Odd Lots - What War in Iran Means for China's Teapot Oil Refineries

Episode Date: March 13, 2026

In the wake of the war in Iran, oil prices have shot up for everyone. But not all oil is exactly equal. And, obviously, a lot of Iranian oil goes to China specifically. Furthermore, because Iran’s oil is sanctioned, a lot of it winds up at China’s so-called “teapot” refineries, which tend to be smaller and owned by independent companies. On the other hand, China has famously been building up its strategic petroleum stockpiles for years, and due to the rise of electric vehicles, they may have less economic sensitivity to the price of crude directly. On this episode, we speak with Erica Downs, senior research scholar at the Center on Global Energy Policy at the Columbia University School of International and Public Affairs. Erica has a long background studying Chinese energy policy and she talks to us about the potential cost that the war is imposing on China’s economy, why the country has built up such a big buffer stock in the first place, and how this global oil shock could ultimately play to its advantage. Subscribe to the Odd Lots NewsletterJoin the conversation: discord.gg/oddlotsSee omnystudio.com/listener for privacy information.

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Hello and welcome to another episode of the Odd Lots podcast. I'm Joe Wisenth. And I'm Tracy Allaway. So Tracy, we are recording this 1 p.m. March 4th, 2026. And one of those days where you have to nail the hour and the minute because who knows what's going to happen. Absolutely. Of course, we are in the midst of a war with the rent that started this past weekend. And it's been an extraordinary week in markets, massive surge in the price of oil, all kinds of concerns about the sheer. logistics of getting oil, as well as other commodities out of that region, who's going to be affected. The ramifications are just global for obvious reasons. Yeah, there's clearly a lot to talk about. But there are some interesting angles in particular that you and I have been discussing, and we're going to try to hit all of those individually in a lot of different episodes that are coming up. But for this particular episode, we want to talk about something that, you know,

obviously the U.S., Europe have kind of been, I would say, the main subject of a lot of the hand-wringing or the focus at the moment. So Europe, we know, has had to grapple with higher energy costs for a while. And clearly, you know, all this chaos in the Middle East is not going to be good for that. But one thing that hasn't gotten as much attention is what this actually means for China, which is a huge, huge purchaser of oil from the Middle East. Right. This is really important. So obviously in the U.S. we're swimming with oil. We're an oil exporter. This could be very good also for our gas exports to Europe. I mean, already we've seen this big increase in gas exports from the U.S. to Europe, particularly just in the wake of the ongoing war in Ukraine. So this could create further opportunities. But for all the countries that are, you know, major importers and China being one is obviously a very different dimension for them. Absolutely. Also, can I just say that this particular time? topic is finally, finally an opportunity to touch on teapot refiners in China, which I always wanted to do an episode on.

Great. And for some reason, we never got to it. But now's our chance. I will learn what a tea. I've known at times what a teapot refiner is. Wait, what's your impression? If someone says teapot refinery, what do you think? Don't put me on the spot.

I would just imagine a little refinery. Yeah, I mean, that's it, basically. All right. Well, that was a good guess. The teapot. Yeah, I guess it's kind of good name. And so I like thinking about it. Anyway, I'm very excited to say.

We really do have the perfect guest today to sort of talk about the energy dimension from some angles that have, that deserve and need more exploration in this precise moment. We're going to be speaking with Erica Downs. She's a senior research scholar at Columbia University Center on Global Energy Policy and an expert truly in this field. Erica, thank you so much for coming on odd lots. Thank you so much for having me. Just for the sake of our audience, what do you give us the sort of brief overview of your work? Tell us a little bit about what you do in your general field of study. So my research focuses primarily on the geopolitics of energy. And so I've been kept busy recently

looking at China's energy relationships with Russia, with Venezuela, and of course, this week with Iran. So why don't you sum up, I guess, China's relationship with energy at the moment then? The only thing I know in recent times that sort of hit the headlines is that China's been importing an enormous amount of oil, which both suggests that it needs oil and it's an important thing for its economy to work, but also that maybe in the face of tighter supply coming from the Middle East, it has something of a cushion. So yes, China has been putting a lot of oil into storage. They kickstarted their strategic petroleum reserve over 20 years ago and have been building it up precisely to have in moments like the one that we are in now. Now, China, as you mentioned, is a big importer of oil.

