2015. In 2015, China oil imports were exceeded 60% for the first time of total nations oil consumption. Chinas crude oil demand growth was 2.3% in December 2016 that will grow by 3.4% in 2017 to a record of round 12 million barrels per day (bpd) and China will top state-owned oil producer and the second-biggest oil user in the world (BP.com, 2016). On the other hand, the above graph indicates the past five years trends of Chinas oil imports and domestic production. The Peak Oil is the situation while the China total oil consumption reached to maximum and starts to decline. Oil production in China likely peaked at around 4.3 million barrels a day in 2016. The decline trends of Chinas economy in the last year (2016) indicate the peak oil situation of the nation as the imported crude oil demand or growth has declined over the same period. Chinas oil imports growth was down to 2.3% in December 2016 from growth of 3.1% in December 2015 (Coyne, 2016). The decline in Chinas domestic production and economic growth in the last year and current year may decrease oil imports growth of the country. China's Transition to Oil China has become highly dependent on oil imports as nearly 60% of total oil demand is imported. China domestic oil and gas production grew slower than the nations economic grew that point towards Chinas increasing dependency on imports of oil over the past decade. In the long term solution, high dependency on imported oil has created energy challenges in front of nations and it is not good for ecosystem, environment and economy of the nation. Consequently, the country transit oil to other nations. Along with this, China also has unlimited renewable energy sources and vast solar and wind power potential, so the Chinese government focused on the transitions of oil (Zhang and Xie, 2016). China is transiting oil regimes to renewable energy sources in order to reduce its dependency of imports on oil and also trim down carbon emissions in an effective manner. On the other hand, China transit to oil through use of the renewable sources to generate energy, decline oil consumptions and also reduce emitter of carbon dioxide within nation. The crude oil is majorly used in the production of energy that generates emitter of carbon dioxide and harms the climate, environment and people health, so that the Chinese government transition to oil from renewable sources to generate energy to prevent the environment and people (Peng, 2017). In addition, China is the biggest emitter of carbon dioxide with 28.21% in 2016 that creates climate issues to the nations, so the Chinese government has announced that it will launch Emission Trading Scheme (ETS) from 2017. The cap-and-trade scheme will be combined with Chinas ETS to reduce CO2 emissions on power sector through enhance utilization of renewable energy (SBS News, 2016). In addition to this, in September 2013, Chinas State Council introduced the Chinas Action Plan for the Prevention and Control of Air Pollution issues to enhance the renewable sources energy share of Chinas energy mix. The Chinese government has to make very cautious decisions for the development and growth of renewable energy sources. These actions may also be beneficial for the ecosystem, environment and national economy. In 2016, China recorded around 21% growths in renewable in power generation that is the second largest increments in world after Germany growth of 23.5%. Solar power generation grew around 69% in China that accounts for the largest increase in the world. Moreover, China become the worlds top generator of solar energy through overtook Germany and the US (Wang, Xiang, Ruan and Hu, 2017). Moreover, due to enhance in renewable power generation, Chinese emissions declined in 2016 for the first time since 1998. Renewable Energy Consumption by China Million tonnes oil equivalent 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Change 2015 over 2014 2015 share of total China 1.7 2.5 3.5 6.4 11 15.9 23.7 30.8 44.1 51.9 62.7 20.90% 17.20% The above table indicates the energy generation from renewable sources including wind, solar, water, geothermal, biomass and waste by China over the past decade. The above table also point towards the 35 times growth in Chine renewable energy generation over the past decade as it has been reached at 62.7 in 2015 from 1.7 in 2005. Moreover, the table indicates more than 20% growth of renewable energy generation by China in 2015 over 2014 and the country market share of total 17.2% in world in 2015 (BP.com, 2016). It shows that the Chinese government focused on renewable energy sources to transition to oil and reduce consumption or demand of oil in the nation. Oil Companies in China China's biggest four crude oil companies according to volumes, ranks and gross revenues are China National Petroleum Corporation (CNPC), China National Offshore Oil Corporation (CNOOC), Sinopec Limited, and Yanchang Petroleum. The below graph is helpful to designate the market share of all 4 major Chinese oil companies in terms of production of oil. All four Chinese oil companies have produced around 1.53 Bbbl oil in 2015 (Wang, 2016). Along with this, the above graph indicates that the CNPC covers higher market share of 52% (more than half) in terms of oil productions. CNOOC has second position with 22%, Sinopec Ltd has third rank with 20% and Yanchang Petroleum has fourth position with 6% in the Chinese oil market. CNOOC has defeated Sinopec in 2015 and become the