Deutsche Bank Declares China Energy ‘Winner’ in New Era of War
(Bloomberg) — While the war is bringing extreme volatility to oil and gas markets, the global race for energy security is making China even stronger, according to Jacky Tang, chief investment officer for emerging markets at Deutsche Bank AG’s private banking arm.
“China is the winner of this war from an economic standpoint, from an energy mix standpoint,” he said in an interview.
The forecast feeds into a complex picture. Bruegel, a think tank, says China’s dependence on oil imports from Iran will pose a “serious test” for its energy strategy. At the same time, the country’s status as the world’s largest producer of clean technology puts it in a unique position to help governments desperate to wean off Middle Eastern imports, according to the Deutsche Bank executive.
Tang says “everyone knows” that in the long run the world “cannot rely on oil.”
This, he says, is a realization that will force Asia, the largest importer of Middle Eastern oil, to reset. Japan, Korea and India are now more likely to look for ways to diversify their energy mix, and the equipment needed to achieve that diversification will inevitably come from China, Tang said.
Volatility in oil and gas prices has soared as the conflict in the Middle East oscillates between existential threats and fragile ceasefires. The promise of a two-week pause in hostilities brought relief on Wednesday morning, with the reopening of the Strait of Hormuz listed as a condition of the deal. However, the next steps remain quite unclear.
In this context, governments will continue to work towards energy independence. China, which remains the world’s largest consumer of coal, is rapidly developing its clean technology sector as part of its goal to achieve energy independence. According to a February report from Ember, low-carbon sources now account for nearly 40% of the country’s electricity generation; This rate was around 25% ten years ago. Renewable energy accounts for almost 50% of installed power capacity, according to Barclays Plc’s estimates.
“A decade of renewable construction and electrification has significantly reduced China’s exposure to energy shocks,” a Barclays team led by Jian Chang, the bank’s chief China economist, said in an April 8 note to clients. After all, he said, oil and gas “now play only a minor role in electricity generation” for the country.
China’s long-term “focus on electrification” makes it more resilient to energy price shocks, according to a Viewpoint note sent to clients this month by Lombard Odier’s Office of CIO. Lombard Odier noted in his note that the accumulation of strategic oil reserves creates an effective short-term buffer against rising oil prices.
