WEBVTT - What War in Iran Means for China's Teapot Oil Refineries 0:00:02.720 --> 0:00:16.560 Bloomberg Audio Studios, Podcasts, Radio News. 0:00:18.040 --> 0:00:21.759 Hello and welcome to another episode of the Odd Lots Podcast. 0:00:21.840 --> 0:00:24.200 I'm Joe Wisenthal and I'm Tracy Alloway. 0:00:24.600 --> 0:00:27.920 So, Tracy, we're recording this one pm March fourth, twenty 0:00:28.080 --> 0:00:29.320 twenty six, and so. 0:00:29.320 --> 0:00:31.000 One of those days where you have to nail the 0:00:31.040 --> 0:00:33.440 hour and the minute because who knows what's going to happen. 0:00:33.640 --> 0:00:36.360 Absolutely, of course, we are in the midst of a 0:00:36.440 --> 0:00:39.319 war with the rent that started this past weekend, and 0:00:39.400 --> 0:00:43.360 it's been an extraordinary week in markets, massive surge in 0:00:43.400 --> 0:00:47.080 the price of oil, all kinds of concerns about the 0:00:47.120 --> 0:00:50.159 sheer logistics of getting oil other as well as other 0:00:50.200 --> 0:00:53.360 commodities out of that region. Who's going to be affected? 0:00:54.160 --> 0:00:57.120 The ramifications are just global for obvious reasons. 0:00:57.240 --> 0:01:00.279 Yeah, there's clearly a lot to talk about. There are 0:01:00.320 --> 0:01:03.240 some interesting angles in particular that you and I have 0:01:03.280 --> 0:01:05.520 been discussing, and we're going to try to hit all 0:01:05.560 --> 0:01:08.319 of those individually in a lot of different episodes that 0:01:08.400 --> 0:01:11.960 are coming up. But for this particular episode, we want 0:01:12.000 --> 0:01:15.319 to talk about something that you know, obviously the US 0:01:15.840 --> 0:01:19.440 Europe have kind of been i would say the main 0:01:19.680 --> 0:01:22.400 subject of a lot of the hand ringing or the 0:01:22.440 --> 0:01:25.600 focus at the moment. So Europe, we know, has had 0:01:25.600 --> 0:01:29.160 to grapple with higher energy costs for a while, and clearly, 0:01:29.360 --> 0:01:31.959 you know, all this chaos in the Middle East is 0:01:31.959 --> 0:01:34.679 not going to be good for that. But one thing 0:01:34.720 --> 0:01:37.160 that hasn't gotten as much attention is what this actually 0:01:37.240 --> 0:01:40.960 means for China, which is a huge, huge purchaser of 0:01:41.040 --> 0:01:42.319 oil from the Middle East. 0:01:42.560 --> 0:01:45.520 Right this is really important. So obviously in the US 0:01:45.600 --> 0:01:48.680 we're swimming with oil or an oil exporter. This could 0:01:48.680 --> 0:01:51.320 be very good also for our gas exports to Europe. 0:01:51.400 --> 0:01:54.000 I mean, already we've seen this big increase in gas 0:01:54.040 --> 0:01:56.760 exports from the US to Europe, particularly just in the 0:01:56.840 --> 0:01:59.960 wake of the ongoing war in Ukraine. So this could 0:02:00.040 --> 0:02:02.920 create further opportunities. But for all the countries that are 0:02:02.960 --> 0:02:07.120 you know, major importers, and China being one is obviously 0:02:07.440 --> 0:02:08.880 a very different dimension for them. 0:02:09.000 --> 0:02:12.560 Absolutely. Also, can I just say that this particular topic 0:02:12.720 --> 0:02:16.440 is finally, finally an opportunity to touch on teapot refiners 0:02:16.480 --> 0:02:18.639 in China, which I always wanted to do an episode 0:02:18.639 --> 0:02:21.079 on and for some reason we never got to it. 0:02:21.200 --> 0:02:22.960 But but now's our chance. 0:02:23.280 --> 0:02:25.440 I will learn what a tea. I've known at times 0:02:25.440 --> 0:02:26.600 what a teapot refiner is. 0:02:26.600 --> 0:02:29.080 Wait, what's your impression if if someone says teapop refinery, 0:02:29.080 --> 0:02:29.600 what do you think. 0:02:29.840 --> 0:02:31.720 Don't put me on the spotlight. I just imagine a 0:02:31.720 --> 0:02:32.440 little refinery. 