The Implications of the Hormuz Energy Crisis in China

Good morning from Washington DC. Thank you so much for joining the center for uh international uh CSIS center for strategic and international studies energy program webinar series that looks at the hormone energy crisis implications for longer term um energy policym. This is second in the series and we will be focusing on China which has been gaining lot of attentions. I am very pleased to be joined by two leading uh China energy analysts and watchers and and really uh policy uh thinkers uh this morning. Um and uh first um is Kevin 2, Kevin J2. He's the chief advisor Asia with a Agora Energy Vander and he's based in Beijing. Thank you for staying up late and joining Kevin. And the second panelist speaker is Kahoyu. He is head of energy and resources with Varys Mapleroft. And thanks again uh to Caho as well for staying up late and joining uh all the way from Singapore. Now let me get started because there are so many questions to uh cover and I think you know the energy crisis in Middle East has really highlighted various different approaches but today we do want to talk about not so much the responses but much more about the implications. So let me start with you Kevin. Um so you know China has reduced crude oil imports in light of the the hormous energy crisis that has impacted you know roughly 20 to 25% of you know both oil and gas supplies to the world and I think some of the uh reports mentioned that it's you know about 5.5 million barrels per day uh of you know oil imports crude oil imports um and the volume is quite significant and that's I think helping the global oil market from not spinning into huge huge panic. Um also it's you know interesting uh to see the economist magazine you know talk about how China is sort of shifting from uh oil you know market price taker to perhaps very influential if not powerful uh oil market price maker. So in your view uh Kevin uh what are some of the key insights that China may be sort of uh learning or taking lessons from this crisis about how they manage their oil supply security. >> Thank you very much Chen for inviting me for this timely discussion. I would start with a broad market observation. For decades, Saudi Arabia was often described as the global oil markets swing producer because it could adjust the production materially at the margin. China is now showing some characteristics of a swing consumers. This shield import scale large inventory and refining system mean that it can reduce crude purchase very sharply and sustain no import for a meaningful period. that gives demand side adjustment on influence on global balance that did not exist at this scale in earlier oil crisis in the past. The point of essence is not simply to accumulate the largest possible reserves for China. It is to build a nar and counts uh cyclonical reserve system. Uh which means not only government reserves but also enterprise social responsibility reserves and the normal commercial inventories with sufficient operational flexibility to buy more when market conditions are favorable and reduce purchase during a serious market shock. that converts a high degree of import dependence into great short-term purchasing optionality. But stockpile are primarily a temporary buffer. The buy times when a transition uh transit routes fails. They do not remove uh root concentration which requires bypass capacity alternative ports and pipeline diversified shipping corridor and flexible logistics. So as a result I would say China is becoming an important source of demand side flexibilities a potential swing oil consumer. Well, the crisis also show that inventory provide temporal o optionality and a diversified transit rules provide some spatial optionalities. So this is very important down the road. >> Thank you so much Kevin. Uh let me turn to you um Kaho for you know if you have a view as to you know what this is you know what the what lessons uh China is taking from you know in terms of oil management and perhaps you know if you both you know both of you if you have also views on this you know especially SPR management um I think China had been buying more crude in perhaps 18 months leading up to this war not that they had a foresight but you know it's uh in a way um you the this huge stockpile has been very helpful to the entire world. But what are some of the key lessons in your view? >> First of all, thank you very much for inviting me to this very uh important discussion with two prominent uh energy expert in the room. Uh I would like to share two cents on how I understand the situation. So China has kind of weathered the sock relatively well because of multiple reasons. uh of course uh the SPR the uh the reserve is very important here because it provide a foundation for China to kind of implement or to coordinate what it has been planning and and secondly uh together with the stock sock piles I would say the market size of China is another important factor because um when we look at China in the oil market it is not just pure buyer when they import the crude oil then they're going to refine it and then it export it and then some of them they consume it domestically. So if the market size is so big then it allow China to have a relatively safe buffer to reallocate how much they are going to use domestically how much they're going to