About half the oil that China imports comes from the Middle East. Most of those Middle East oil supplies pass through the street of Hormuz, which is now closed. Talk to us a little bit about the volumes here that we're talking about. Tracy mentioned that obviously they're importing quite a bit and much of it keeping in storage. Like, okay, we're talking about Iran or something. How crucial is that relationship? What do we know about its volume? What do we know about pricing?

Tell us some more details about this particular bilateral trading relationship. Sure. So last year, China imported 11.6 million barrels per day. About 1.4 million barrels per day came from Iran. So that accounted for about 12% of China's crude oil imports. Now, the main buyers of Iranian oil in China are the teapot refineries. I've been following the teapot refineries for a long time, and I love to talk about them. So Joe is very happy to hear you speak about them in your introduction.

Yeah, and so the teapots are small, independent refineries. Many of them are clustered in Shandong province. They're not as big or sophisticated as the refineries operated by China's national. oil companies or the new integrated refining and petrochemical projects. These are world-scale projects that have popped up in China over the past few years. So the teapots are much smaller, less sophisticated, and they rely on the discounts they can receive on sanctioned crudes to boost their bottom lines. And in some cases, they probably depend on these crews for their survival. So they're the main buyers of Iranian crude in China. The national oil companies that were, you know, lifting, you know, all of Iranians crude to take back to China 10, 15 years ago are completely out of the Iran oil trading business because of concerns about U.S. sanctions.

And just to bring this back to the teapots, you know, the reason why they are buying and the national oil companies, China's national oil companies aren't, is because the teapots are more risk-tops. And what I mean by that is that the national oil companies have a vested interest in maintaining access to the U.S. Dollar financial system. You know, these are global companies with global operations. They don't want to lose that access. Whereas if you look at the teapots who are still buying Iranian food today, I suspect that they have little or no interest in maintaining access to the U.S. dollar financial system, Sure, they'd prefer not to be sanctioned, but being sanctioned wouldn't be catastrophic for them in the way it might be for Sinopac, the China National Petroleum Corporation. And so it's this risk tolerance as well as this pursuit of discounted barrels that has made the teapots the biggest importers of Iranian prude in China.

So I don't mean to go on too big of a teapot tangent. How's that for alliteration? That's good. Thank you. But how did we end up with this situation where we have these national refining giants in China, which I assume, you know, enjoy support from the state and they enjoy all the benefits of scale? And then you have these tiny or smaller refiners, independent refiners that have sort of cropped up. How did that system actually begin? Yeah. So sure, happy to provide some background.

So the teapot refineries, which are actually called local refineries. binaries in China originated. They grew up in China in northeastern China to process crude from the Shunli oil field, you know, which historically was one of China's backbone oil fields. And for most of their existence, you know, these teapots, you know, did not have the right to import and process imported crude. And this all changed back in 2015 when the Chinese government, you know, said that teapots who met certain requirements would be granted licenses to purchase and process imported crude. And the criteria that the teapots had to meet, you know, were things such as, you know, sort of getting rid of highly polluting crude distillation units, building natural gas

storage, believe it or not. And so, you know, teapots that met these requirements could, you know, apply for licenses and they'd get a license and they'd be given a quota and they could use that quota to purchase crude from outside of China's borders. And when I first started looking at the teapots, you know, around the time that they got permission to import crude, they had a pretty diverse slate of suppliers. But as sanctions on, you know, countries such as Iran, Russia, you know, Venezuela, tightened and discounts were on offer to entice buyers to take these barrels that a lot of other importers were consuming, the teapot stepped into the void. This is already fascinating. I've already learned a lot from this. Do we have a sense like,

how big are these discounts? So intuitively, okay, a country gets sanctioned and then a bunch of buyers, and that makes a lot of sense, don't want to deal with it or don't want to risk getting sanction themselves. So when Iran, by dint of sanctions, essentially forced to sell a significant amount of their oil to these teapots, do we have? a sense of like what the pricing is on these deals relative to overall oil prices? So industry press will report, you know, the discounts available, which change over time. And the discounts are usually reported as, you know, X number of dollars lower than the price of record. So the discounts that China's teapot refineries receive on sanction barrels are

certainly attractive enough to make them seek them out. Now, these discounts change over time. You know, they're often reported in industry press as, you know, a certain number of dollars, you know, cheaper than the price of rent crude. And just to give you a sense of how important these are to the teapots, it Reuters ran a piece, I believe, back in 2023 where they said they had calculated that China had saved $10 billion on crude oil imports by importing these sanctions. Okay, so you can imagine that in the current scenario where you have these teapot refineries that are, you know, benefiting from the discount between sanctioned and non-sanction oil, they're going to be hit by, I guess, less oil in the system in general. But, I mean, Russia still exists. Russian oil is still out there. Could you see a scenario where they just start importing more Russian oil to offset some of the supply that's lost in the Middle East? Yeah, I do think that is likely. And I will say this is actually a tough time for the teapots because last month, the Trump's removal of Venezuelan president Maduro from office and the U.S.