0:02:32.520 --> 0:02:35.040 Yeah, I mean that's it basically, all right, that was 0:02:35.040 --> 0:02:37.720 a good guest. Yes, I just think it has a 0:02:37.720 --> 0:02:39.320 cute name, and so I like thinking about it. 0:02:40.240 --> 0:02:42.480 Anyway, I'm very excited to say, we really do have 0:02:42.600 --> 0:02:44.840 the perfect guest today to sort of talk about the 0:02:44.919 --> 0:02:48.320 energy dimension from some angles that have that deserve and 0:02:48.360 --> 0:02:51.519 need more exploration. In this precise moment, we're going to 0:02:51.520 --> 0:02:54.240 be speaking with Erica Downs. She's a senior research scholar 0:02:54.520 --> 0:02:58.560 at Columbia University's Center on Global Energy Policy and an 0:02:58.639 --> 0:03:00.960 expert truly in this field. Thank you so much for 0:03:01.000 --> 0:03:01.959 coming on odline. 0:03:02.440 --> 0:03:04.480 Thank you so much for having me just. 0:03:04.440 --> 0:03:06.120 For the sake of our audience. Why do you give 0:03:06.200 --> 0:03:08.840 us the sort of brief overview of your work? Tell 0:03:08.919 --> 0:03:10.800 us a little bit about what you do in your 0:03:10.840 --> 0:03:11.880 general field of study. 0:03:12.600 --> 0:03:18.120 So my research focus is primarily on the geopolitics of energy, 0:03:18.520 --> 0:03:22.400 and so I've been kept busy recently looking at China's 0:03:22.480 --> 0:03:26.520 energy relationships with Russia, with Venezuela, and of course this 0:03:26.600 --> 0:03:27.040 week with. 0:03:27.120 --> 0:03:31.240 Ran So why don't you sum up I guess China's 0:03:31.280 --> 0:03:34.639 relationship with energy at the moment. Then. The only thing 0:03:34.680 --> 0:03:37.320 I know in recent times that sort of hit the 0:03:37.320 --> 0:03:40.720 headlines is that China has been importing an enormous amount 0:03:40.760 --> 0:03:45.320 of oil, which both suggests that it needs oil and 0:03:45.360 --> 0:03:47.800 it's an important thing for its economy to work, but 0:03:47.960 --> 0:03:50.560 also that you know, maybe in the face of tider 0:03:50.600 --> 0:03:52.760 supply coming from the Middle East, it has something of 0:03:52.800 --> 0:03:53.280 a cushion. 0:03:54.680 --> 0:03:57.680 So yes, China has been putting a lot of oil 0:03:57.800 --> 0:04:03.240 into storage. They kick started Strategic Petroleum Reserve over twenty 0:04:03.360 --> 0:04:06.400 years ago and have been building it up precisely to 0:04:06.560 --> 0:04:11.120 have in moments like the one that we are in now. Now, China, 0:04:11.160 --> 0:04:15.520 as you mentioned, is a big importer of oil. About 0:04:15.520 --> 0:04:19.040 half the oil that China imports comes from the Middle East. 0:04:19.320 --> 0:04:22.599 Most of those Middle East oil supplies passed through the 0:04:22.720 --> 0:04:25.240 street of Horrmus, which is now closed. 0:04:26.160 --> 0:04:28.240 Talk to us a little bit about the volumes here 0:04:28.400 --> 0:04:32.599 that we're talking about. Tracy mentioned that obviously they're importing 0:04:33.320 --> 0:04:36.000 quite a bit and much of it keeping in storage, 0:04:36.240 --> 0:04:39.440 like Okay, we're talking about Iran or something. How crucial 0:04:39.640 --> 0:04:42.400 is that relationship? What do we know about its volume? 0:04:42.640 --> 0:04:45.560 What do we know about pricing? Tell us some more 0:04:45.640 --> 0:04:48.919 details about this particular bilateral trading relationship. 0:04:49.800 --> 0:04:55.279 Sure, So, last year China imported eleven point six million 0:04:55.360 --> 0:04:59.560 barrels per day, About one point four million barrels per 0:04:59.640 --> 0:05:04.599 day came from Iran, so that accounted for about twelve 0:05:04.680 --> 0:05:10.680 percent of China's crude oil imports. Now the main buyers 0:05:10.720 --> 0:05:15.840 of Iranian oil in China are the teapot refineries. I've 0:05:15.839 --> 0:05:19.159 been following the teapot refineries for a long time and 0:05:19.200 --> 0:05:21.280 I love to talk about them, So Joe could be 0:05:21.360 --> 0:05:25.240 very happy to hear you speak about them in your introduction. Yeah, 0:05:25.240 --> 0:05:29.800 and so the teapots are small, independent refineries. Many of 0:05:29.800 --> 0:05:33.960 them are clustered in Shandong Province. They are not as 0:05:34.080 --> 0:05:38.760 big or sophisticated as the refineries operated by China's national 0:05:38.800 --> 0:05:44.279 oil companies or the new integrated refining and petrochemical projects. 