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Low oil prices put pressure on China's energy policy

Tuesday, February 3, 2015

Subject

Effect of low oil prices on China.

Significance

China is the world's second-largest oil user and imports nearly 60% of its annual requirements. If oil prices remain below 50 dollars per barrel, China's import bill for crude oil will fall by tens of billions of dollars in 2015, while the national oil companies (NOCs) face a difficult time as their profits from oil production are squeezed. However, the consequences are not straightforward due to the government's role in setting energy prices and the mix of commercial and state objectives of the NOCs.

Impacts

  • Financial pressure on China's NOCs will not be as great as on their international counterparts.
  • The NOCs are likely to embark on a spree of buying overseas oil and gas assets.
  • With contracted gas supplies exceeding domestic demand, Chinese LNG importers will sell surplus on the international market.
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