taking control of the marketing of some of Venezuela's prude, sort of raise questions about how much oil, how much Venezuelan oil would China still be able to import and at what price? And in anticipation of potential shortfall in their Venezuelan oil imports, the teapots turned to Iran and specifically to purchasing Iranian heavy crude, which is a decent substitute and certainly could be obtained at a discount. But now, of course, with the war in the Middle East, this is raising questions about the teapot supply of Iranian oil. The good news, I guess, for China as a whole, is that they are sitting on substantial strategic and commercial oil stockpiles that provide 120 days of China's net crude oil imports at the

2025 level. So, you know, what that means is that if all of, you know, if China was unable to import any oil at all, which obviously isn't going to happen, they could, you know, rely on their stockpiles for four months of crude oil imports. And so if you look at sort of Iranian crude and, you know, perhaps other flows that might be disrupted by the closure of the Strait of Hormos, you know, they're sitting in a pretty good position. Also, there is, you know, a good amount of Iranian and Russian crude in floating storage in Asia off the coast of China and Malaysia. And, you know, this had been building up before the U.S. and Israel launched their strikes on Iran. And there is also Iranian oil sitting in bonded storage in Chinese courts, which could be tapped into.

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Yeah. So Venezuela is a smaller crude oil supplier to China than Irman. Iran. Last year, Venezuela, you know, supplied, you know, around 400,000 barrels per day of crude oil to China. So you're just looking at, you know, a few very, very small share, you know, three, four percent of China's total crude oil imports last year. However, you know, virtually all of that oil was going to the teapot refineries. So while you can say, oh, China's not going to be hit too hard if, you know, it loses 400,000 barrels per day of crude oil imports. from Venezuela, it does sort of make life more difficult for the teapot refineries.

Now, Secretary Wright did say a couple of weeks ago that, you know, the U.S. had sold some Venezuelan crude to China. I don't know who the buyers are. And of course, for the teapots, you know, price is also an issue. I mean, yes, they would like to, you know, continue to import those Venezuelan barrels because they're used to processing, you know, that type of crude. But the current situation means that they might be, even if they can still buy a fair amount of Venezuelan oil, you know, that's being marketed by the U.S., you know, I think a big question for them is at what price. Can we go back to China's Strategic Petroleum Reserve for a second? Because I feel like the U.S. Reserve was such a big talking point during the Biden administration. And it kind of, you know, soared into our collective consciousness. When we think about China's SPR, what are the actual goals there of the Chinese state? Why did they establish this?

What are they thinking about? And then also, what do we actually know about it? Yeah. So the main reason China established its strategic oil reserve is because China is a major importer of oil. China switched to a net importer of oil in 1993. And as its reliance on imported crude grew, there were real concerns about supply security in China. And so building a strategic petroleum reserve, you know, is one of the things that they did, you know, to make sure that they were in a good

position, you know, to deal with unexpected disruptions to their oil supplies. Now, one thing, as I mentioned earlier, I've been looking at this issue for quite some time. And I recall, you know, going back, you know, over 20 years ago, you know, so there were discussions in China about do we need this, can we afford it, you know, how big a stockpile, you know, do we want to invest in building? And, you know, as you may know, for states that are members of the international energy, you know, agency, which China is not, but the International Energy Agency, you know, requires members to hold, you know, stockpiles, you know, equal to, you know, 90 days of net oil import coverage, you know, and so that's the benchmark that has been used in a lot of Chinese discussions about its SPR over

the years. And, you know, again, I remember, you know, going back 15, 20 years ago, and you did have voices in China that were saying we already import a lot of oil. Our imports are going to continue to grow. and we really afford to build 90 days of net oil import coverage. But if you fast forward to today and you look at the different estimates out there about how much oil is sitting in storage in China, you know, to include both strategic stockpiles as well as commercial stockpiles held by oil companies, China holds more than 90 days of net oil import coverage. And so looking at the disruptions, looking at the geopolitical sort of upheavals in in crude oil markets, you know, just this calendar year with the U.S. actions in Venezuela and now