0:05:44.360 --> 0:05:47.560 These are world scale projects that have popped up in 0:05:47.720 --> 0:05:50.600 China over the past few years. So the teapots are 0:05:50.680 --> 0:05:56.960 much smaller, less sophisticated, and they rely on the discounts 0:05:57.040 --> 0:06:01.720 they can receive on sanctioned cruds to boost their bottom lines, 0:06:02.040 --> 0:06:05.440 and in some cases they probably depend on these crews 0:06:05.440 --> 0:06:08.880 for their survival. So they're the main buyers of Irani 0:06:08.920 --> 0:06:12.400 and creud in China. The national oil companies that were 0:06:12.440 --> 0:06:15.400 you know lifting you know, all of Iranian's crewed to 0:06:15.440 --> 0:06:19.280 take back to China ten fifteen years ago, are completely 0:06:19.360 --> 0:06:23.200 out of the Iran oil trading business because of concerns 0:06:23.200 --> 0:06:26.040 about US sanctions. And just to bring this back to 0:06:26.080 --> 0:06:28.680 the teapots, you know, the reason why they are buying 0:06:29.080 --> 0:06:32.719 and the national oil companies China's national oil companies aren't 0:06:33.080 --> 0:06:37.360 is because the teapots are more risk tolerant. And what 0:06:37.400 --> 0:06:40.280 I mean by that is that the national oil companies 0:06:40.360 --> 0:06:44.520 have a vested interest in maintaining access to the US 0:06:44.560 --> 0:06:47.719 dollar financial system. You know, these are global companies with 0:06:47.839 --> 0:06:51.839 global operations. They don't want to lose that access. Whereas 0:06:51.839 --> 0:06:54.360 if you look at the teapots who are still buying 0:06:54.440 --> 0:06:59.080 Iranian crude today, I suspect that they have little or no, 0:06:59.560 --> 0:07:03.680 you know, interest in maintaining access to the US dollar 0:07:03.760 --> 0:07:07.800 financial system. Sure, they'd prefer not to be sanctioned, but 0:07:08.560 --> 0:07:12.080 it sanctions being sanctioned wouldn't be catastrophic for them in 0:07:12.120 --> 0:07:15.320 the way it might be for Sinopack or China National 0:07:15.320 --> 0:07:19.400 Petroleum Corporation. And so it's this risk tolerance as well 0:07:19.440 --> 0:07:23.520 as this pursuit of discounted barrels that has made teapots 0:07:23.640 --> 0:07:27.320 the biggest importers of Iranian crude in China. 0:07:27.400 --> 0:07:29.440 So I don't mean to go on too big of 0:07:29.480 --> 0:07:33.680 a teapot tangent. How's that for alliteration? Thank you? But 0:07:34.720 --> 0:07:36.560 how did we end up with this situation where we 0:07:36.640 --> 0:07:40.720 have these national refining giants in China, which I assume 0:07:40.840 --> 0:07:44.280 you know, enjoy support from the state and they enjoy 0:07:44.360 --> 0:07:47.920 all the benefits of scale, and then you have these 0:07:48.000 --> 0:07:51.760 tiny or smaller refiners, independent refiners that have sort of 0:07:51.800 --> 0:07:54.320 cropped up. How did that system actually begin? 0:07:56.120 --> 0:08:00.160 Yeah, so sure, happy to provide some background. So the 0:08:00.160 --> 0:08:04.640 teapot refineries, which are actually called local refineries in China 0:08:05.120 --> 0:08:08.680 originated They grew up in China in northeastern China to 0:08:09.320 --> 0:08:13.600 process crude from the Shunli oil field, you know, which 0:08:13.720 --> 0:08:17.320 historically was one of China's backbone oil fields. And for 0:08:17.440 --> 0:08:20.520 most of their existence, you know, these teapots, you know, 0:08:20.880 --> 0:08:27.120 did not have the right to import and process imported crude. 0:08:27.400 --> 0:08:31.120 And this all changed back in twenty fifteen when the 0:08:31.200 --> 0:08:34.320 Chinese government you know, said that teapots who met certain 0:08:34.440 --> 0:08:41.319 requirements would be granted licenses to purchase and process imported crude. 