China Cushions Oil Shock with Stockpiles, Renewables Push, and
Coal-Based Alternatives
Long concerned about geopolitical crises,
China redoubled efforts to secure energy security when President Trump started raising
the stakes in his first term.
·
Prepared
for Crisis:
Despite being the world’s largest oil importer, China has built strong
resilience against the current energy shock.
·
Massive
Oil Stockpiling:
o
Strategic
petroleum reserves expanded over years
o
Helps
cushion supply disruptions like the Strait of Hormuz blockade
·
Shift to
Renewables:
o
Aggressive
investment in solar, wind, and hydropower
o
Falling
demand for diesel, gasoline, and refined oil
o
Oil
demand has declined for two consecutive years
·
Electric
Vehicle Leadership:
o
China now
the world’s largest EV market
o
Reduced
dependence on oil for transport
·
Coal as
Strategic Substitute:
o
Increased
use of coal to produce petrochemicals (methanol, ammonia, fertilizers)
o
Provides
an alternative to oil-based raw materials
·
Industrial
Policy Focus:
o
Strong state-led
strategy to build domestic industries
o
Reduced
reliance on Western supply chains
o
Accelerated
after tensions with Donald Trump during his first term
·
Supply
Chain Dominance:
o
China now
produces ~75% of global polyester & nylon
o
Shift
from dependence on foreign firms to domestic leadership
·
Energy
Security Strategy:
o
Diversification
across coal, renewables, and stockpiles
o
Long-term
focus on self-reliance and resilience
·
Coal-to-Chemicals
Boom:
o
Coal use
for chemicals rose sharply (2020–2025)
o
Enables
continued industrial output despite oil disruptions
·
Impact on
Global Markets:
o
China
less affected than other Asian economies
o
Countries
like Vietnam & Philippines facing shortages sought China’s support
·
Fertilizer
Advantage:
o
Produces ~1/3
of global nitrogen fertilizers
o
Domestic
prices remain far below global levels despite surge
·
Strategic
Outlook:
o
Crisis
reinforces China’s push for self-sufficiency
o
Strengthens
its position in global energy and industrial supply chains
The
energy shock caused by the war in the Middle East caught China, the world’s top
buyer of oil, by surprise. But Beijing has been preparing for a crisis like this
for years.
China
has stockpiled increasingly large amounts of oil. It has pursued renewable sources
of energy like solar, wind and hydropower so aggressively that its demand for refined
oil, diesel and gasoline is falling. And it has harnessed technology to reduce its
reliance on the foreign-sourced raw materials that go into the massive output of
its factories.
China’s
ruling Communist Party has long viewed its industries as the foundation of its national
security strategy. It has sharpened — and expanded — that approach since President
Trump’s first term. China has doubled down on policies to build up local industries,
in turn strengthening its global dominance over resources and supply chains.
“You
have seen more top-down industrial policy, more guidance from the central government
to develop certain strategic sectors that China believes they need to strengthen
in order not to be controlled by a Western power,” said Heiwai
Tang, director of the Asia Global Institute at the University of Hong Kong.
Energy was the linchpin.
A
decade ago, China was the world’s biggest market for internal combustion engine
cars. Today, it is the top market for electric vehicles. China used to be the largest
buyer of foreign-sourced petrochemicals, the raw materials derived from oil that
are used to make plastic, metal, rubber components and other crucial ingredients
in the goods its factories churn out. Now it uses mostly domestic coal to make certain
chemicals, like methanol and synthetic ammonia. Government planning and investment
were crucial to those advances.
As
the Strait of Hormuz, the passageway for virtually all of the oil that flows to
Asia, remains largely shut off, China has so far proved more resilient than much
of the rest of the world.
China
can now power many of its cars and trains with electricity, greatly reducing its
reliance on oil. China has also honed the use of coal — and not oil — to produce
its own petrochemicals. This technology, developed by Germany and used to sustain
its economy during World War II, gives Beijing an alternative to oil to make the
raw materials its factories need.
Vietnam
and the Philippines, facing severe shortages of oil and other energy sources, appealed
to China for help last month. “China stands ready to strengthen coordination and
collaboration with Southeast Asian countries and jointly address energy security
issues,” a spokesman for China’s foreign ministry said.
Beijing
has long been fixated on addressing its reliance on foreign sources of energy and
materials.