second largest oil producer in the nation. In the downstream sector of China, Sinopec Ltd has the largest share in the country as it processed around 49.3% (1.7 billion barrels) of total amount crude oil processed in 2015 (Kong, et al., 2016). On the other hand, the below graph indicates that that overall expenditure of CNPC, CNOOC, and Sinopec has enhanced from 277 to 634 billion CNY from 2006 to 2012. China had released around 1735 mineral right projects regarding covering 4.07 million km2 till 2014 (Alon, Leung and Simpson, 2015). In these, CNPC has 776 projects that cover around 1.54 million square kilometers, Sinopec owns 484 projects of 0.98 million km2, and CNOOC has 333 projects that covers 1.43 million km2 and the rest of 142 projects owned by other players in the industry. It indicates around 97% of mineral rights in area belong to three major players these are CNPC, CNOOC, and Sinopec. These three major players had covered the whole oil business chain in China from upstream to downstream business sectors (Van Den Beukel, 2016). Chinese oil companies are also actively participating in bidding projects overseas, and seeking for international collaborations, and merger acquisition of other nations smaller oil and gas companies. Peak Oil and Climate Change Impacts on China's Economic Growth In the past year (2016), Chinas was the largest importer of oil in the world and its economy is still growing by 6-7% that is lowest growth over the last decade. As oil prices faltered, China has stopped the production from the highest cost oil fields because of they do not want longer compete with imported oil. Along with this, China will be forced to boost oil imports in nation as domestic production declines, but the demand of oil enhances that will fulfill from overseas. The data so far present a clear picture that oil industry of china has been declined. China domestic crude oil output declined approx 5% in compared with a year earlier. In July 2016, Chinas crude output dropped by 8% to 16.72 million metric tons and 3.95 million barrels a day that is the lowest daily average over the last 5 years (Green and Stern, 2016). The decline of new discoveries and has also declined the domestic oil production. If oil price unexpectedly jumped, then the China would quickly ramp up its out put. For the last quarter, oil prices have hovered around $53 a barrel in the international market, so that the major oil producers of the world including Chinese oil companies will actually lead to a 1.8 million b/d production cut during 2017. The major oil companies taken this action for balanced off by a stronger dollar. Increased production from Libya, Nigeria, Iran and US oil companies has declined oil prices in the international market (Whipple, 2017). China has faced this oil peak situation through cut its domestic production, but its decline economy growth is showing few signs of rebounding and for a long period it could be slower than usual growth (Li, 2014). The recent climate issues and smog that closed down much of Northeastern Chinas industrial production has also declined the economic growth of nation. In addition to this, in January 2017, 20 major cities of China like Beijing were taken over with some of the worst smog record and extremely hazardous air conditions. In some Chinese cities, 2.5-micron particles hit 1000 per cubic meter that yet deadly as 20 times greater than the safe level for humans to breath. All schools and thousands of factories has to be closed in the major Chinese cities as around 1200 factories were closed in the Beijing area alone (Whipple, 2017). This climate issues obviously did not help Chinas economic growth this quarter. Many Asian countries that supply Beijing or other Chinese cities with its raw materials and partially finished products were affected by the closed of thousands of factories in these cities that indicate Chinese economy will be slow in the year 2017. Moreover, Chinas foreign trading partners also focused on the future of their markets due to high probability of the Chinas environmental situation could continue to get worse. The large p opulation, huge numbers of vehicles, and huge industrialization generate harmful gasses and carbon emissions that could continue to get worse environment situation of China (Dong, Pi, Ma and Dong, 2017). China is major producer of carbon dioxide emissions in world with the share of 28.21% of worldwide CO2 emissions in 2016. The global or international pressure on China to clean up its air and reduce carbon dioxide emissions, so that Chinas parliament approved a new law and launch an Emission Trading Scheme (ETS) law that will go into effect in 2018. The Chinese government is imposing taxes on polluters for the first time that created issues for China to maintain its economic viability. The Chinese government is focusing on the reduction of the use of fossil fuels through use of renewable sources to generate energy in order to maintain its economic viability (Gilmer, 2016). China is also trying to get many foreign sources of oil in its hands, so it may invest in the oil fields of other countries to enhance oil production. The China has deals with foreign sources of crude oil from Brazil, Kurdistan, and Curacao and reduced its oil production by about 300,000 b/d in the last year and al so has enhanced its oil imports. Moreover, China is making alliance with the OPEC/Russia to manage its production and response to the slowdown of economy