0:08:41.640 --> 0:08:44.760 And the criteria that the teapots had to meet, you know, 0:08:44.880 --> 0:08:46.640 was were things such as, you know, sort of getting 0:08:46.720 --> 0:08:52.080 rid of highly polluting crude, distallation units, building natural gas storage, 0:08:52.559 --> 0:08:55.520 believe it or not. And so, you know, teapots that 0:08:55.559 --> 0:08:58.600 met these requirements could you know, apply for licenses, and 0:08:58.640 --> 0:09:01.280 they get a license, and they given a quota, and 0:09:01.360 --> 0:09:05.440 they could use that quota to purchase crude from outside 0:09:05.440 --> 0:09:09.160 of China's borders. And when I first started looking at 0:09:09.160 --> 0:09:11.800 the teapots, you know, around the time that they got 0:09:11.800 --> 0:09:17.439 the permission to import crude, they had a pretty diverse 0:09:17.960 --> 0:09:26.120 slate of suppliers. But as sanctions on countries such as Iran, Russia, 0:09:26.280 --> 0:09:30.480 you know, Venezuela titans and discounts were on offer to 0:09:30.679 --> 0:09:33.280 entice buyers to take these barrels that a lot of 0:09:33.320 --> 0:09:37.360 other importers were consuming, the teapot stepped into the void. 0:09:38.520 --> 0:09:41.520 This is already fascinating. I've already learned a lot from this. 0:09:41.920 --> 0:09:43.480 Do we have a sense of, like how big are 0:09:43.520 --> 0:09:47.640 these discounts? So intuitively, okay, a country gets sanctioned and 0:09:47.679 --> 0:09:49.880 then a bunch of buyers and that makes a lot 0:09:49.880 --> 0:09:51.960 of sense don't want to deal with it or don't 0:09:51.960 --> 0:09:56.400 want to risk getting sanctioned themselves. So when Iran, by 0:09:56.480 --> 0:09:59.640 dint of sanctions, essentially forced to sell a significant amount 0:09:59.679 --> 0:10:02.400 of or oil to these teapots, do we have a 0:10:02.440 --> 0:10:06.320 sense of, like what the pricing is on these deals 0:10:06.440 --> 0:10:10.719 relative to overall oil prices. 0:10:10.800 --> 0:10:16.719 So industry press will report, you know, the discounts available, 0:10:17.080 --> 0:10:22.000 which change over time, and the discounts are usually reported 0:10:22.080 --> 0:10:24.320 as you know, x number of dollars lower than the 0:10:24.320 --> 0:10:28.640 price of rent. So the discounts that China's teapot refineries 0:10:28.760 --> 0:10:32.120 receive on sanctioned barrels are certainly attractive enough to make 0:10:32.160 --> 0:10:36.280 them seek them out. Now, these discounts change over time, 0:10:36.440 --> 0:10:39.640 you know, they're often reported in industry press as you 0:10:39.640 --> 0:10:42.120 know a certain number of dollars you know, cheaper than 0:10:42.559 --> 0:10:45.760 the price of reent crude. And just to give you 0:10:46.040 --> 0:10:49.400 a sense of how important these are to the teapots, 0:10:49.559 --> 0:10:52.040 it Reiters ran a piece I believe back in twenty 0:10:52.080 --> 0:10:55.200 twenty three where they said they had calculated that China 0:10:55.240 --> 0:10:59.120 had saved ten billion dollars on crude oil imports by 0:10:59.240 --> 0:11:01.160 importing these sanction cruits. 0:11:01.400 --> 0:11:04.840 Okay, so you can imagine that in the current scenario 0:11:05.200 --> 0:11:09.320 where you have these teapot refineries that are benefiting from 0:11:09.400 --> 0:11:12.480 the discount between sanctioned and non sanction oil, they're going 0:11:12.559 --> 0:11:16.760 to be hit by I guess less oil in the 0:11:16.800 --> 0:11:20.640 system in general, but I mean Russia still exists, Russian 0:11:20.640 --> 0:11:23.880 oil is still out there. Could you see a scenario 0:11:24.120 --> 0:11:27.520 where they just start importing more Russian oil to offset 0:11:27.640 --> 0:11:29.600 some of the supply that's lost in the Middle East. 0:11:31.000 --> 0:11:33.960 Yeah, I do think that is likely. And I will 0:11:34.000 --> 0:11:36.760 say this is actually a tough time for the teapots 0:11:36.800 --> 0:11:43.640 because last month the Trump's removal of Venezuelan President Maduro 0:11:43.880 --> 0:11:47.120 from office and the US taking control of the marketing 0:11:47.200 --> 0:11:50.360 of some of Venezuela's crude sort of raise questions about 0:11:50.360 --> 0:11:53.720 how much oil, how much Venezuelan oil would China still 0:11:53.760 --> 0:11:56.440 be able to import and at what price, And in 0:11:56.679 --> 0:12:02.080 anticipation of a potential shortfall in the or Venezuelan oil imports, 0:12:02.160 --> 0:12:06.960 the teapots turned to Iran and specifically to purchasing rani 0:12:06.960 --> 0:12:11.080 and heavy crude, which is, you know, a decent substitute 0:12:11.120 --> 0:12:13.760 and you know, certainly could be obtained at a discount. 