Iran, the fact that China is sitting on these substantial stockpiles, you know, has to be a source of peace of mind and sort of a vindication for undertaking this project. Yeah. Tracy mentioned obviously all the fights about the SPR and the U.S. under the Biden administration. And it's kind of weird because, like, you know, there's some question, why does, you know, the U.S. is a massive exporter producer of oil now in a way that wasn't the case 20 years ago or 30 years ago or at the time, certainly at the time that the SPR was first conceived. So it's a little unclear what the point of an SPR is. And so I'm not surprised that it's sort of used to lower the price of gasoline for consumers in a time of high inflation and so forth. In China, where, you know,

the automobile, you know, they're switching rapidly to EVs. Oil is not going to be as important for that and it's going to continue to be less important over time. How much is it about prosecuting a war at some point and the prospect that they would completely get shut off from oil imports in the event of aggression? And how much is that really what it's about having the resources to fight a war if and when that time comes? Yeah. No, I absolutely think that is part of it. Ever since China switched to being a net importer of oil, there have been real concerns about the vulnerability of its oil imports, and specifically its seaborne oil imports by various modern navies, notably that of the United States.

That's why we saw China build these pipelines to deliver oil overland from Russia and from Kazakhstan. And so given those concerns, given, you know, those fears that in the event of a conflict that fits China, you know, in the United States, you know, against each other, would China, you know, would the United States be able to cut off the flow of oil to China? And just to put this even in sort of broader historical context, you know, if we go back to the 1960s at the time that the relationship between China and the Soviet Union was falling, was falling apart. At that point, China was heavily reliant on the Soviet Union for refined products needed to fuel its military jet fuel. And so as those tensions between China and the Soviet Union

increased, the USSR did cut back on refined oil product exports to China. So certainly, you know, there are examples, you know, looking sort of further back in time. They're basically, you know, the reason I'm sharing this bit of history with you is to let you know that China has firsthand experience of being in, you know, a tense relationship with another major power and having that major power, you know, squeezed the country with respect to imported oil products. Actually, this might be a good time to ask just about China's foreign policy more broadly. So I saw, you know, they issued a statement following the attacks. And I read one person describe it as the kind of thing you would expect from Brussels, you know, very generic, expressing concern over the situation in Iran. But they also expressed concern over the attacks on the UAE, for instance, which is of economic importance to China, certainly. What's your sense of, I guess, what is at stake beyond just oil for.

China in this particular situation? You know, sort of looking beyond China's energy imports from the region, China's national oil companies are big producers in Iraq, so they have a number of upstream assets in that country. Chinese firms are also involved in building other types of infrastructure in the region. For example, there are Chinese companies that are building operating renewable energy facilities, especially solar farms in the region. And because of this, we've seen, you know, Beijing called not just, you know, for everyone to help ensure the free flow of energy from the region, but also to make sure that civilians aren't hit, right? Because you have Chinese citizens on the ground there. It doesn't want any of its physical economic assets infrastructure

in the region to get hit. So that's the people and assets side of this story. Joe, I just remembered in Dubai, kind of outside of like main Dubai, there was this mall. And it was called, I think it was called Dragon Mart. And it was just a Chinese market in Dubai. You would love it. Absolutely. Like everything imaginable was available there.

And like when you went there, it felt very, very surreal, actually. Yeah, I would love it. That sounds like the most interesting thing I've heard of in Dubai. I've never nothing else I've never nothing else about Dubai has ever made me I can tell you more interesting things there's the North Korean restaurants and things like that oh I want I want to check out a North Korean restaurant Yeah, maybe you do and maybe you don't. I've been to one in Beijing. Oh, really? Many years ago.

Yeah, I've read about them. I've read about like the chain of North Kern, right? I'm very, I mean, it's just Korean food, right? I mean, well, it's slightly, it has its own twist. It's good food, not so great surveillance. That's how I'll, or actually, maybe the surveillance is a little too good. Yeah, yeah, there we go. Good food, excellent.