refine how much they're going to export. So with kind of coordination among all these uh roles, China uh I mean of course with it top down governance I mean it allows uh the the market to coordinate different uh uh players. I mean the NOC's the the refiners and so on to adjust uh everything and to re reallocate the resources. But it is very important to understand that um the reserve only by the time in the longer run um the key lesson is still the diversification. I would say that I mean when we are looking at China they are stockpiling as I mentioned over the last 18 months but in the longer plan it is more about the diversification and the stock pilot is one of it and at the same time China is importing from other sources. uh they have different um stuff to do with all those crude alongside uh domestic production and flexible refining and demand uh management. So China is kind of building a layered system of a resilient energy system combining government strategy reserves and the price responsibility reserves commercial inventories and so on. Soon the crisis will just encourage um China to take a lot more this kind of fible uh diversification and resilient strategy down the road. >> Uh let me ask you a quick uh follow-up question. Uh since about 19 uh I'm sorry 2018 or 2019 uh you know China has been focusing on domestic production of an oil and gas. There was the uh you know now famous the seven-year plan where the Chinese national oil companies you were instructed or encouraged to really you know uh increase the capex and successfully increase or uh recover the domestic output levels uh for both oil and gas. So do you expect um some sort of a you know new momentum for the domestic production as well as some of the key levers that both of you have just highlighted you know such as you know SBR but then also uh diversification of supplies u either one of you um so J maybe I will start so my base case is that uh this ongoing crisis is reinforce a strategy that has already been institutionalized. The earlier 7-year action to increase domestic reserve and production delivered uh quite sound results. In 2025, China produced about 216 million tons of crude oil and 262 billion cubic meters of natural gas. However, looking uh the five-year plan period between 2026 and 2030, the national plan calls for crude output to remain around 200 million tons a year while natural gas production continues to increase. So the dedicated oil and gas plan goes further by calling for continued investment intensity and development of deep and archer deep rivers offshore fields shield oil and gas deep coat methane and recovery for material fields. uh which means uh uh China has already institutionalized the national oil and gas production plan. Uh um so uh that's very important. So I don't believe the uh country need some additional sevenyear plan because it has already uh embedded the principle uh in the fiveear plan period. Uh corporate uh capex is likely to remain the best but seactive. Um so if we look at major national oil company they do have quite high level of investment uh for the coming uh five years. Um so the bottom line the crisis with the strategic value of domestic production but the rational response is sustained high quantity investment rather than a new production at any cost campaign. >> Thank you Kevin. Um K let me uh can I shift the gear just a little bit but still within you know the oil security uh supply security uh you know context. So, you know, China's refining sector has been shifting away from more fuel productions to more of a higher value add chemicals production in recent years, uh, from what I understand. And so, you know, I'm curious to see how the hormones energy crisis may, you know, be affecting that type of a shift or the tilt towards uh, chemicals production. And then but then also relatedly because the crude supply has been constrained globally and also you know China has been trying to import less I've also seen the um the volume of coal to chemicals production uh increase in the past you know six months you know uh already you know this is the you know this is we're entering the seventh month uh of this uh energy crisis if you will so what's your view on the uh refining industries's uh sort of a you know uh preference uh also not just the you know uh oil to you know uh products but then also the use of uh you know coals to chemicals approach in uh China's um planning >> um I think from a market perspective all this is about the optionality especially during a constrainted uh scenario. So the crisis is not kind of going to reverse the structural shift towards chemical because overall speaking I think the EV adoption is the long-term thing and it is weakening the long-term transportation fuel demand while the chemicals and materials over I mean they over higher value but this is kind of a parallel development. So one is more for the transportation sector. The other I think it is more for the kind of the non energy sector to to the downstream and something like that. So the overall speaking I think it will also accelerate the investment in the uh more integrated and more flexible facilities because whenever no matter if you are talking about the shift uh from producing field to other products or to using coal uh in this in this uh activities I would say that it is more about when there