The world is currently undergoing profound changes unseen in a century. The whole world has entered a period of turbulent change, and the political and economic landscape is undergoing profound change, adding many uncertainties to China’s economic development and energy security. The energy industry itself is undergoing tremendous changes, a new global energy industry pattern is taking shape, the energy security situation facing China is changing, the 30.60 targets have created new demands for the development of China’s energy industry, and the connotations of energy security in the traditional sense have changed. How we plan China’s energy security under the new pattern and ensure national energy security given such profound changes is of great and far-reaching significance.

1     Judgment on the Energy Security Situation Facing China

General Secretary Xi Jinping emphasizes that energy security is an overall and strategic issue related to the country’s economic and social development. At a time of rapid technological changes, increasingly fierce competition between major powers, and energy transition in full swing, China must have a thorough understanding of its energy security situation, see clearly the new risks it faces, and plan a new path for national energy security.

1.1     Resource security risk: overall global oil and gas resources are sufficient, and the overall resource supply is guaranteed if no extreme special events occur

From the perspective of oil and gas resource supply in China, over the past 40 years of reform and opening, China’s economy has grown rapidly and has become the second-largest economy in the world. Coupled with the decline in domestic oil production in the past few years, China’s dependence on foreign oil has continued to rise. In 2017, it surpassed the United States to become the world’s largest crude oil importer. In 2020, China’s foreign dependence on crude oil reached 73%, and its dependence on foreign natural gas had also climbed to 43%. Judging from the data, China’s energy security issues seem to be more urgent and prominent. But from the perspective of global oil and gas resource supply, the current world oil and gas market is generally in sufficient supply, which is very much conducive to China making full use of the international market to expand resource channels. Since 2009, with the success of the “shale revolution” in the United States, the international oil situation has undergone fundamental changes. At the same time, with the continuous progress of exploration and development technology, especially after 2014, oil production in the United States, Norway, Brazil, and Canada has continued to grow, the oil market’s resource supply is sufficient and it is generally in a state of oversupply. In addition, technological advances have meant that resource supply is no longer the main issue for energy security. Tremendous progress in S&T makes the potential resources of energy supply very rich. According to BP’s forecast, by 2050, the world’s proven fossil fuel resource reserves will have increased from 2.9 trillion barrels of oil equivalent to between 4.6 trillion and 4.8 trillion barrels of oil equivalent, nearly doubling. Thus, before 2035, when China has achieved moderately prosperous society in all respects and the basic realization of socialist modernization, the international oil and gas supply situation which China faces should be relatively relaxed, with ample guarantees for diversified import sources. In addition, from the perspective of oil demand, due to the development of electric vehicles and hydrogen energy technology, the century-old trend of continuous and rapid increase in oil demand is now being reversed. It is expected that peak oil demand will be ushered in from 2025–2030, after which China’s dependence on foreign oil and gas will experience a declining trend. Based on a comprehensive judgment, China’s oil and gas resource supply risks will not become more and more urgent, but will rather become more and more relaxed as the oil peak approaches.

1.2     Energy price risk: it will be hard for oil prices to reach a high of more than $100, and the risk of price surges is small

Throughout the century-old history of energy development, due to the scarcity of oil and gas resources, past geopolitical conflicts to a great degree stemmed from oil, which caused the market to rise and fall. For a China which is highly dependent on imports, high oil prices increase foreign exchange expenditures, driving a rise in the price of goods, reducing GDP growth, and negatively impacting economic development. From the perspective of the development trend of future geopolitical conflicts, things will still be very complicated and serious and even aggravated.