0:12:13.920 --> 0:12:16.000 But now, of course, you know, with the war in 0:12:16.040 --> 0:12:19.360 the Middle East, this is raising questions about the teapots 0:12:19.360 --> 0:12:22.160 supply of Iranian oil. The good news, I guess for 0:12:22.320 --> 0:12:25.040 China as a whole is that they are sitting on 0:12:25.320 --> 0:12:32.320 substantial strategic and commercial oil stockpiles that provide one hundred 0:12:32.480 --> 0:12:37.160 and twenty days of China's net crude oil imports at 0:12:37.160 --> 0:12:39.240 the twenty twenty five level. So you know what that 0:12:39.280 --> 0:12:41.360 means is that if all of you know, China was 0:12:41.520 --> 0:12:45.200 unable to import any oil at all, which obviously isn't 0:12:45.240 --> 0:12:48.000 going to happen, they could you know, rely on their 0:12:48.040 --> 0:12:52.000 stockpiles for four months of crude oil imports. And so 0:12:52.120 --> 0:12:54.400 if you look at the sort of Iranian crude and 0:12:54.480 --> 0:12:56.920 you know, perhaps other flows that might be disrupted by 0:12:56.920 --> 0:12:59.160 the closure of the Street of Hormos, you know, they're 0:12:59.240 --> 0:13:03.320 sitting in a pretty good position. Also, there is you 0:13:03.360 --> 0:13:07.920 know a good amount of Iranian and Russian crewed in 0:13:08.200 --> 0:13:12.560 floating storage in Asia off the coast of China and Malaysia. 0:13:12.720 --> 0:13:15.960 And you know this had been building up before the 0:13:16.080 --> 0:13:20.680 US and Israel launched their strikes on Iran. And there 0:13:20.800 --> 0:13:25.559 is also Iranian oil sitting in bonded storage in Chinese 0:13:25.760 --> 0:13:27.960 courts which could be tapped into. 0:13:44.000 --> 0:13:46.800 You know, you mentioned the significance of the you know, 0:13:46.840 --> 0:13:51.520 we're talking about the Iran China trading relationship. How significant 0:13:51.600 --> 0:13:54.320 was Venezuela in this picture? And what do we know 0:13:54.360 --> 0:13:57.000 about the picture now because I think there's still Venezuelan 0:13:57.080 --> 0:14:00.120 oil now going to China right now, But how well 0:14:00.320 --> 0:14:03.480 talk to us about the significance of that piece of 0:14:03.520 --> 0:14:03.960 the puzzle. 0:14:04.360 --> 0:14:10.680 Yeah, so Venezuela is a smaller crude oil supplier to 0:14:10.960 --> 0:14:16.000 China than Iran. Last year of Venezuela, you know, supplied 0:14:16.600 --> 0:14:20.040 you know, around four hundred thousand viarrels per day of 0:14:20.080 --> 0:14:22.640 crude oil to China. So you're just looking at you know, 0:14:22.680 --> 0:14:25.760 a few, very very small share the three four percent 0:14:25.880 --> 0:14:30.480 of China's total crude oil imports last year. However, you know, 0:14:30.600 --> 0:14:34.960 virtually all of that oil was going to the teapot refineries. 0:14:35.200 --> 0:14:37.280 So while you can say, oh, China is not going 0:14:37.320 --> 0:14:39.560 to be hit too hard, if you know, it loses 0:14:39.760 --> 0:14:42.240 four hundred thousand barrels per day of crude oil imports 0:14:42.240 --> 0:14:45.440 from Venezuela. It does sort of make life more difficult 0:14:45.440 --> 0:14:50.560 for the teapot refineries. Now, Secretary Right did say a 0:14:50.600 --> 0:14:53.520 couple of weeks ago that you know, the US had 0:14:53.600 --> 0:14:56.840 sold some Venezuelan crewe to China. I don't know who 0:14:56.880 --> 0:14:59.400 the buyers are. And of course for the teapots, you know, 0:14:59.520 --> 0:15:01.720 prices also an issue. I mean, yes, they would like 0:15:01.800 --> 0:15:04.680 to you know, continue to import those Venezuelan barrels because 0:15:04.720 --> 0:15:07.600 they're used to processing you know, that type of crude. 