is a crisis whether you can use the same facilities to do something I think this is not just about the the middle east crisis. Basically actually China has learned that recent mean since COVID and then the Ukraine crisis and then now the middle east crisis. I think all this is more about the what we are calling now is the resilient of the energy system or the resilience of the of the of the supply chain. If the facilities is relying on only one supplier or only one buyer then they are very easily to be kind of uh disrupted by this kind of geopolitical event or climate risk and other uh uh uh major incidents. So that's why I I would say that um for a lot of industry in China they are trying to be as much as integrated and fible uh to take this strategy to survive all this kind of risk. >> Thank you. Caho can would you like to add anything or um can I jump sort of uh onto the next uh topic? So I would um like to agree with Kaho that the crisis may change refine uh refinary operating priority as the margin in the short term but it does not reverse China's structural shift from fuel onum towards higher value and more flexible refining petrochemical integration. But I would also like to add something about China's ongoing uh code to chemical development. This is actually a rather complicated issues because if we look at a coal chemical especially the so-called co modern coal chemical including co oil coal gas coin among other uh petrochemical products uh they have been a durable um strategy um so are but should not be treated as an unrestricted substitute for imported oil and gas. uh for China's 15th five-year plan, it explicitly strengthens cold to oil and coal gas capacity and technology results including strategic basis in order and harchm liquid and coal gas should be analytically separated. They serve different products and the security function. Uh in addition economic cost, carbon intensity, water use and local environment constraints remain very important when look at whether this type of project should be uh factor into a national security strategy. So the right framing is strategical optionalities with disciplined utilization not necessarily co- conversion at any cost. So that's why overseerization might lead to um large scale deployment of co chemical which will result in stranded assets. uh by the end of the five year time period. This is a policy risk decision makers in Beijing need to be very careful. >> Thank you Kevin. And you cover you know you you follow energy transition and in different levers and you know signpost quite closely over many years. So and then also you know we just sort of talked about coal a bit. Um, so I'd like to ask a couple questions about how hormonous energy crisis may shape or reshape China's energy transition course. Um, so you know the the 15 five-year plan, the latest 5-year plan that covers 2026 to 2030, you know, includes the, you know, reserving a certain degree of uh, coal production capacity, not just the use, but the coal production capacity if I'm not mistaken. So I'm curious to hear your view as to this coal consumption question for China. Um but also you know related to the coal production capacity. So it's a the question is sort of a twofold. One is you know how has you know this energy you know crisis affecting the way that the 15th year plan views at the the coal upstream you know the coal production side of goal but then the relatedly you know is China's coal consumption still set to peak by 2030 if I'm not mistaken that's still the the stated goal um So let me start with Kevin and then and go to Kaho. Um >> so uh if we look at co's role in China's uh ongoing energy sector transformation uh this is the most important uh uh questions uh because despite the rapid renewable deploy deployment the co still account for more than half of China's national energy demand mix. So, uh that's why uh if we look at the um coming five years, whether coal consumption could peak actually will determine whether China's uh co- picking target before 2030 uh is achievable or not. Given China's very unique political system and also the dual carbon goal was announced by the current president. Uh I would say uh the um bureaucratic uh um system and also the province have no choice. They need to pick national coal consumption. uh otherwise the uh the dual carbon goes uh first denurable uh which is peak national carbon emissions before 2030 simply cannot be achieved. So that's why uh on the one hand uh the homeless crisis has reinforced the security uh implication of upstream uh coal mining uh in the Chinese context. But uh uh if we look from a medium to longer term uh perspective, the direction of travel of China's energy mixed restructuring is pretty clear. The share of coal in national uh energy mix needs to decline over time and uh in the future coal will more and more uh serving uh the security backup purpose instead of uh continuously uh to be the backbone of uh China's energy consumption in the longer term. Thank you Kevin Cah. >> Yeah, thank you. Um I pretty much agree with Kevin. I just want to add a few observation. Um I think regarding the co or the f of co in China I think for a lot of uh analyst looking at this it is very important to understand that there's no major button for the end of the sector and the timeline for the energy sector is much much much more longer