The United States’ “shale oil and gas revolution” has made the U.S. the world’s largest oil producer and net exporter. After 2020 it achieved full energy independence, and began pursuing the formation of a new “energy hegemony” on the global energy map. In recent years, it has often played its card of having the power to control energy, and it has continuously suppressed Iran’s crude oil exports, sanctioned Venezuela to reduce crude oil exports, and has threatened to sanction Russia and Germany’s natural gas pipeline projects, adding variables to the whole world’s energy trade and international cooperation. At the same time, the development of S&T has also made the geopolitical forms of conflict more sensitive, fragile, and unpredictable. For example, in 2019, under the “double insurance” offensive of Yemen’s Houthi armed drone fleet and cruise missiles, Saudi Arabia’s oil production capacity was instantly “chopped in half,” and the world’s output of refined oil fell by five percentage points. Fortunately, however, in the bigger context of increasingly loose oil and gas resources, the high sensitivity of oil prices to geopolitical conflicts has been greatly reduced. Generally, there will be no long-term fluctuations following geopolitical events, and the oil supply pattern and logic of oil price changes have been quietly changing. Therefore, it can be judged that regardless of future intensifications of geopolitical conflicts, the emergence of a large-scale global oil crisis like that of the 1990s is today almost impossible. Even if there were to be large-scale turmoil in the Middle East and direct conflict between world powers, oil prices could, over a short period, fluctuate sharply to a high of more than $100 but in the long run, the energy transition will bring downward pressure on oil and gas prices. It is expected that future oil prices will for a long time remain at a relatively stable level of $50~$70 per barrel, and there will not be a long-term risk of high oil prices which would have a negative impact on the Chinese economy.

1.3     International trade cooperation risks: great power maneuvering and conflict  intensifies, global cooperation, seaway blockades, and trade sanctions risks grow

With the intensification of maneuvering and conflicts between major powers, energy security and the environment for international cooperation deteriorate sharply. Even if future resource supply is relatively sufficient, it is necessary to fully estimate and prepare for the high degree of uncertainty in energy trade cooperation brought about by high geopolitical risks. It is estimated that the risks mainly come from several dimensions. First, the security risks of major international shipping channels are rising, and hidden dangers affecting strategic oil and gas channels are increasing. In particular, the security of China’s oil import transportation relies on sea transportation and the Malacca Strait waterway and oil and gas shipping companies fear sanctions, and their oil and gas transportation business in sensitive countries being restricted. Second, the risk of trade sanctions has increased. Due to the distribution of some oil and gas production in sensitive areas, Chinese energy companies may enter entity sanctions lists, and overseas fund settlement accounts may be frozen, hindering oil and gas trade with sanctioned countries. Third is the risk of international energy cooperation projects. In the context of intense great power maneuvering, due to the implementation of “long-arm jurisdiction” by the United States, some countries have a reduced willingness to cooperate in projects with China and may even refuse to do so, the introduction of key energy technologies and core oil and gas equipment faces blockages, and the “stranglehold” problem is becoming increasingly apparent. The United States and its allies are trying to obstruct the Belt and Road Initiative, and the energy cooperation projects which China and the resource countries along the Belt and Road have in place or have been negotiating will become more uncertain, and once shelved or canceled, initial investments will become sunk costs. Therefore, it is necessary to intensively establish bottom-line thinking and plan in advance for possible risks and coping strategies.

1.4     Supply structural risk: the general trend of energy transition determines that the focus of long-term energy security risks will shift from oil and gas to electricity

Since the beginning of the new century, the global energy pattern has been deeply adjusted, a new round of energy revolution has vigorously emerged, the speed of the transformation process has significantly increased, and energy production and consumption have continued to develop in a cleaner, more low-carbon, higher-efficiency, electrified, and intelligentized direction. Among these, “re-electrification” has already become the inevitable path for driving the rapid development of clean energy and realizing energy transformation. The global economy will be deeply decarbonized in everyday living and economic fields, and we must act, with traditional electrification as the foundation, to make full use of new energy, new materials, and digital technology, and pursue the large-scale development and utilization of clean energy and the replacement of fossil fuels to ultimately realize the complete electrification of industry, buildings, and transportation. According to BP’s forecast, by 2050, electricity will become the main energy carrier, increasing from 20% of current energy consumption to nearly 50%, and consumption will more than double. The energy supply system will be dominated by electricity. China is also striving to transform from an energy-intensive economy to a service-driven economy, gradually reducing the demand for coal and oil in end-use energy, and increasing the proportion of electricity consumption. The high degree of electrification of the end-use energy system will bring new structural risks to energy security, and shift the center of future energy security from the principally oil and gas-based system to the protection of the power system.