0:15:07.920 --> 0:15:12.560 But the current situation means that they might be even 0:15:12.600 --> 0:15:14.840 if they can still you know, buy a fair amount 0:15:14.920 --> 0:15:17.680 of Venezuela and oil you know that's being marketed by 0:15:17.720 --> 0:15:19.880 the US, you know, I think a big question for 0:15:19.960 --> 0:15:21.760 them is at what price? 0:15:22.800 --> 0:15:25.880 Can we go back to China's Strategic Petroleum Reserve for 0:15:25.920 --> 0:15:29.680 a second, because I feel like the US reserve was 0:15:29.680 --> 0:15:32.320 such a big talking point during the Biden administration and 0:15:32.360 --> 0:15:36.320 it kind of, you know, soared into our collective consciousness 0:15:36.520 --> 0:15:39.560 when we think about China's spr What are the actual 0:15:40.200 --> 0:15:43.960 goals there of the Chinese state? Why did they establish this, 0:15:44.080 --> 0:15:46.360 what are they thinking about? And then also what do 0:15:46.440 --> 0:15:47.840 we actually know about it? 0:15:49.000 --> 0:15:54.800 Yeah, so the main reason China established its strategic oil 0:15:54.880 --> 0:16:00.200 reserve is because China is a major importer of oil. 0:16:00.440 --> 0:16:05.720 China switched to a net importer of oil in nineteen 0:16:05.840 --> 0:16:11.440 ninety three, and as its reliance on imported crewed group 0:16:11.840 --> 0:16:17.360 there were real concerns about supply security in China, and 0:16:17.440 --> 0:16:21.920 so building a strategic petroleum reserve, you know, is one 0:16:21.920 --> 0:16:24.560 of the things that they did, you know, to make 0:16:24.600 --> 0:16:27.240 sure that they are in a good position, you know, 0:16:27.360 --> 0:16:32.720 to deal with unexpected disruptions to their oil supplies. Now, 0:16:32.760 --> 0:16:34.640 one thing, as I mentioned earlier, I've been looking at 0:16:34.640 --> 0:16:37.640 this issue for quite some time, and I recall you know, 0:16:37.680 --> 0:16:40.000 going back, you know, over twenty years ago. You know, 0:16:40.080 --> 0:16:42.960 so there we are discussions at China about do we 0:16:43.040 --> 0:16:46.080 need this, can we afford it? You know, how big 0:16:46.320 --> 0:16:50.240 a stockpile? You know, do we want to invest in building? 0:16:50.760 --> 0:16:53.960 And you know, as you may know, for states that 0:16:54.120 --> 0:16:57.600 are members of the International Energy Agency, at which China 0:16:57.680 --> 0:17:00.960 is not, but the International Energy Agency you know requires 0:17:01.120 --> 0:17:04.479 members still hold you know, stock piles you know equal 0:17:04.520 --> 0:17:07.600 to you know, ninety days of net oil import coverage, 0:17:07.600 --> 0:17:09.600 you know, and so that's the benchmark that has been 0:17:09.680 --> 0:17:12.640 used and a lot of Chinese discussions about its SPR 0:17:12.960 --> 0:17:16.159 over the years. And you know, again I remember, you know, 0:17:16.240 --> 0:17:19.280 going back fifteen twenty years ago, and you did have 0:17:19.359 --> 0:17:22.399 voices in China that were saying, we already import a 0:17:22.400 --> 0:17:25.920 lot of oil, Our imports are going to continue to grow. 0:17:25.960 --> 0:17:29.120 Can we really afford to build ninety days of net 0:17:29.160 --> 0:17:32.000 oil import coverage? But if you fast forward to today 0:17:32.080 --> 0:17:34.760 and you look at the different estimates out there about 0:17:34.800 --> 0:17:38.240 how much oil is sitting in storage in China, you know, 0:17:38.320 --> 0:17:42.200 to include both strategic stockpiles as well as commercial stock 0:17:42.240 --> 0:17:46.639 piles held by oil companies, China holds more than ninety 0:17:46.760 --> 0:17:50.800 days of net oil import coverage. And so looking at 0:17:50.840 --> 0:17:54.919 the disruptions, looking at the geopolitical sort of upheavals in 0:17:55.359 --> 0:17:58.719 oil markets, you know, just this calendar year with the 0:17:58.880 --> 0:18:02.280 US actions in venezuel and now Iran, the fact that 0:18:02.359 --> 0:18:06.560 China is sitting on these substantial stockpiles, you know, has 0:18:06.680 --> 0:18:10.560 to be a source of peace of mind and sort 0:18:10.560 --> 0:18:13.399 of a vindication for undertaking this project. 