than a lot of other let's say the financial sector which means it will always take more than a decade two decades or something like that to achieve the policy goal that you see it on paper And this also means that there will be a lot of turbulence in the earlier stage of to failing of code. And this is exactly what is happening now. On one hand, China has set a very um ambitious target to fail code or to pick code. And at the same time, it is building a lot of renewables. But at the same time, you're also seeing China now saying that ah because of the energy security and that's why we still need code. These are all very conflicted kind of um signals for the outside world to understand actually look what China is doing. I mean it's just that you're doing everything at the same time. But I think it is very important to understand that there's I mean when we talk about the energy transition it does not simply means that acceleration away from fossil fuel. It takes a long process. I mean unless there is a metric but that you can switch it on and then renewables is totally ready tomorrow and then it can save everything. But if it is not that case then it simply means that for the base for the foundation of the energy system it will still rely on a lot on fossil fuels and the question is how fast you can build the kind of the renewable to become the foundation for the future and they could be a tipping point on timing that they will overtake the energy system and I think the crisis is not just enhancing the need for energy security more important is that it is changing how the government uh actually also in Asia how they are looking at energy security because when the petrol centric energy system looks so fragile the government when they do the planning they will shift a lot more to the electrocentric energy system and then this means they're going to rely a lot more on renewables nuclear power EV storage and grid and that kind of stuff coal will still remain a part of it but this is just one amount among many other options. And if this system can eventually develop to be a very mature system uh in China and of course with they're already very uh broad uh network of grid then I would say that it will eventually make the energy transition or what we put it is the fading out of fossil fuel a lot more easier. But now it is still in the kind of the earlier stage of a 20 or 30 years of process and that's why I would not be surprised there are a lot of conflicting messages but the overall the long-term direction as Kuban mentioned I think it is very obvious. >> Thank you Kaho. Um you mentioned some of the you know energy technologies right at the moment and and that's a perfect segue to the next set of questions that I wanted to ask both of you. So you know there have been many governments that are now really reconsidering how they try to ensure their energy security and resilience to imported fuels. And there was a report uh by the International Energy Agency that came out at the end of July and about the EV you know global EV uh um uh sales and the the second quarter according to that report the second quarter EV sales doubled in some of the you know important economies including Australia, Brazil, uh India, South Korea and um I think Vietnam as well if I'm not mistaken. But even in the United States right where we are, you know, uh blessed with a lot of fossil fuels and um etc. you know the EV sales actually increase in the second quarter by about 20% uh over the first quarter of this year. Um and I think you know China is one of the the global I mean EV production superpowers. I'm curious to see how the you know China's clean tech uh manufacturing and sort of the industry competitiveness may be shaped or reshaped you know is this just a simply like a huge tailwind for the sector um and also you know what are some of the um technologies um you know EV comes to my mind but um you know what are some some of the Chinese clean tech products that may really benefit from uh perhaps you know increase um interest in technologies that help not just the greenhouse gas reductions uh uh emissions reductions but also energy security. Uh let me actually start with uh Kevin. Uh so Jen, if I have to pick one sector, I would choose the batteries of course. Uh Sono P is also um the fast onium beneficiaries. Uh so um Sono has a energy security appeal. It can be adopted quickly. has no continuous fuel requirement and China has exceptional manufacturing skill. But even so, battery connect energy security transformation at the same time. In transport, battery enables EVs to substitute electricity to ponium in the power system. storage help in integrate variable wind and sona. So manage peaks and improve resilience. That dual role directly link oil security improvement with power system security and makes battery especially relevant to a whole energy system security framework. China also enter this period from an unusually strong industry position. As you mentioned, the IEA estimates that China accounted for more than 80% of global battery cell production last year and the Chinese producers represented roughly 3/4 of global EI battery deployment. Uh however looking ahead I would say the future of China's clean um technology manufacturing uh also hing on uh whether the country could um tap and explore politically practical and also