As China's reliance on foreign petroleum continues to grow, it claims to have rights to more oil abroad than it produces at home.
China's "equity oil" overseas from investments and loans is likely to top 200 million metric tons this year, or 4 million barrels per day, state-owned China National Petroleum Corp. (CNPC) said in December.
The volume from China's two decades-old "go out" strategy may mark a tipping point for the policy as domestic oil production in 2017 fell to 191.5 million tons, or 3.8 million barrels per day (bpd), after stagnating for years around the 4-million mark.
As a leading importer, China has long since passed the tipping point in its dependence on foreign oil with overall imports rising 10.1 percent last year to 8.4 million bpd, according to customs data.
China relied on imports for 67.4 percent of its oil in 2017, the CNPC Economics & Technology Research Institute said in January, predicting that the proportion will rise to 70.1 percent of supplies this year.
The estimate suggests that China has already taken a running start on the International Energy Agency (IEA) forecast that import dependence will reach 80 percent by 2040.
In its medium-term outlook released last week, the IEA said that China's domestic oil production will meet 29.7 percent of demand this year and just 25 percent in 2023.
Energy experts like Edward Chow of the Center for Strategic and International Studies in Washington have said that China's heavy reliance on foreign oil represents a significant security risk.
"The Chinese position is actually much worse than the American position ever was," Chow told RFA last year.
But CNPC's report on equity oil appears to be aimed at arguing that the rising import ratio should not be a security concern because the combination of "owned" oil and domestic production will cover nearly two-thirds of China's demand in 2018.
That might be true if China imported all of the oil that it could claim from more than 30 countries where it has invested.
But in practice, there is no one-to-one correspondence between China's investments and the oil that it imports.
Studies have found that import decisions on equity oil depend on case-by-case commercial considerations and a host of factors including contract provisions, pipeline and port access, transport costs, market opportunities, and refining needs.
Assets in Kazakhstan
China's petroleum assets in Kazakhstan are a case in point.
CNPC has invested heavily in the neighboring country since the 1990s, representing the earliest and perhaps the largest concentration of equity oil acquisitions under the government's "go-out" strategy to secure energy resources abroad.
But since most of the assets are in western Kazakhstan, some 2,300 kilometers (1,429 miles) from the Chinese border, much of China's equity oil has flowed west through Russia to the port of Novorossiysk on the Black Sea or north to Samara.
Only a portion of the 5.1 billion cubic meters of associated gas produced last year by CNPC-AktobeMunaiGas, the main subsidiary in western Kazakhstan, was exported to China. The rest was supplied to the Aktobe and south Kazakhstan regions, Interfax reported in January.
An analysis by the Oxford Institute for Energy Studies in December 2016 found that up to 3.3 million bpd of foreign oil was available to Chinese traders in 2015 as a result of investments by the country's national oil companies (NOCs) and oil-backed loans.
Diversity of supply remains the major remedy for energy security risk rather than reliance on imports from specific sources of equity oil, the study suggested.
"To be sure, the NOCs recognize that bringing back overseas crude production plays well with the government, but they will try to do so when the economics align as well," the study said.
A paper by the China University of Petroleum-Beijing School of Business Administration, published in January, cited a report that "only one-eighth to one-tenth of the overseas equity oil production (OEOP) was shipped back to China due to the NOCs' profits expectation and optimization and the high shipping cost."
"In this sense, although only a small part of the OEOP was shipped back to China in the past, it may undertake many functions including a backup for national oil supply and oil security," the paper said.
Still another paper by the IEA in 2011 explored the question of the government's control over NOC investments and the energy security mission.
"No evidence suggests that the Chinese government currently imposes a quota on the NOCs regarding the amount of their equity oil that they must ship to China," the paper said.
"Decisions ... are mainly based on commercial considerations, in some cases, carried out by marketing subsidiaries located outside the headquarters of the NOCs," it said.
The competing interests may raise doubts about whether the equity oil issue is relevant to China's energy security at all.
Security risks the same
Philip Andrews-Speed, a China energy expert at National University of Singapore, noted that security risks are the same for maritime shipping of imports from Africa and the Middle East whether the oil is owned by China or not.
A difference is possible in the extreme case of a supply disruption, he suggested, since China could justify sending its navy "to protect its own tankers carrying equity oil more easily than the tankers of other nations."
China's overland pipeline imports of oil and gas, mainly from Central Asia and Russia, have raised fewer security concerns. But Andrews-Speed wonders whether such routes could pose the risk of entanglements as import reliance grows.
"If one of the Central Asian states descends into chaos or civil war, would China send its army to protect the pipelines?" he asked.
The uncertainty may raise questions about cooperation and competing energy interests with Russia that have yet to be resolved.
In a recent posting, Andrews-Speed explored the economics of China's foreign oil investments, some of which turned to folly after world prices plummeted from over U.S. $100 (634 yuan) per barrel in 2014 to less than U.S. $40 (253 yuan) per barrel in early 2016.
"The fall of oil prices in 2014 saw a plunge in the annual value of overseas acquisitions from about U.S. $40 billion (253 billion yuan) in 2013 to effectively zero in 2016," Andrews-Speed said.
The slump saddled the NOCs with some wildly overpriced acquisitions. It also coincided with the anti-corruption probe and ouster of former security chief Zhou Yongkang and his power base in the oil industry.
"This ensured that no senior executive had the appetite or time to take any risks, let alone undertake overseas investments," Andrews-Speed said.
The high cost of the go-out policy may raise further doubts about its contribution to China's energy security.
Andrews-Speed estimated that the total value of China's overseas energy investments may approach U.S. $200 billion (1.2 trillion yuan) over the past 20 years.