0:18:13.480 --> 0:18:17.000 Yeah, Tracy mentioned obviously all the fights about the SPR 0:18:17.040 --> 0:18:19.640 and the US under the Biden administration. And it's kind 0:18:19.640 --> 0:18:22.920 of weird because, like, you know, there's some question why 0:18:23.000 --> 0:18:25.640 is you know, the US is a massive exporter producer 0:18:25.680 --> 0:18:27.520 of oil now in a way that wasn't the case 0:18:27.560 --> 0:18:30.639 twenty years ago or thirty years ago or at the time, 0:18:31.040 --> 0:18:33.600 certainly at the time that the SPR was first conceived. 0:18:34.160 --> 0:18:36.520 So it's a little unclear what the point of an 0:18:36.600 --> 0:18:39.000 SPR is. And so I'm not surprised that it's sort 0:18:39.000 --> 0:18:41.679 of used to lower the price of gasoline for consumers 0:18:41.760 --> 0:18:45.439 in a time of high inflation and so forth. In China, 0:18:45.600 --> 0:18:49.000 where you know, the automobile, you know, they're switching rapidly 0:18:49.119 --> 0:18:51.919 to EVS. Oil is not going to be as important 0:18:52.119 --> 0:18:55.080 for that, and it's going to continue to be less 0:18:55.080 --> 0:19:00.359 important over time. How much is it about prosecuting war 0:19:00.560 --> 0:19:04.000 at some point and the prospect that they would completely 0:19:04.040 --> 0:19:07.639 get shut off from oil imports in the event of aggression, 0:19:07.800 --> 0:19:10.280 and how much is that really what it's about having 0:19:10.359 --> 0:19:13.800 the resources to fight a war if and when that 0:19:13.880 --> 0:19:14.720 time comes. 0:19:15.400 --> 0:19:19.440 Yeah, No, I absolutely think that is part of it. 0:19:19.640 --> 0:19:23.080 Ever since China switched to being a net importer of oil, 0:19:23.320 --> 0:19:27.520 there have been real concerns about the vulnerability of its 0:19:27.600 --> 0:19:32.480 oil imports and specifically its seaborne oil imports by various 0:19:32.520 --> 0:19:36.440 modern navies, notably that of the United States. That's why 0:19:36.480 --> 0:19:40.639 we saw China build these pipelines. Did they deliver oil 0:19:40.760 --> 0:19:46.000 overland from Russia and from Kazakhstan. And so given those concerns, 0:19:46.320 --> 0:19:49.119 given you know, those fears that in the event of 0:19:49.160 --> 0:19:52.320 a conflict that it's China, you know, in the United States, 0:19:52.400 --> 0:19:55.280 you know, against each other, would China, you know, would 0:19:55.280 --> 0:19:57.840 the United States be able to cut off the flow 0:19:58.280 --> 0:20:01.440 of oil to China. And just to put this even 0:20:01.720 --> 0:20:05.160 in sort of broader historical context, you know, if we 0:20:05.240 --> 0:20:09.480 go back to the nineteen sixties, at the time that 0:20:09.560 --> 0:20:13.120 the relationship between China and the Soviet Union was following 0:20:13.440 --> 0:20:19.240 was falling apart, at that point, China was heavily reliant 0:20:19.520 --> 0:20:24.600 on the Soviet Union for refined products needed to fuel 0:20:24.800 --> 0:20:29.280 its military jet fuel. And so as those tensions between 0:20:29.359 --> 0:20:33.520 China and the Soviet Union increased, the US's are did 0:20:33.560 --> 0:20:37.760 cut back on refined oil product exports to China, you know, 0:20:37.840 --> 0:20:41.119 so certainly, you know, there are examples, you know, looking 0:20:41.200 --> 0:20:44.119 sort of further back in time, they're basically, you know, 0:20:44.160 --> 0:20:47.000 the reason I'm sharing this bit of history with you 0:20:47.359 --> 0:20:49.879 is to let you know that China has first hand 0:20:49.920 --> 0:20:53.960 experience of being in you know, a tense relationship with 0:20:54.119 --> 0:20:58.359 another major power and having that major power you know, 0:20:58.480 --> 0:21:03.040 squeezed the country with respect to imported oil products. 