2     China’s energy security path under the new pattern

China is the world’s largest energy producer and consumer. How to ensure national energy security and guarantee economic and social development has always been the primary issue facing the development of the energy industry. In 2014, General Secretary Xi Jinping proposed the new strategy for energy security of “Four Revolutions, One Cooperation” (“四个革命、一个合作”)  revealing the characteristics, laws, and direction of China’s energy development in the new era. In the past few decades, China’s traditional energy security thinking has mainly focused on the preservation of oil and gas resources, with the main path being to increase domestic exploration and development and international resource cooperation. Under the new development pattern, China will continue to base its approach on its own endowment of energy resources, coordinate the energy transition requirements and follow the objective laws of the development of energy supply and demand, treat energy supply side structural reforms as the core thread, and continuously adjust and perfect the path for realizing energy security, using a multi-pronged approach to bring about a new-era energy security guarantee system under multiple goals.

2.1     Path 1: Unswervingly basing the approach on international and domestic resources, achieving energy security under open conditions

Under the current complex and severe external development situation, to ensure national energy security, it is imperative that we treat the development and utilization of domestic oil and natural gas resources as the most fundamental foothold for solving oil security problems, and efforts must be made to continuously increase exploration and development and technological innovation. At the same time, we must vigorously promote the oil and gas marketization reform, cultivate a more dynamic oil and gas market, build a diversified supply system, and continuously improve the level of coal-fired oil and gas security. However, it should also be noted that in a country with a huge economy like China, in terms of domestic oil and gas production and reserves, it is far from enough to rely solely on domestic oil and gas supply. In particular, due to the limitations of China’s geological resource endowment, even with the recent increases in both domestic oil and gas reserves and exploitation, most of the achievements made in the reserves have been rolling increases of old oil fields and old oil layers; the number of discoveries of new layers, new blocks, and new resource types has been low. In addition, the grades of newly discovered reserves are not ideal, resulting in higher exploration and development costs. Preliminary estimates show that new oil and gas production during the 14th Five-Year Plan period still cannot keep up with demand growth, and China’s dependence on foreign oil and gas will continue to rise. Therefore, even under the new development pattern, for now and for a long time to come, we still need to unswervingly base our approach on both international and domestic resources, and continue to “go global” (走出去) participating in transnational energy cooperation, and vigorously promoting the internationalization of China’s petroleum industry. Under the Belt and Road strategy’s guidance, not only should state-owned enterprises go global but we should also encourage private enterprises to do so, to actively participate in the development and utilization of the world’s oil and gas resources and form strong international market competition and resource organization capabilities. At the same time, we must actively participate in, and even guide, the construction of the global energy governance system and deepen the implementation of the “international cooperation” in General Secretary Xi Jinping’s new-era energy security strategy to solve China’s energy security issues.