mutually beneficial collaboration mode with those export destinations. uh because the rising dominance of clean energy supply chain from one signal country uh could easily lead to rising uh trade friction. Uh so uh that's the policy area uh decision makers in Beijing need to pay attention to. >> Fantastic Kevin. Um Kaho >> um sorry for a boring answer but I think I will take the same one which is the battery ecosystem because uh as I mentioned pre previously for a lot of developing countries they are going to move forward to uh to grid expansion electrification or electrical energy system and that's why they need a lot of equipment for this and with sitting at the center of this energy or energy order energy system would be the batteries is so it will be the kind of the uh future investment focus and I I think maybe I try to add a little bit more here is that yes China has a scale to provide a very strong advantage in manufacturing with the exporting or the joint venture and things like that but I I think um we may overlook something is that even though there's a trend to use more uh electricity or battery to reduce the reliance on the fossil fuel but it does not eliminate the energy security risk. It is shifting the risk from the oil and gas sector to the electricity market. So imagine if you can attack a pipeline. Equally speaking, you can al also attack a power station or the grid facilities and the transmission will also be interrupted and what make it more even more complicated is the let's say the critical minerals the clean tech equipment or I think the the local regulations um which means the localization of policy that you cannot simply buy the equipment from China you have to actually build a factories in the country all this kind of stuff will make the investment I mean on one hand still very attractive but at the same time it will face a lot of kind of obstacle. So this is what I foresee from uh from the market or the investor perspective. >> That's fascinating. Yeah. Um I'm really I and actually you know batteries is a is a fantastic one. Uh it's where you know it's it's much more you know there's much more sort of a strategic value to it. uh whether you know it's for the mobility or if it's you know for the grid stability uh it you know I think there's actually also increasing focus within the US policy energy policy community about the value of uh battery manufacturing and and also innovation but I'm also um uh you know reminded that it's not just a trade the battery you know Chinese uh manufactured battery exports to some of the countries that do want to uh address energy security and emissions issues through um you know so-called clean techs uh that you know require batteries. It's also I guess investments you know Cahoo you know touched on investment piece a little more explicitly but there are all these EV uh I'm sorry the battery factories in you know Europe as well u by you know Chinese companies so it' be really fascinating to see how uh you know the what sort of a trajectory you know what are some of the obstacles uh how you know what type of obstacles may you know um be uh you know they require you know certain approaches. The you know EU markets are quite different from US markets and so maybe you know we can get uh get together 6 months from now 12 months from now and then get your additional thoughts on you know um what we have uh learned by then but um let me shift the gear uh even a bit to uh what I call sort of a resource diplomacy uh type of questions. So you know China has you know um has you know a lot of oil, gas and and other resources also technologies. What's also um sometimes underappreciated is how China has both uh maritime um you know uh trading relationships as well as overland pipeline related you know energy trading relationships. So you know the gas natural gas comes from places like you know Russia uh central Asia as well as you know through LG tankers from Middle East and and etc. And so um you know it's a very dynamic market right but I'm curious to you know uh hear your views as to how the this um energy crisis that stem from you know the the conflict over this you major maritime choke point the straight of hormina's thinking uh or almost like preference um towards you know um pipeline relationships versus maritime relationships and perhaps if one you know either one of you have also views you know the maritime shipping insurance rates have been uh going up quite a bit and I think you know a lot of western insurance companies may have you know uh have fairly you know high rates from u what I've been reading you know how does China want to also address not just um sort of a maritime trading risks, but some of the financial um sort of a considerations or you know framework that goes along with that approach. Um so let me start with Kevin. Um oh I'm sorry. Let me start with uh I'm sorry uh CHO especially since you're based in Singapore that's really the shipping hub but maritime versus pipeline um and anything that you'd like to just you know share. >> I really love this question because from time to time I receive a very similar question whether China is going for the maritime energy import or going for the pipeline. It really depends on the background context. Let's say 10 years ago when China have all those powers of bra to and that kind of thing those plan