That's like, it's a great, like, a great Yelp review. That's right. The food. Good food, excellent surveillance. Excellent surveillance. Talk for the food. Stay for the surveillance. Stay for the face recognition.

You know, I get the impression with just to stick on Chinese foreign policy for a second. One thing I hadn't realized up until recently, it just hadn't done on me is like China doesn't have any like formal like treaty allies. You know, there's like nobody unlike the U.S. like we have an agreement. We then, you know, we're obligated or we agree to defend them. I don't think China does it that way. Like, I was surprised, you know, at the kind of, Tracy mentioned that the sort of neutralish tone. It's like telling Iran, like, be careful in your retaliation and who you hit for obvious some of the reasons that you mentioned, you know, but it's certainly not like we're seeing China make any statement. Like, we're going to, oh, we're going to up our shipments of weapons or defense weapons to Iran.

Maybe they're doing some of that covertly, but they don't make a big announcement of it. But it strikes me like that's very telling that even a country with. whom they have a fairly substantial economic partnership with and maybe some sort of ideological alignment in terms of countering Western hegemony and so forth. You know, still, even with them, there's nothing formally established. Talk a little bit more about how they think strategically about the region beyond just the sort of commercial needs. Sure. So China wants to maintain good relations with Iran, and it also wants to maintain good relations with Saudi Arabia, UAE, Oman, other states in the region. And so China historically has, you know, sort of walked this

tightrope, you know, in trying to balance relationships, you know, the Saudis with the Iranians. And I think they have been pretty successful in pulling that off. Now, China has no interest in getting bogged down in a military conflict in the region. So we're not going to see China get involved in that. They are happy to be a mediator. And in fact, Beijing recently announced, I think just a few hours ago that they are sending their special envoy to the region for mediation purposes. And so I think that China likes playing that role. I think it certainly bolsters their image as a sort of responsible outside power that is, you know, getting involved in the region, you know, with the goal of restoring peace and stability. Eating well shouldn't be complicated,

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That's Bloomberg this weekend. Saturdays and Sundays starting at 7 a.m. Eastern. Make us part of your weekend routine on Bloomberg Television, radio, and wherever you get your podcasts. So one thing I wanted to make sure to ask you is just more broadly, you've spent your entire academic career studying Chinese energy markets and Chinese energy policy. What's the one thing you think people should know about that particular market or the one thing that makes China unusual in the grand scheme of global energy policies?

So one thing I'd like to highlight is China's changing role in the global energy system. So for most of the time that I've been following China's energy sector, you know, it's, and looking at China's role in global energy markets, it's been China as a growing importer of oil and natural gas, both pipeline gas and LNG, as an opportunistic pull importer. But there's an important change underway in China, you know, which is that the country is transitioning to a lower carbon future. You may have seen a lot of news reports about record level of wind and solar capacity installations in China. Part of this is certainly about decarbonization. It's also about energy supply security. I think one thing China has taken away from the war in

Ukraine from, you know, U.S. activities in Venezuela, you know, the current war in Iran, is that, you know, it's better just to be able to rely on energy sources within your own borders. There's an energy supply story as well. There's an energy security story for China. But the other thing that's going on here is that China wants to continue to be the supplier of the green technologies that the rest of the world needs for decarbonization, energy security, you know, access to reliable and affordable energy. So those three sets of goals. And so we are seeing China emerge as this green tech superpower, if you will. And so it's very interesting to think about this. And China playing this role, you know, at the same time that the United States is advancing.

this agenda of energy dominance, which of course is focused on, you know, exporting more U.S. LNG and oil and sort of using those as a source of leverage. When I think about that, my instinctive reaction is, you know, maybe more, of course it could be a carrot or a stick, you know, but I think of it as being more of a stick, whereas I think that, you know, China has, you know, something very different that it can offer that might be. quite appealing to a lot of countries in the world. There's a lot of countries don't want to spend a lot of their foreign exchange on energy imports. They don't want to be vulnerable to supply disruptions. And so if China's coming along and saying that, okay, you have, you know, great solar energy resources

and you can buy solar panels for us or you can hire, you know, a Chinese EPC contractor to build you, you know, a solar farm, then, you know, countries don't have to spend as much energy and foreign exchange. And just as one example, I did a lot of work a number of years ago, like circa 2018, 2019, looking at why China was building so many coal-fired power plants in Pakistan when the country had, you know, tremendous, you know, renewable energy resource, you know, wind and solar resources, especially solar. And I ended up doing this deep dive into Pakistan's energy sector. You know, one of the things I discovered is that they were spending a lot of, you know, know, very precious foreign exchange on, you know, importing fuel oil, you know, and now coal to run