2.2     Path 2: Strengthen strategic reserves, boosting China’s energy emergency support capabilities

In today’s world, “black swan” events are a common occurrence. Out of important considerations for the long-term development of national economic security, though overall energy supply is sufficient, in the broader context of more complex geopolitics, it is necessary to pay close attention to the possible interruption of energy channels that emergencies could bring and the subsequent problems this would bring of insufficient emergency energy reserves. The role of future strategic reserves in ensuring energy security is therefore more prominent. Compared with the urgency of demand, China’s oil reserves only began at the national level in 2004, and though in recent years China has attached great importance to strategic energy reserves and made many useful explorations, constrained by issues such as insufficient reserve space, outdated storage technology, and high storage costs, there is still a considerable gap to be made up between overall scale and the scale of Western developed countries’ strategic oil reserves. In recent years, international oil and gas prices have been relatively low, providing China with a good strategic reserve window, and we can seize this favorable opportunity to make good use of the low oil price cycle to increase imports and increase reserves. China should accelerate deployments for constructing reserve bases around important coastal ports and petrochemical industry bases and promote the linkage of four ports—seaports, dry ports, airports, and information ports—build a world-class port cluster, speed up the construction of storage and transportation facilities such as wharfs, pipeline networks, oil tanks, and oil and gas depots, and make full use of underground spaces such as salt mine caverns and underground water-sealed caverns, promoting energy infrastructure construction, innovating oil and gas storage models, and taking on global resources for the Asia-Pacific market. We should mobilize private capital to participate in oil reserves, encourage domestic and foreign enterprises, carry out commercial reserves of gasoline, diesel, and aviation kerosene in accordance with international standards,  and jointly build a reserve system which combines state reserves, commercial reserves, and social reserves, support the joint construction of oil storage and transportation bases with international oil-producing countries, accelerate the formation of an international oil product bonded delivery system, and thus build up a diversified crude oil reserve system in an all-round way.

2.3     Path 3: Energy security is not only a matter of “addition” to improve high-quality energy but also of “subtraction” to improve energy efficiency

For a long time, improving energy efficiency has been a priority in different countries’ energy strategies and policies. The major developed countries have all formulated mid- and long-term energy efficiency improvement goals and treated this as the basis for enhancing energy security, optimizing energy structure, and improving environmental quality. Socialism with Chinese characteristics has entered a new era, and the principal contradiction in our society has shifted to the contradiction between the people’s ever-growing needs for a better life and unbalanced and inadequate development. With the rapid advancement of industrialization and urbanization, the people’s need for energy is increasing. In order for China to ensure both the quality of life of its people and the safety of national energy use, it needs to set about tackling two aspects: resource security and energy efficiency improvement. To a certain extent you could even say that energy saving and energy efficiency are the biggest “energy sources.” Taking transportation as an example, if we look at the data released for the energy-saving and new energy vehicle technology roadmap, fuel consumption per 100 kilometers has been reduced from 5.0 liters in 2020 to about 3.2 liters. By 2050, the contribution rate of fuel saving in China’s transportation sector will reach 240 million tons, which will greatly weaken the driving force of the increase in car ownership to oil consumption, and the fuel saving effect will be very significant. Therefore, in future, China needs to vigorously promote energy-saving transformation in key sectors and promote all-round energy efficiency improvement, using this to drive economic structural adjustments and industrial transformation and upgrading, promote a green lifestyle and consumer culture, release the huge potential contained in energy efficiency, and play a huge role in guaranteeing national energy security.

2.4     Path 4: New energy is the ultimate means of resolving the problem of energy constraints

The current state of energy resources and the environment, and the level of global carbon dioxide emissions, show that it is impossible for developing countries to follow the traditional model used by Western developed countries of high consumption and high pollution in the industrialization process. We must develop a green energy path that supports a better life with lower energy intensity and cleaner energy. In China’s current energy mix, coal accounts for about 58%. Under the 30·60 goal, China’s future energy consumption cannot possibly continue to maintain a high proportion of coal consumption, while oil and natural gas consumption are constrained by insufficient domestic resources. Therefore, for China, the development of new energy has become the ultimate solution to China’s energy security problems. This is not only a practical need for changing the development model of China’s long-term over-reliance on fossil fuel resource consumption. It is aimed at the future two major competitive fields of global energy resources and technological innovation, and will enhance China’s global discourse power and global influence on carbon reduction, as a strategic move which reflects the responsibility-shouldering of a major country. At the same time, compared with other countries, China has unique advantages in the development of new energy. It has already established a complete production chain in the wind power and photovoltaic power generation field, China’s technology research and development, equipment manufacturing, construction and operation and so on are all world leading. All of this is very much conducive, in the new development pattern, to China more quickly and effectively transforming industrial advantages into economic advantages, S&T innovation advantages, and green development advantages. In the future, our country can regard “renewable energy + water electrolysis for hydrogen production” as an ideal solution for China’s energy security.