on on paper and then people would just ask oh if China is relying too much on pipeline should they go for the maritime and now when when they rely on looks like they rely on the maritime and face a lot of disruption then they ask oh is China going to do the pipeline so my answer is very straightfor China always diversify they are going to do both because if the land one is in problem. I mean in history it always happens then that's why they need the maritime but the maritime is not I mean it it could be out of control and that's why they always need the pipeline one as a backup. So which is kind of the question between uh let's say RNG versus gas something like that. So if you have the if you're in the RNG market but you have a big pipeline backing you up then you can go to tell the exporter to negotiate the price. Similarly when let's say when the US I mean 10 years ago when they are starting to export the RNG so with a lower much so much lower price to China then China can go to Russia and negotiate with them oh maybe you can use you should change the pipeline gas price so when China is tapping on both maritime and overland base system basically they can be uh not not really a swing buyer but they have a lot more leverage in terms of energy security and the in the in the market um uh negotiation. So now I would say that uh because of the Iran crisis the question or the momentum shift back a little bit to the overland one and this is also reflected in the five-year plan that China kind of black and white put down. Now they are looking more into those pipeline. I mean I I I believe it implies those with uh Russia and this is kind just a result of further on diversification and in in the longer run I did not foresee or I would be surprised if China is relying on one particular supplier. So they would just try to diversify the overall import portfolio and this is kind of a hedging strategy and I would just assume China continue to play this uh approach. >> Thank you CHO. >> So in principle I agree with Kaho. uh and also um there's certain caveat uh regarding the relationship of uh marine time imports and pipeline uh imports. If we look at the pipeline imports in the Chinese context, basically we are talk about China Russia pipeline um China Kazakhstan and China Mymar pipeline they together uh account for only around uh one uh of China's 2025 imports from a capacity perspective. So that's why China is expected to continuously primarily rely on maritime uh shipping for crude oil imports uh in the years to come. Another caveat is uh what uh um just discussed uh because Russia had already become China's largest crude oil supplier as well as the natural gas supplier. So over reliance on one signal overseas producer um this is not compatible with China's energy security strategy of diversification. This is extremely important. The diversification principle also applied to marine time insurance. Uh because marine insurance is also part of the trans seat root security. The response is better understood as diversification of riskbearing capacity logistics and routine than as a wholesale shift away uh from western insurance. Of course uh the Hong Kong marine time war risk insurance pool uh was launched late last year. uh it's official website uh states that uh uh they have US donor 200 million total capacity and at least five Hong Kong and China based member insure um nevertheless Hong [snorts] Kong is better understood as an emerging additional center of war risk capacity rather than a replacement for Nandon for western insurance center. Uh so in this regard Nandon remain important for reinsurance underwriting expertise and price formation. So uh even in the marine shipping influence arena uh China seeks for uh diversification uh instead of uh replacing uh one um center with another. So so that's very important to understand China's um energy security strategy. >> Thank you both. um that seems you know the you know you know Russia is really a you know main you know um or major uh sort of energy you know uh partner to China and um you know it reminds me how um you know there has been this you know ongoing negotiations uh between Beijing and Moscow over the power of Siberia too and I think whenever you know um you know one of the two leaders visits theater um and you know I think all the western media at least you know wonder oh is this the time that we really see the in you know ink on the the hard contract and etc. If you do have a view um you know you know how do you think about the more of a you know likelihood or possibility of the s of power of Siberia too gas pipeline deal like really you know reaching that um the finish line where they can really start uh you know working on on the infrastructure. Uh there have been a lot of negotiations. Um it's sort of a bit skip you know. Yeah, it any view um by any chance? Uh so if we look at what happened to Germany, what happened to European Union uh after the out break of the Russian Ukrainian war and so this uh certainly caught the attention of Chinese decision makers of course following each high level summit between head of states. Uh it's natural for Russia and China talk about this pipeline. However, the devil is always in the details. Uh what uh what's the pricing mechanism at what specific level uh how the route should be configured between these two uh