these power plants. And that was an issue. And now we are seeing there have been a lot of reports over the past year about how you have individual households and businesses in Pakistan that have been buying a lot of Chinese solar panels to put on their roof so that they have affordable and reliable energy. And so I just, whenever I, you know, hear about the Pakistan example, I keep thinking back to that earlier research that I did and how, you know, this to a certain extent, has to be, you know, helping Pakistan concern foreign exchange or conserved foreign exchange that it previously would have spent on energy imports. I don't know the size of the savings off the top of my head, but that's just, you know, one example I wanted to highlight. Yeah, it does seem like, you know, for most of recent history and still today, like fossil fuel dominance is incredibly important. And it's not like, that's not going to change overnight.

And so, yes, you have incredible fossil fuel capacity reserves in the U.S., Latin America, the Middle East, and so forth. But the longer term trend, as you spell it out, seems to be like at some point that much of the world just doesn't need as much of it. And their ability to reduce their energy bill will come from Chinese technology, whether we're talking about wind, solar or batteries that has been installed domestically and potentially reducing their bill. And so the payments that were at one point going to the U.S. or going to the UAE, etc., switches to being payments for renewable technology from China. Yes. Great.

I summed up the... I mean, I can also, I mean, the other sort of thing here is that, I mean, I think that and if we sort of, you know, looking again at China, China's demand for diesel and gasoline has already peaked. In the case of diesel, a lot of that has to do with the property collapse. You know, with gasoline, it's been the rapid uptake of EVs. And as a result of this very rapid uptake of EVs, the International Energy Agency, some of China's national oil companies, you know, have moved forward their date for when China's,

you know, overall oil demand is going to peak before I was seeing them, you know, years, dates closer to 2030, now 2027. At one point, Sinopac, one of the national oil companies had even said, you know, 2025. And so, as I mentioned, we have seen, you know, demand for road transport fuel peak, but China will still need oil for petrochemicals, which in turn are used in some of these green technologies, right? Like, we need petrochemicals, these stocks as inputs for EVs, for solar panels, or lithium iron batteries. So there is a link there. And we will see, you know, China still needs to import some oil to continue to be a leader in manufacturing these technologies. So I know you're not a macroeconomist, obviously. But when you look at what's happening now in Iran and the situation in the

Middle East. What's your best guess for how this actually feeds into Chinese inflation and the broader, I guess, energy prices? Like, how much could we actually see domestic energy prices in China go up as a result of curtailed supply and how much of that curtailed supply can just be offset from the reserve? Yeah. So we are seeing higher prices for energy. I know we've been talking a lot about oil, but I actually like to turn to LNG to answer this question. So China imports almost one-third of its LNG from the Middle East. Almost all of that comes from Qatar with a little bit from the UAE in Oman. Oman obviously lies outside the street of Hormuz, but if you look at the supplies coming, you know, first and foremost from Qatar and that little bit from, you know, from the

UAE, those supplies are no longer flowing to China. And China doesn't have a massive strategic gas reserve, you know, the way it does with oil. And so the longer pie of LNG from being from Qatar to China is disrupted, you know, the more China is going to be under pressure to couple together a response. And I think in the very short term, one of the big things, you know, that they can do is find ways to use less gas. And here, sky-high prices for spot cargoes is going to help China do that. And there has been reporting an industry press where unnamed traders, you know, certainly at the big state-owned companies have been saying that, you know,

we're not going to buy anything on the spot market right now because prices are just too hot. Do they frack in China? Have they got into the fracking revolution yet? Is that a thing over there? Yeah, they have. And actually last year, 43% of China's natural gas production came from unconventional sources. And this statistic is really of interest to me because I remember, you know, back when the U.S. Shale revolution was taking off, people would often note that on paper, China's Shale resources were either, you know, were bigger than or, you know, almost as big as the United States. basically if I mean, this is going back like 15, 16 years, but basically there were big, China had big shale resources on paper. So I would often get the question, you know, are we going to see shale revolution in China? My answer was over, it's going to be more