At
the turn of the century, officials worried about another narrow passageway through
which oil traveled to China: the
Strait of Malacca, which separates Indonesia and Malaysia from Singapore. In 2004,
China created an emergency petroleum stockpile to address those concerns. In recent
months, it has been expeditiously adding to its stockpile.
As
China was becoming a factory powerhouse for the world in the late 1990s, it needed
foreign chemical companies like DuPont, Shell and BASF to set up plants to supply
the chemicals its factories needed. In recent years, Chinese companies have come
to dominate much of the world’s chemical supplies. Three-quarters of the world’s
polyester and nylon, for example, are made in China.
China
is still the world’s largest buyer of oil and gas, and three-quarters of its oil
is imported. While Beijing does not disclose the size of its reserves, its crude
oil imports increased 4.4 percent in 2025 over the previous year, while its consumption
grew 3.6 percent, according to the Chinese government. But after billions of dollars
in direct subsidies to electric vehicle makers and hundreds of billions invested
in renewable sources of energy, China’s efforts have paid off. Demand for refined
oil, gasoline and diesel has fallen two years in a row, prompting experts to forecast
that China’s oil and gas consumption has peaked.
At
the same time, China’s oil consumption is growing in the petrochemicals industry
as it further secures its supply chains.
China’s
industry boomed as the government invested heavily, provided cheap loans and encouraged
universities to cater to chemical engineering, said Joerg Wuttke, who served as
the chief representative in China for BASF, the German chemical company, for 27
years.
These
efforts accelerated under Xi Jinping, China’s top leader, and during Mr. Trump’s
first presidency.
“Everything
that Trump does triggers even more self-reliance from Beijing,” said Mr. Wuttke,
who is now a partner at DGA-Albright Stonebridge Group, a consultancy firm.
During
his first term, Mr. Trump confronted China on economic and business issues, setting
off a trade war and a technology showdown.
Mr.
Trump’s confrontational approach to China set off alarms.
Chinese
leaders began to send out signals. In 2019, Li Keqiang, the premier at the time,
called for China to use coal to make both electricity and chemicals as part of an
effort to reduce its dependence on seaborne oil. It was a deviation from China’s
focus on eliminating coal.
By
late 2020, as the pandemic raged, causing major disruptions to shipping and global
trade, and tensions with the United States reached new heights, China put out an
official road map, attributed to Mr. Xi, for how to get through the period of turbulence.
Published
in Qiushi, the Communist Party’s leading theoretical journal, the text was a call
to arms for Chinese industries to hunker down. They were told to develop technologies
faster than competitors overseas to achieve self-reliance and insulate China from
supply chain disruptions.
“Trump
1.0 was a very clear rupture that changed China’s geopolitical calculus, and it
reactivated old fears,” said Lauri Myllyvirta, a co-founder of the Center for Research on Energy and Clean Air, an independent
research organization, who has tracked China’s growing use of coal to make petrochemicals.
“Xi
himself had spoken about supply chain resiliency,” Mr. Myllyvirta
said. “All of this just enabled a petrochemicals boom to gain steam.”
The
signals from the top allowed the industry to expand and build plants to use coal
instead of oil to make petrochemicals.
In
2020, China used 155 million tons of standard coal equivalent to make chemicals.
By 2024, it was using 276 million tons. By 2025, that figure increased another 15
percent, eclipsing the total coal consumption in the United States of 230 million
tons.
Chinese
officials have said using coal is a temporary bridge to being more reliant on renewables,
and they have also invested in technology that uses electricity to make petrochemicals.
But using coal as an alternative to oil for now is paying off as shortages of oil
and gas have sent prices surging.
Take
nitrogen fertilizer. China produces a third of the global supply, and 80 percent
of it is made with coal instead of oil. Since the war in the Middle East began,
international prices for urea, the main chemical in fertilizer, have surged by over
40 percent, while China’s domestically produced equivalent has stayed at less than
half of the global rate.
Even
before the American and Israeli militaries started exchanging combat fire with Iran,
threatening one of the world’s most important regions for resources that power countries,
China had a dominant position, said Johanna Krebs, an analyst at the Mercator Institute
of Chinese Studies, a German think tank.
“The
Chinese,” she said, “most likely will see this as encouragement on the path to self-sufficiency.”