Once again Ms. Lin must postpone her plan to buy a car.
Recently, Lin has been spending quite a bit of time everyday browsing for her favorite car models on an online automobile forum. But given the rise in oil prices, the only thing she can do now is to "wait and see".
"I recently considered an economical model," Lin said, "But I really don't want to give up my original choice." As a matter of fact, many buyers wince at the sight of the "fevered" oil price. As a result, even the global automotive industry is experiencing a "cold winter."
Car sales in the US have fallen by 3% since 2006. The automotive market witnessed an overall sales decline in November. The first major automotive giant General Motors reported a decline of 11%. In contrast, energy-saving models have gained favor in the automotive market. At the recent Guangzhou Auto Show, economical models with low-energy consumption have become hotcakes in the automotive market. More and more consumers are voting for cost savings.
Some market analysts believe that the supply and demand in the international crude oil market do not support the rising oil price, and might make waves in sales upon market change. And this may result in a sharp pullback in oil price. However, they still cannot rule out the possibility of an oil price hike in light of the fevered oil price and weak dollar trend. Compared with the beginning of this year, oil prices have risen by 40% - an increase of more than 90% over the same period last year. Energy trader Stephen Locke believes that such a price level contains "bubbling" elements that will not remain stable. He said that oil prices may drop to $65-68 USD per barrel. However, analysts from Man Financial are convinced that crude oil prices will be pushed up to over $100. They share the same opinion with some well-known institutions. "It is only a matter of time before the oil prices break $100." Some analysts also believe that current oil prices are still not fixed: "On the one hand, a growing number of market data indicate that people's concerns about the economy may lead to a lower demand; on the other, the depreciating dollar drives rising oil prices."
However, no matter how fast oil prices grow or decline, the current high oil prices will have had an impact on China's economy. How to tackle this problem has become a major challenge in China since the international oil price hike in 2003.
Pricing mechanisms solve problem in oil market
China still prices refined oil according to a government pricing system. That is, domestic oil product prices are determined through consultation with refined oil prices from the Singapore, Rotterdam and New York oil markets, and consideration of domestic factors. This pricing mechanism fully considers domestic conditions; but leads to a serious digression in domestic and international refined oil prices, and contradictions between domestic refined oil prices and crude oil prices.
Therefore, the country's oil pricing mechanism needs improvement. It neither reflects the domestic oil supply-demand relationship, nor does it promote energy savings. Dr. Zhang Yongwei with the Development Research Center of the State Council said that China's GDP accounted for 5.5% of the world's total in 2006; but energy consumption accounted for 15%. Its yearly imports of crude oil and refined products amounted to 181 million tons. Foreign exchange expenditures totaled $82 billion. An energy expert of Industrial Economics at the Chinese Academy of Social Sciences, Shi Dan, pointed out in an interview that in view of existing problems, China should improve its oil pricing mechanism; perfect the price ratio of products made using different methods; straighten out crude oil and refined oil prices; and use marketing resources to adjust supply and demand. According to Shi, the government should impose taxes and employ other fiscal means to taxation and other means to supplement the market mechanism. For example, the government could issue price subsidies to low-income groups and public sectors and supervise market prices.
At the end of 2006, the Ministry of Commerce promulgated the "Management of the oil market," which was considered to be a "sign of China's opening oil and petrochemical market" by the oil industry. Later, the National Development and Reform Commission (NDRC) set up a new oil pricing mechanism which no longer "pegs" domestic oil prices with those of the three refined oil markets in New York, Singapore and Rotterdam. Instead, the country will observe the oil prices from the world’s major oil-producers in Brent, Dubai, and Minas as the benchmark of crude oil prices. Given the theory that "it is more appropriate to introduce a refined oil pricing mechanism when international oil prices are relatively low," and the rising trend in oil prices in the second half of the year, it is not a good time to establish a new pricing mechanism. But in the long run, reforming the oil pricing mechanism in the interest of the public is the key to promoting China's practice as an international standard; bringing the country oil pricing power; and eventually marketing oil.
