Energy strategies of China and their impacts on energy shipping import through the Straits of Malacca and Singapore

Abstract

PurposeThis study aims at investigating how energy strategies of China impact its energy shipping import through a strategic maritime link, the Straits of Malacca and Singapore (SOMS).Design/methodology/approachVector error-correction modelling (VECM) is applied to examine the key energy strategies of China influencing crude oil and liquefied natural gas (LNG) shipping import via the SOMS. Strategies investigated include oil storage expansions, government-setting targets to motivate domestic gas production, pipeline projects to diversify natural gas import routes and commercial strategies to ensure oil and gas accessibility and cost-effectiveness.FindingsFor the crude oil sector, building up oil storage and diversifying oil import means, routes and sources were found effective to mitigate impacts of consumption surges and price shocks. For the LNG sector, domestic production expansion effectively reduces LNG import. However, pipeline gas import growth is inefficient to relieve LNG shipping import dependency. Furthermore, energy companies have limited flexibility to adjust LNG shipping import volumes via the SOMS even under increased import prices and transport costs.Practical implicationsAs the natural gas demand of China continues expanding, utilisation rates of existing pipeline networks need to be enhanced. Besides, domestic production expansion and diversification of LNG import sources and means are crucial.Originality/valueThis study is among the first in the literature using a quantitative approach to investigate how energy strategies implemented in a nation impact its energy shipping volumes via the SOMS, which is one of the most important maritime links that support 40% of the global trades.