of a shale evolution because of different factors in the United States and China, like in the United States, for example, people who were sitting above, you know, promising shale resources could be compensated for that. Not so much in China. You know, in the United States, you know, the Shell Revolution was really launched by these, you know, small, nimble companies need to maximize profit. Whereas in China, if you look at all the, you know, upstream oil and gas assets, they're concentrated in the hands of China's net and national oil companies, which are state-owned, maybe not as nimble and certainly have, you know, and so, you know, so there are a number of different factors. Those are just, you know, two that I can... Wait, I'm actually... I'm really interested in

this because if you think about China's large infrastructure projects and its renewable buildout, it feels like they basically are able to flip a switch and say like, we want to go big on this, and then they go big on this relatively quickly and probably faster than it usually happens in places like the states. But you're saying for this one thing, for fracking, that wasn't the case, which is very surprising to me. Yeah, it's been. a much more gradual buildup of unconventional gas production in China. And of course, you know, when I say 43% of gas production, you know, it's from unconventional sources, you know, that's also including things like like type gas. It's not all shale, although shale is absolutely

part of the story. Yeah. And so to your point, yes, this was a much more gradual buildup in unconventional gas production. Erica Downs, fascinating conversation. I learned a lot in that 45 minutes. Really appreciate you coming on to odd lots and thanks for joining us. Thanks so much for having me. Tracy, that was a really interesting conversation. I didn't know that about the, I mean, I guess I'm not surprised that there were small refineries, but that they served this very strategic purpose of not having those international, I guess, liabilities, right? It's like a parallel system that they've built outside of, I guess, the more regulated official energy industry. And it's fascinating to me, it's a good exercise in branding because I just find the teapot name.

Yeah, it's so compelling. But also, it's like an entire arbitrage industry, right? Yeah, yeah. No, it makes sense, right? Like, there's always going to be someone sanctioned, right? That seems like safe. There's always, especially. Three certainties in life, death, taxes, and someone somewhere is going to have their oil sanction.

That's absolutely true. And so, yeah, but they're going to sell it and they're going to sell it at a discount. and obviously any buyer of sanctioned commodities is going to be taking on some sort of risk that they're going to get slapped with like a secondary sanction or penalty and so forth. So it makes sense to have a sort of a, you know, decentralized cottage industry. Cottage industry, it's another cute sounding thing. It's not really cute. It's all very cute.

It's all very cute. But another, this whole, yeah, this separate industry that does not have the same, they're not exposed in the same way. Yeah. Yeah. And the other thing I was very interested to hear, Obviously, the discussion around the strategic petroleum reserve was very interesting, this idea that, you know, there might be foreign policy considerations behind building up that strategic supply. Also, the idea that shale hasn't taken off as fast in China. Like, again, that really surprises me.

Yeah, it surprised me too. We're so used to hearing that one of the benefits of a command economy is that you can more of us, you know, direct this big stuff. And it doesn't seem to have happened in the case of shale. And again, maybe that maybe that's more of a strategic decision. I was going to say, I mean, what I would surmise, and it's just speculation is like, no, like the big priority is the renewables. The big priority is batteries, solar, wind, and so forth. And I do think this is like going to be the big, I don't know how long it would take place. But the big shift that's already happening, I guess, underway is this like a bunch of other countries that aren't the U.S. and aren't China are going to want to reduce their energy import bill.

Yeah. And they're going to swap it for a next. energy technology bill that they license from China. And that is a long term. I think that's a really important point. It's a really important trend. And events like the war are in the short term going to raise China's import bill and others. And then the long term or the medium term encourage more countries to accelerate their transition. So that's a pretty big story. Pros and cons. Yes. If there's anyone out there who's working in Chinese shale or fracking or has attempted to work in Chinese shale or fracking, I'd be very interested in talking to them.

I wouldn't watch The Landman of China. Oh, have you? I haven't watched the Landman, America version, but I bet that would be interesting. You got to watch it. All right. Shall we leave it there? Let's leave it there. This has been another episode of the Odd Lots Podcast.

I'm Tracy Alloway. You can follow me at Tracy Alloway. And I'm Jill Wisenthal. You can follow me at the stalwart. Follow our guest, Erica Downs. She's at Erica Downs. Follow our producers, Carmen Rodriguez at Carmen Armin. Dashel Bennett at Dashpot and Kel Brooks at Cal Brooks.

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