country. There are so many barriers uh those middle narrow um official as well as senior executive at both sides need to overcome before this pipeline could actually be materialized. Uh for now I am not extremely optimistic about the prospect of this pipeline. Thank you Kevin Cah. Um feel free not you know not to take or take the the question but do you have a view as well? >> It's already in my brain how to answer it. I I think if you just follow the policy signal uh this year there are a lot more about a potential pipeline uh between Russia and China in the future. So this it gives a lot a little bit more hope to the market to expect something to happen. But just like what Kevin mentioned I mean yes the overall direction may be on on that end but I mean the defos are in the a details that's the pricing is always difficult. I mean you have to reach to a a a price consensus that it is high enough for Russia and then low enough for China and that is always a big gap and then and and I would say that it requires a lot of upfront investment for it as well and not to forget this is a partner not connecting China and Russia directly and there is a transit country. So there is I would say that there's um very naturally people will just ask um if Russia is not it doesn't looks like it is able to handle it traditional labor labor countries like Ukraine Tes and then what is the role of Mongolia as a transit country so this kind of um uh security issues would always kind of a bundle together with the pipeline. If you have the pipeline, then it is just like a chain piling tiling you up for centuries. So this kind of practical stuff will could could be could could be make the could could result in a lot of turbulence for for for the development. But for the for the market when there is a policy that they put it mention something implying a pipeline infrastructure in the five year plan then it sounds like um it gives people a outlook or something a timeline or something like that to to follow. So I think this year is a little bit a little bit more hot than last year. So maybe we should look for something more next year. >> All right. Fair enough. No, thank you both. So you know China is as you know we've been talking about one of the major um you know oil gas importers in particular when it comes to LG you know China has become the top importer um the you know for the past couple years some years obviously you know value may be a little lower or but then higher I mean but China is the you know what the one of the top tier LG importers in the world while the United States is the you know the the biggest um LG exporter at the moment in the in the world or uh yeah and so you know that both are number ones in their respective sort of a context. Um and you know if you think back um you know earlier this decade even you know uh three four years ago uh there have been all these contracts long-term LG contracts that that were signed between you know Chinese importers and US um LG producers and and sellers. Um but you know fast forward uh at the moment you know there are a lot of you know trade challen you know related trade policy challenges. So we haven't really seen a lot of LNG molecule uh flow directly between the US and China. Um in your view um how may the Hormus energy crisis that you know also affected you know LNG shipping and even if China is not the um huge uh importer of Middle Eastern LNG per se it did affect price you know the LG prices uh around the world. Uh so in return you know in turn that also affected LNG um uh pricing for Chinese uh buyers. In your view how may the bilateral LNG relations um you know could evolve from this point on um let's say next five years um if that's a fair way to bound the the timeline. um you know are we you know likely to see us shipping more LG to China um what's your view uh let me start with um Caho uh this time >> I think this is quite a a difficult question I mean 10 years ago I was already the right commentary saying that China and the US natural commercial fit when it comes to RNG as you mentioned one is a big exporter and then the other one is a major uh in porca as well and China needs to diversify the gas the sources and then the trade tension came and then so I would say that all those tension are the m the source of the constraint rather than the commercial so uh the trade is it's more about the overall trade relationship between the two and then there's a lot of up and down but in the very very long term I mean if you put it down like five years which means I mean there could be changes and then if there is changes and then it's beyond that five years I I would say that in the longer run uh and the the biggest buyer and the biggest exporter will just naturally come back again I mean it is a very natural fit this is what I see in a very long-term outro >> thanks Kevin >> uh I would separate contractual exposure from fical imports. Uh as we just mentioned, the US is the largest LNG exporters in the world and China is the largest uh importer. So there in theory is a strong synergy between these two countries. Um so uh but from a energy security perspective, China wants diversified and renewable gas supply. A US LG developer needs sufficiently predictable non-term demand to finance and operate capital intensive export infrastructure. So that's why I was reminded that the