The time has come for the IEA to engage with China - something that is crucial for the world energy order.

Time for China to engage in global oil security

China is now a leading player in international oil markets and the logic for China to engage more closely with the International Energy Agency (IEA) is inescapable. This was the core message of remarks by Neil Hirst, Senior Fellow of the Grantham Institute, to the LSE’s China Development Forum on Saturday 22 January.

Vehicle ownership development patterns in other countries (courtesy of Argonne National Laboratory)

In his talk Mr Hirst highlighted that if the rapid growth of car ownership and oil demand in China continued, China could conceivably account for nearly 70% of the increase in world oil trade until 2020.

This growth in demand has led to an ambitious programme of political engagement and investment by China in oil producing countries, something that has raised anxieties in the west. Yet oil market pressures would be even greater if China was not investing commensurate to her needs.

Managing demand

Current policies result in a rising demand for oil, whereas the IEAs 450 ppm scenario would result in a decline over the same period (courtesy of the IEA)

At a time when all countries need to improve the energy efficiency of transport and to deploy low carbon alternative technologies (such as electric, hydrogen, and hybrid vehicles), China is playing its part through the tightening of vehicle performance standards and a big commitment to R&D in this area.

On its own this will not be enough and, with fossil fuelled vehicles continuing to dominate, China’s oil import dependency will continue to increase, possibly reaching 85% by 2035. This is a big security headache, and China, arguably, has an even bigger stake than western consumer countries in the depth and liquidity of international oil markets.

Working together

Through the IEA, consumer countries co-operate to manage oil supply crises and keep international oil markets open. The IEA is based on a treaty that, at present, excludes China, India, and other major developing countries from membership. This needs to change. The time has come to engage China, and other major developing countries, in this crucial aspect of the world energy order.