China’s Oil Security in the Context of Energy Revolution: Changes in Risks and the Hedging Mechanism

Abstract

Does China’s energy revolution strengthen or weaken its oil security? This study analyzes how the energy revolution influences China’s oil security by exploring the changes in risks and the hedging mechanism. China proposed the energy revolution in 2014, committed to carbon peak by 2030 and carbon neutrality by 2060, aiming to accelerate its energy transition. Meanwhile, China has a high oil import dependency due to its rapid economic development and lack of domestic oil resources, which challenges its oil security. The government and the national oil companies (NOCs) are the main actors to ensure China’s oil supply. Based on the interactions between the government and the NOCs, the overseas oil investments and the domestic oil production and strategic petroleum reserves, together with the maritime oil transportation and continental pipelines, provide alternatives for China’s oil supply in general and in wartime in particular, thus forming the hedging mechanism for China’s oil security. Notably, the energy revolution alters the way energy and geopolitics interact, and the development of renewables in China and other states in the world mitigates geopolitical risks by making China and the world less dependent on unstable oil production regions. Lastly, the energy revolution triggers changes in the hedging mechanism for China’s oil security due to the buildup of oil reserves including the commercial oil reserves, the arduous development of domestic oil output, and the drop in overseas oil investments but increase in foreign renewables investments. And thus, China’s oil security and its capabilities to respond to potential oil supply interruptions have changed accordingly. This paper not only contributes to understanding China’s oil security in the context of the energy revolution by analyzing the changes in the hedging mechanism, but also stimulates thinking about the impacts of the energy transition on fossil energy security.