Chinese company actually signed multiple non-term procurement agreement uh with uh the US developers. So the amount is uh rather uh significant. The only difference is uh Chinese company resell uh those caros to other market for understandable reasons. So uh that's why I I do believe uh there's still quite significant ties between uh Chinese company and US developers but the fin mentioned itself is valuable. Um, USNG offers a different pricing basis, destination flexibility and transit route diversification outside the hormones. Of course, this is always valuable uh to Chinese company. However, unless there is a decent level of political trust uh that could be rebuilt between the US and China at the government to government level. uh the supply especially significant amount of LG supply uh from United States um probably will be regarded as energy security vulnerability uh instead of um um supply diversification. So, so that's why depending on whether US and China could restore a decent level of political trust, the prospects of bilateral LNG trade will differ towards different direction in terms of physical imports. >> Thank you, Kevin. Thank you, Cahul. We have a couple minutes left. So just one last question um Middle East you know obviously Hormos you know this is you know this is a region that's been very dynamic what's your view as to how the current crisis may reshape or you know shape or reshape how you know China engages with the Middle Eastern suppliers in terms of energy trade energy investments you know obviously China is a key customer for you know for Iran for example you know uh you know chunk of Iranian uh crude oil goes to China but also there are other uh countries in the Gulf that really have robust energy ties with China so how you know what should we expect um out of this crisis as you know China thinks about longer term energy resource diplomacy visav middle eastern suppliers uh let me start with Kevin this time. >> So uh J I would not expect the crisis to weaken China's engagement with the Middle East. The region remains too imported. What changed in the risk weighing inside [snorts] the relationship? So from China's perspective, the objective is not only supply security but a transit route security. A barrel is less secure if it depends on a single choke point. From the producer perspective, stable Asian demand and deeper downstream relations also provide consumption or demand security. So these two region are always uh uh have potential to create synergy. In addition, if we look at batal relations down the road, I would say China also have great incentive to collaborate with Middle Eastern region beyond oil and gas supplier. So that's why uh no matter whether we look at Saudi Arabia or other Middle East country when they examine its own energy transition pathway uh China is also very important not only for equipment uh supply but also uh very important to uh systemic solutions provider. uh so uh that's why I I believe uh in the future uh this ongoing crisis on the one hand will reinforce China's desire for diversification but on the other hand uh China will approach Middle East not only from oil and gas supply security transit route security but also uh to work with the Middle Eastern country on the ongoing energy transition uh as a solution providers. >> Thank you Kevin Cah you have a final word. >> Maybe I will make a quick one. I I do agree with Kevin. We are on the same page that China the relationship between China and the Middle East major supplier. Uh the relationship will continue especially for example like countries like Saudi and I think they are also trying to not just to be a oil buyer and seller relationship. They are also looking into diversifying uh the relationship into the investment in other sector in Saudi Arabia. I mean related to energy, petrochemicals, hydrogen renewables, easy US and so on and at the same time China is also trying to uh uh attract let's say Saudi Arabian company to invest in the downstream of China. So I think this is kind of the evolving uh energy relationship between the two. And when it comes back to the oil trade between Saudi and China, I would say that with all those happening now in the Middle East, then China maybe would have a upper hand in the future contract or negotiation given that I mean the logistic course is higher now. So maybe the seller would be or I mean they would have to lower lower the price and that kind of kind of a negotiation dynamics would be I mean something that we won't be a surprise but overall speaking I think China will continue to deepen the relationship with the uh the Middle East but at the same time not to concentrate uh in one single supplier or the supply route. So that is my uh final word. Thank you. >> Thank you. Uh thank you Kevin. Uh Kevin Tu is chief advisor China with Agora Energy Vendor. Kaho is head of energy and resources with Deris Maple Croft. Thank you very much two of you and um you know please stay tuned. Um I will be hosting additional experts um on September 21st. uh the next uh webinar series uh webinar session under this series will focus on South Asia particularly India and then October 2nd we will focus on Souththeast Asia. Um thank you again for joining CSIS team. Um your host was Jane Nano. Uh thank you Kevin. Thank you CO. Have a good day. >> Thank you so much. Thank you. [music]