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The six-day blockage of the Suez Canal ended last month without major damage to either the stranded vessel or China’s economy, but the shutdown may serve as a warning to the country of its growing energy security risks.
As the world’s largest exporter and oil importer, China is vulnerable to transit disruptions at choke points on its vital trade routes.
The grounding of the giant 200,000-metric-ton Ever Given container ship on March 23 made barely a scratch in China’s trade and economic growth in the first quarter.
Exports in March rose 30.6 percent and imports jumped 38.1 percent from a year earlier in dollar terms, the General Administration of Customs (GAC) and news agencies said.
The strong trade figures set the stage for first-quarter economic growth of 18.3 percent compared with the year- earlier period during the pandemic slump, the National Bureau of Statistics said.
Chinese officials shrugged off the impact of the accident as largely an inconvenience. The ship was freed and refloated on March 29.
“Although the blockage … has affected shipments of some Chinese enterprises, and has caused fluctuations to a certain extent in related freight rates, its impact on China’s foreign trade is sudden, short-term and limited,” Ministry of Commerce spokesman Gao Feng told state media.
The Ever Given, loaded with over 18,000 containers, had called at the Chinese mainland ports of Qingdao, Shanghai, Ningbo and Yantian before sailing from Tanjung Pelepas in Malaysia on its route to Rotterdam in the Netherlands, American Shipper and Caixin Global said.
But Egypt’s Suez Canal Authority impounded the ship on April 12 pending payment of U.S. $916 million (5.9 billion yuan) in salvage and other claims, leaving delivery of the U.S. $3.5-billion (22.8=billion yuan) cargo in doubt, Caixin and the Associated Press reported.
Over 80 percent of the cargo was Chinese merchandise, Caixin reported, citing the YunQuNa logistics service.
The Panamanian-flagged ship is operated by Evergreen Marine Corp. of Taiwan but owned by Shoei Kisen Kaisha Ltd. of Japan. Twenty-six crew members from India have been detained with the vessel onboard.
Concerns are rising for the welfare of the stranded sailors.
“It remains unclear when exactly the ship’s crew will be permitted to disembark,” timesnownews.com said.
According to separate accounts, 350-400 ships were left waiting on either side of the blockage at the time of the accident, forcing some to sail south around Africa and the Cape of Good Hope, adding over a week to their schedules.
The long way
Although the delay was relatively brief, it highlighted the costs and complexities of global shipping, supply chains and energy flows.
The longer route around Africa added U.S. $450,000 (2.9 million yuan) in costs per voyage, said Anoop Singh, head of tanker analysis at Braemar ACM in Singapore, The Wall Street Journal reported.
During the stoppage, charter costs for some tankers from the Middle East to Asia climbed 47 percent in three days, Singh said.
Analysts at the international consulting firm Wood Mackenzie said the Suez backup caused by the 400-meter (1,312-foot) boxship created energy problems mainly for Asian imports of some oil products and exports of middle distillates including diesel and jet fuel.
The impact of the general cargo delays may yet be felt in economic growth figures for April and May, the analysts said in comments posted on the company’s website.
The six-day crisis also illustrated how quickly vital supplies could be blocked. The case may raise a red flag for crises to come.
“Buyers in Asia remain more concerned around potential disruption to other lanes such as the Straits of Hormuz and Malacca rather than the Suez Canal,” said Yanting Zhou, Wood Mackenzie’s senior economist for the Asia-Pacific region.
“This event also underscores the importance of having strategic petroleum reserves (SPRs) in Asia, given the region’s crude oil import dependency is more than 80 percent,” Zhou said.
Based on official trade and production figures, China’s dependence on foreign oil last year rose to over 73 percent.
In March, oil imports climbed 21 percent year-on-year to nearly 11.7 million barrels per day (mbpd), up from an average of 10.8 mbpd in 2020, according to customs records.
Reports also suggest that the GAC figures may not be all- inclusive, since China is said to be secretly increasing its imports from Iran, despite U.S. sanctions.
Vessel trackers have cited ship-to-ship transfers of discounted Iranian oil to China-bound tankers in volumes that have led to traffic congestion at refinery ports in coastal Shandong, Bloomberg News and Oilprice.com reported last month.
Reliance on Iranian imports may detract further from China’s energy security, since the supplies depend on increased traffic through the Strait of Hormuz from the Persian Gulf.
Late last month, China signed a widely reported 25-year agreement to invest U.S. $400 billion (2.6 trillion yuan) in Iran in exchange for oil supplies despite U.S. curbs.
Diversity of supply and SPR volumes have been China’s major defenses for growing import dependence. Concern about rising reliance on foreign energy sources has also spurred more development of domestic resources including high- polluting coal.
China has been building up its SPR for well over a decade, following the example of oil consuming members of the International Energy Agency (IEA), but with critical differences.
While member nations of the IEA agree to transparent reporting of inventories in their emergency stockpiles, China rarely discloses any SPR data. When it does, the data may be six months or more out of date.
Strategic secrecy
China’s secrecy forces markets to guess whether the country is buying for storage or consumption, complicating calculations of supply and demand.
China typically stocks up when prices are low, as during last year’s pandemic slump, but it has also defied expectations by filling when prices rise, driving them higher when supplies are already tight.
The IEA urges members to store 90 days’ worth of imports as a cushion against prolonged emergencies, helping to stabilize world markets. China has pursued its own version of this practice.
Last year, China set a goal of increasing the state’s stockpile to cover 90 days of net imports, Bloomberg News reported. The reserves have since topped 100 days and have risen as high as 120 days, Bloomberg said, citing unnamed sources.
But the figures include both the government’s SPR and commercial stocks, the report said, noting that China’s international oil companies are state-owned.
Last November, Reuters reported that China’s combined oil in storage reached 1.16 billion barrels, or about 105 days of net imports, citing an estimate by Beijing-based SIA Energy.
The government’s own SPR was believed to hold 290 million to 370 million barrels at the end of last year, according to estimates by SIA and London-based Energy Aspects Ltd., Reuters said. Those numbers imply only about 25 to 31 days of import coverage at the March rate.
Considering the SPR volume alone, the extent of the coverage may actually have fallen since 2017, when the National Energy Administration gave one of its rare reports of the volume stored. Average daily imports have grown by 38 percent since then.
In its reports to the National People’s Congress last May and this March, the National Development and Reform Commission (NDRC) repeatedly referred to “contingency plans” for dealing with energy security risks, but the government’s top planning agency has yet to spell out what its plans are.
The NDRC pledged to “boost oil and gas exploration and development” and “systematically increase our ability to ensure the supply of coal,” suggesting that such steps may be the extent of the planning options, aside from an extension of a Chinese naval presence.
Some analysts suggest that China will continue to increase its total import coverage although storage capacity is approaching its limits.
“In terms of crude stockpiling, we believe China’s goal will not stop at 100 or 120 days of reserves,” said Mia Geng, an analyst at FGE, an oil and gas consultancy based in London.
“National security is among the priorities for the coming years and this will sustain continuous stockbuilds,” Geng told Bloomberg.
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