Focusing on long-term energy security strategy for oil reserves
In 2002, China had become the world's second largest oil consumer, just after the United States. Its dependence on oil has increased. Most of its imported oil comes from the volatile Middle East: a risk of supply disruption. The United States and other developed countries have established oil reserves in case of a supply disruption. China is also actively preparing to build its own oil reserves in order to deal with unexpected incidents, risky oil supplies; and to protect national energy security.
NDCR energy expert Jiang Xinmin noted that establishing oil reserves could compensate for a sudden oil supply disruption and inhibit a drastic fluctuation in oil prices. In general, a strategic oil reserve is established to deal with emergency situations. It can stabilize the market just after an emergency breaks out. Oil reserves can directly make up for a supply shortage. In peacetime, should international disputes and oil-producing countries deliberately reduce the oil supply, oil reserves would stabilize and curb drastic fluctuation in oil prices to a certain extent.
China's national oil reserves are still under construction. Since 2003, China has been building the first batch of strategic oil reserve bases in four coastal regions: Zhenhai, Zhoushan, Huangdao and Dalian.
Former vice chairman of the NDRC Chen Deming said that once the four oil reserve bases are complete, China's overall oil reserve capacity will surpass more than 30 days of crude oil imports. In December, the State Oil Reserve Center was formally approved by the State Council. The Center will take up the responsibility of purchasing and storing oil in the reserves, and will establish and improve the oil reserves management system with Chinese characteristics: accelerating the construction of oil reserves and standardizing oil reserves operation.
Energy diplomacy broadening channels for overseas oil sources
Data show that China requires 350 million tons of oil every year; half of which is imported. According to "World Energy Outlook 2007" published by the International Energy Agency last month, by 2030, China will rely on imports for 80% of its oil demands; which means China's future energy security will also become increasingly dependent on the layout of overseas the energy strategy. Currently, China is still taking a single maritime transport route. Geographically, it will on the Middle East and Africa for a long time. China should vigorously implement a "go global" strategy and actively carry out energy diplomacy. On the one hand, through the oil trade, it can purchase oil and oil products directly from the international market. On the other, it should actively participate in foreign oil resources development and establish an overseas oil production base, so as to gain access to an "oil share" in the long run.
2004 was known as China's "Year Zero" of energy diplomacy. It was in 2004 that China had discussions and dialogues on energy cooperation and signed energy agreements with Russia, Iran and several African countries. Since then, China's energy diplomacy strategy has focused on opening up new paths of energy cooperation in the peripheral regions, and establishing new energy channels in regions where US control is relatively weak. China has been seeking energy cooperation with other countries with no intention of making waves.
However, China has encountered some problems in entering the overseas energy market in recent years. With a policy somewhat lagging behind, China has been exposed to the frequent political disputes in other countries. Even the 18,000-word "Energy law (draft)," announced by the National Energy Leading Group in early December, still contains vague wording around the provisions for international energy cooperation.
Alternative energy may ease up energy shortage
Only through actively developing new energy sources and improving energy efficiency can China fundamentally resolve the "oil issues" during economic development. Energy expert Shi Dan believes that the increase in oil prices is, to a certain extent, conducive to the development of alternative energy sources. According to China's existing resources and market conditions, natural gas and coal have great potential as oil alternatives. At the same time, China is rich in renewable energy and should take this opportunity to accelerate the development of various renewable energy alternatives and create a diverse energy supply. In particular, China should vigorously develop hydropower, wind power, solar energy and nuclear energy, so as to reduce pressure on the demand for oil.
In recent years, China has promulgated policies to accelerate the development of alternative energy. After implementing the "Renewable Energy Law" last year, China also introduced the "Mid- and long-term development plans for renewable energy" in September of this year. The conference noted that using renewable energy will guarantee energy security; protect the ecological environment; and achieve sustainable development. In essence, the use of renewable energy should be regarded as a major strategic move.
In addition, conservation has been identified as China's basic national policy. The "Energy Conservation Law" will take effect next year. It explicitly stipulates that "the state attaches equal importance to energy conservation and development; and gives priority to energy savings." Energy expert Jiang Xinmin added that China should improve energy conservation laws and regulations; set up strict oil savings standards; strengthen fuel economy regulation;, enhance the energy-saving awareness of Chinese people; and gradually establish a conservation-oriented economy.
By People's Daily Online
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