China and Japan no longer hostage to energy suppliers

In Asia, security of energy supply is nowhere near as pressing as it was even a couple of years ago. Until recently, China and Japan were concerned either that some energy-producing nation would create a supply shock or that they would struggle to procure enough oil and gas to meet the needs of their domestic economies. These concerns seem to have faded now that oil is US$50/bbl and given an expected ramp up in Liquefied Natural Gas (LNG) supply over the next decade.

On the demand side too there are positive signs, particularly since China’s economy is set to be less energy intensive per unit of GDP as the country increasingly shifts to consumption and services. China’s oil demand has grown by 6% per annum over the last 5 years and the country has accounted for 40% of the world’s total incremental demand over the period. However, currently crude oil demand is growing at only half the rate of the last 5 year average (June 2015 was +3.4% yoy).

As a result, neither Chinese oil companies nor Japanese trading houses feel the need to go out and buy resources, companies or stakes in oil or gas fields at vastly over-inflated prices as they have tended to in the past.

Richard Bullock – The Boston Company Asset Management, a BNY Mellon company

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