2.5     Path 5: Promote cross-border grid interconnection and power trade, building a more open and closer regional energy security system

Electrification as a feature of future global terminal energy consumption is striking. China’s energy industry should continue to thoroughly implement the new energy security strategy during the 14th Five-Year Plan period and for a longer period beyond. China will also speed up the process of “electrification” and move from a big electric power country (电力大国) to a strong electric power country (电力强国), and international energy cooperation may also expand from primary to secondary energy. At present, globally, there are still about 1 billion people for whom the problem of electricity consumption has yet to be fully solved. China should fully grasp the new trends and changes in international energy cooperation, carry out in-depth Belt and Road energy cooperation, and expand the breadth and depth of Belt and Road energy cooperation, strengthen the interconnectivity of electricity and other infrastructure, and deepen cooperation in advanced technology fields such as high-efficiency and low-cost new energy power generation and clean and efficient coal-fired power generation. China should also actively participate in global energy governance, giving impetus to the construction of new global energy governance mechanisms and autonomous and controllable global energy supply chains, providing Chinese solutions for, and contributing Chinese wisdom towards, building an open, competitive, efficient, and stable energy market and a more orderly and inclusive global energy governance structure.

2.6     Path 6: Actively and steadily advance the process of Petro-RMB, reconstructing the global energy governance system

Oil, as a special commodity, has experienced a long evolution and maneuvering in the development of its pricing power. In the game of commodity currency pricing power, which includes oil, the U.S. dollar not only gained principal influence in the pricing of the world oil futures market but it has at the same time also enabled the United States to influence to the greatest extent the fluctuation of international oil prices, to meet its national interests and to meet the goals of domestic economic operation. The launch of China’s crude oil futures in 2018 explores a new path for China to maintain national energy security. This will reduce the risk of single petrodollar pricing and will help to improve China’s ability to deal with the risk of oil price fluctuations in the international market. It will help us to break through the “Asian premium” that exists in Middle East crude oil, safeguarding China’s energy security. It will also help to enhance China’s influence in Asia, aiding the internationalization of the RMB. Over the past two years, RMB crude oil futures have been running smoothly, with trading volume, open interest and delivery volume rapidly increasing, and market influence has constantly grown, making China the third largest crude oil futures market in the world. In the future, against the backdrop of the gradual opening of China’s financial market and capital accounts, the internationalization of the RMB, and the return of overseas funds to China, the development of RMB crude oil futures will usher in a historical window as the conditions for realizing the pricing power of a petro-RMB are maturing. China should further reflect fully on the management experience of developed countries’ oil futures markets, take into account the reality in China, improve the investor structure, accelerate the establishment of an international platform for oil futures trading, improve the regulatory measures supporting oil futures, and actively and steadily promote the development of the internationalization of the RMB with petro-RMB, building a new order of global energy governance.

3     Conclusion

The 14th Five-Year Plan period is an important point in time for China’s economic and social development to connect the past with the future and deeply advance. The economy is now entering a new stage of high-quality development, and the new strategy for energy security of “Four Revolutions, One Cooperation” will also promote the continuous deepening and robust development of the energy production and consumption revolutions as we build a clean, low-carbon, safe and efficient energy system. In the face of a more uncertain and unstable world, China’s energy industry needs to continue to forge ahead, and in the new round of energy structure adjustment and technological change, we must continue to practice, continue to advance, and continue to grow in order to provide a stable and reliable energy guarantee for completing the building of a moderately prosperous society in all respects and building a modern country.