growth in an effective manner (Pennock, Poland and Hancock, 2016). On the other hand, in 2016, Russia overtook the Saudi Arabia as the biggest source of imported oil. As oil prices in international market are now back in the mid-$50s, so that the Chinese are less interested to utilize their reserves as much as they have utilized in the past three years. China is looking for enhancing dependence on foreign oil that has made it more aggressive to focus on foreign sources. For example, the Export-Import Bank of China has approved loan of Angola approx $600 million in this year January month for the construction and utilization of a deep-sea terminal (Whipple, 2017). China spent around $225 billion on acquiring overseas properties of increasing oil production. The major three Chinese oil companies (i.e. CNPC, CNOOC, and Sinopec) also take the low-risk path as focused on aging oil fields rather than looking to new ones fields of enhancing production. Conclusion On the premise of above discussion, it can be concluded that the domestic production of China has increased in the last decade that has enhanced national oil imports. The high industrialized growth required the crude oil for production that is main reason of the Chinas share of 12.90% in the global oil consumption in 2016. China is highly depended on oil imports for economic growth of the nation. In the last year, China was the worlds biggest oil importer. The climate or environment issues faced by China and the peak oil in this January have encouraged the Chinese government to change their policies for the economy expansion of the nation. The use of renewable energy source and alliance with the other nations has used by China to increase oil production for the economy growth of the nation. References Alon, I., Leung, G. C. K. and Simpson, T. J. (2015). Outward foreign direct investment by Chinese national oil companies. Journal of East-West Business, 21(4), pp. 292-312. BP.com. (2016). The BP Statistical Review of World Energy 2016. [Online]. Available At: https://www.bp.com/content/dam/bp/pdf/energy-economics/statistical-review-2016/bp-statistical-review-of-world-energy-2016-full-report.pdf [Accessed On: 17th March 2017]. Coyne, D. (2016). Has China reached Peak Oil? [Online]. Available At: https://peakoilbarrel.com/has-china-reached-peak-oil/ [Accessed On: 17th March 2017]. Dong, X., Pi, G., Ma, Z. and Dong, C. (2017). The reform of the natural gas industry in the PR of China. Renewable and Sustainable Energy Reviews, 73, pp. 582-593. Gilmer, A. (2016). How Chinas Transition Will Increase Oil Demand. [Online]. Available At: https://oilprice.com/Latest-Energy-News/World-News/How-Chinas-Transition-Will-Increase-Oil-Demand.html [Accessed On: 17th March 2017]. Green, F. and Stern, N. (2016). Managing Economic Change and Mitigating Climate Change: Chinas strategies, policies and trends. China's New Sources of Economic Growth: Vol. 1: Reform, Resources and Climate Change, 419. Kim, I. (2016). Refining the prize: Chinese oil refineries and its energy security. The Pacific Review, 29(3), pp. 361-386. Kong, Z. Y., Dong, X. C., Shao, Q., Wan, X., Tang, D. L. and Liu, G. X. (2016). The potential of domestic production and imports of oil and gas in China: an energy return on investment perspective. Petroleum Science, 13(4), pp. 788-804. Li, M. (2014). Peak Oil, Climate Change, and the Limits to Chinas Economic Growth. USA: Routledge. Peng, S. (2017). Chinas Long Road to the High-Efficiency, Clean and Low-Carbon Energy Transition. In Energy Engineering (pp. 51-57). Springer Singapore. Pennock, M., Poland, B. and Hancock, T. (2016). Resource Depletion, Peak Oil, and Public Health: Planning for a Slow Growth Future. Geographies of Health and Development, 177. SBS News. (2016). Which countries have introduced a carbon tax or emissions trading scheme? Check our quick guide. [Online]. Available At: https://www.sbs.com.au/news/article/2016/12/08/factbox-carbon-taxes-and-emission-trading-schemes-around-world [Accessed On: 17th March 2017]. Van Den Beukel, J. (2016). Chinese national oil companies: giants built on shaky foundations. [Online]. Available At: https://energypost.eu/chinese-national-oil-companies-giants-built-shaky-foundations/ [Accessed On: 17th March 2017]. Wang, L. (2016). Chinas crude oil and natural gas industry. [Online]. Available At: https://www.theoilandgasconference.com/downloads_TOGC_2016/China-Oil-and-Gas-Lei-Wang-PhD.pdf [Accessed On: 17th March 2017]. Wang, Y., Xiang, E., Ruan, W. and Hu, W. (2017). International oil price uncertainty and corporate investment: Evidence from China's emerging and transition economy. Energy Economics, 61, pp. 330-339. Whipple, T. (2017). Peak Oil Review 26 Dec 2016. [Online]. Available At: https://peak-oil.org/peak-oil-review-26-dec-2016/ [Accessed On: 17th March 2017]. Whipple, T. (2017). Peak Oil Review Jan 3 2016. [Online]. Available At: https://www.resilience.org/stories/2017-01-03/peak-oil-review-jan-3-2016/ [Accessed On: 17th March 2017]. Whipple, T. (2017). Peak Oil Review Jan 30 2017. [Online]. Available At: https://www.resilience.org/stories/2017-01-30/peak-oil-review-jan-30-2017/ [Accessed On: 17th March 2017]. Zhang, J. and Xie, M. (2016). China's oil product pricing mechanism: What role does it play in China's macroeconomy?. China Economic Review, 38, pp. 209-221. Zhong, J. (2016) Red Gold: The Legal Framework Governing Foreign Investments in China's Oil Industry. Hous. J. Int'l L., 38, p. 653.