0:21:03.640 --> 0:21:05.840 Actually, this might be a good time to ask just 0:21:05.880 --> 0:21:10.479 about China's foreign policy more broadly. So I saw, you know, 0:21:10.760 --> 0:21:14.680 they issued a statement following the attacks, and I read 0:21:14.720 --> 0:21:16.720 one person describe it as the kind of thing you 0:21:16.720 --> 0:21:21.119 would expect from Brussels, you know, very very generic, expressing 0:21:21.200 --> 0:21:24.840 concern over the situation in Iran, but they also expressed 0:21:24.880 --> 0:21:29.600 concern over the attacks on the UAE, for instance, which 0:21:29.840 --> 0:21:34.320 is of economic importance to China. Certainly, what's your sense 0:21:34.440 --> 0:21:38.080 of I guess what is at stake beyond just oil 0:21:38.560 --> 0:21:42.240 for China in this particular situation, you know, sort. 0:21:42.040 --> 0:21:46.639 Of looking beyond China's energy imports from the region. China 0:21:47.200 --> 0:21:51.240 national oil companies are big producers in a rock, so 0:21:51.280 --> 0:21:55.480 they have a number of upstream assets in that country. 0:21:56.200 --> 0:22:01.600 Chinese firms are also involved in building other types of 0:22:01.720 --> 0:22:06.600 infrastructure in the region. For example, there are Chinese companies 0:22:06.800 --> 0:22:15.040 that are building operating renewable energy facilities, especially solar farms 0:22:15.119 --> 0:22:19.239 in the region, and because of this, we've seen you know, 0:22:19.400 --> 0:22:23.280 Beijing call not just you know, for everyone to help 0:22:23.359 --> 0:22:28.119 ensure the free flow of energy from the region, but 0:22:28.440 --> 0:22:31.600 also to make sure that civilians aren't hit, right, because 0:22:31.640 --> 0:22:34.639 you have Chinese citizens on the ground there. It doesn't 0:22:34.640 --> 0:22:38.320 want any of its physical economic assets infrastructure in the 0:22:38.359 --> 0:22:40.960 region to get hit. So that's that, you know that 0:22:41.000 --> 0:22:42.959 the people on assets side of the story. 0:22:43.640 --> 0:22:47.520 Joe, I just remembered in Dubai kind of outside of 0:22:47.600 --> 0:22:51.000 like main Dubai, there was this small and it was 0:22:51.040 --> 0:22:52.840 called I think it was called Dragon Mark, and it 0:22:52.920 --> 0:22:57.600 was just a Chinese market. You would love it absolutely, 0:22:58.119 --> 0:23:01.600 like everything imaginable was available there, and like when you 0:23:01.680 --> 0:23:03.800 went there it felt very very surreal. 0:23:03.880 --> 0:23:06.359 Actually, yeah, I would love it. That sounds like the 0:23:06.359 --> 0:23:08.840 most interesting thing I've heard of in Dubai. Nothing else 0:23:08.880 --> 0:23:11.800 I've never nothing else about Dubai's ever made me. 0:23:11.960 --> 0:23:13.800 I can tell you more interesting things. So it's the 0:23:13.880 --> 0:23:15.679 North Korean restaurants and things like that. 0:23:15.720 --> 0:23:18.080 Oh I want I want to check out North Korean restaurant. 0:23:19.840 --> 0:23:21.800 Maybe you do and maybe you don't. I've been to 0:23:22.920 --> 0:23:24.360 oh really many years ago. 0:23:24.560 --> 0:23:26.720 Yeah, I've read about them I've read about like the 0:23:26.800 --> 0:23:30.080 chain of North very I mean it's just Korean. 0:23:29.800 --> 0:23:33.280 Food, right, I mean, well it's slightly it has its 0:23:33.320 --> 0:23:36.920 own twist. It's good food, not so great surveillance. That's 0:23:36.960 --> 0:23:39.520 how i'll or actually, maybe the surveillance is a little 0:23:39.560 --> 0:23:40.000 too good. 0:23:40.080 --> 0:23:43.240 Yeah, yeah, there we go. Good food excellent. That's like 0:23:43.240 --> 0:23:44.919 like a great Yelp reviews. 0:23:45.119 --> 0:23:49.719 Surveillance was great, the food, good food, excellen excellent. 0:23:52.160 --> 0:23:54.720 Stay for the face recognition, you know, I get the 0:23:54.760 --> 0:23:58.800