China's Energy System Has Changed. Canada's Understanding Of It Has Not

Until Canadian policymakers get a better handle on China's new energy approach, the million barrel per day pipeline to the West Coast should be shelved

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Canada's dream of becoming an energy superpower rests on the assumption that Asian oil and gas demand will grow significantly between now and mid-century. At the heart of that assumption is a serious misunderstanding of China. Canada hews to the old 20th-century view of oil demand: China consumes oil, Canada produces low-cost oil; therefore, if we produce it, they will buy it. The reality is that China has built a complex, multilayered energy-security system that allows Beijing to respond to global oil-market disruptions with a wide range of strategic and policy levers.

Over the past two decades, China has assembled a sprawling architecture of strategic petroleum reserves, commercial inventories, diversified crude suppliers, refining capacity, pipeline imports, coal-to-chemicals facilities, renewable power generation, electrified transportation, battery manufacturing, and industrial policy. The goal is not simply to secure access to oil, but to reduce the strategic importance of oil itself.

Beijing still imports more crude than any country in the world, but it is increasingly able to respond to supply shocks, price spikes, and geopolitical crises by adjusting refinery runs, shifting fuel mixes, drawing on inventories, expanding electrification, redirecting trade flows, and accepting lower petrochemical output.

China's oil demand is no longer a straightforward function of economic growth. It is increasingly shaped by deliberate policy choices made in pursuit of energy security, industrial competitiveness, and national resilience.

Perhaps Alberta’s ultra-heavy sour crude can find a niche in that system. The crude clearly has desirable characteristics valued by China's refiners and petrochemical plants. Those characteristics, however, do not guarantee demand within China's new 21st-century energy system.

Until Canadian policy makers, including Alberta Premier Danielle Smith and federal energy minister Tim Hodgson, can demonstrate that Canadian oil is compatible with that system, the proposed 1 million barrel per day pipeline to the West Coast should be removed from the major projects list.

China Treats Energy Security as a System, Not a Commodity

For decades, energy security was largely understood as a question of securing adequate oil supplies. China no longer thinks that way. Beijing has spent twenty years building a system designed to withstand supply disruptions, price shocks, and geopolitical crises without relying on any single fuel, supplier, or technology.

Strategic petroleum reserves provide a buffer against short-term disruptions. A vast refining sector can adjust output and product yields. Russian and Central Asian pipelines reduce dependence on maritime imports. Coal remains available as a strategic backstop. Renewables, batteries, and an increasingly electrified transportation system reduce oil demand growth.

The result is an energy-security architecture that gives Chinese policymakers options.

When markets tighten, Beijing is not forced to respond by buying more crude. It can pull a range of levers across the entire energy system. That flexibility fundamentally changes the way China participates in global oil markets and challenges many of the assumptions underpinning Canada's energy-export strategy.

Electrification Is Reducing Oil's Strategic Importance

China’s transportation system is rapidly electrifying, and oil demand is already feeling the effects.

Electric vehicles now account for a large share of new passenger vehicle sales—64.5% according to the latest reports—while electric trucks are beginning to penetrate freight markets that were once considered secure sources of diesel demand growth. At the same time, high-speed rail continues to substitute for domestic aviation, batteries are becoming cheaper and more capable, and policymakers are actively promoting electrification as both an industrial and energy-security objective.

The result is that transport fuels are no longer the reliable engine of oil-demand growth they once were. China's gasoline demand appears to have peaked before the Iran war, as early as late 2024, while diesel demand has been weakened by slower industrial growth, fuel switching, and the early electrification of freight transport.

The significance of this shift extends beyond a few percentage points of oil demand.

For decades, analysts assumed that rising incomes and growing vehicle ownership would produce a steady increase in Chinese oil consumption. Beijing is now actively disrupting that relationship. Electric vehicles, batteries, charging infrastructure, and increasingly electric trucking are not simply climate policies; they are components of a national strategy to reduce dependence on imported oil.

Petrochemicals may continue to support crude demand growth for some time, but the era when transportation alone could be counted on to pull Chinese oil consumption steadily higher has ended.

Beijing Has More Flexibility Than Oil Markets Assume

The most common mistake in Western analysis of China is to assume that rising oil prices automatically force Beijing back into the market to secure additional supplies. China's response to the Hormuz crisis suggests otherwise. Rather than rushing to buy more crude, Chinese refiners cut runs, adjusted product yields, reduced exports, shifted purchasing patterns, and relied on inventories accumulated over many years.

Policymakers appeared willing to accept lower petrochemical output and slower industrial activity in some sectors in exchange for preserving flexibility and avoiding panic buying. This matters because it demonstrates that China's oil demand is more elastic than many exporters assume.

Beijing has built enough redundancy into its energy system that it can absorb a significant amount of market stress before increasing imports. For countries betting on permanently rising Chinese oil demand, that flexibility should be viewed as a warning sign rather than a source of reassurance.

Resilience Has Replaced Efficiency as a Strategic Priority

For decades, economists argued that lean supply chains, just-in-time inventories, and market optimization produced the lowest-cost energy system. Beijing appears to have reached a different conclusion.

Strategic petroleum reserves, excess refining capacity, coal stockpiles, multiple import routes, overlapping supply chains, and even industrial overcapacity are increasingly viewed as insurance policies against geopolitical disruption. The Hormuz crisis reinforced that logic. Assets that might appear inefficient during normal times suddenly became valuable sources of flexibility when supply chains came under stress.

This shift matters because it suggests that China is willing to bear higher costs today in exchange for greater security tomorrow.

Canadian policymakers often assume that economics alone will determine future energy trade. Beijing increasingly treats resilience as a strategic asset worth paying for, even when it conflicts with conventional market logic.

The Energy Transition and Energy Security Have Become the Same Project

The old Canadian debate treats energy transition and energy security as competing objectives. China increasingly treats them as the same project.

Renewables reduce dependence on imported coal and gas. Electric vehicles reduce exposure to imported crude. Batteries, grids, and demand flexibility make the power system more capable of absorbing shocks. Domestic manufacturing of solar panels, batteries, electric vehicles, and critical minerals processing turns clean technology into an industrial-security asset.

Beijing is not choosing between climate policy and national resilience. It is using the energy transition to build national resilience.

Time to Adjust Canadian Thinking About China and Energy

Canada does not need to abandon its ambition to export more oil and gas to Asia. It needs to abandon outdated assumptions about the market it hopes to serve. The central question is no longer whether China will consume large volumes of oil. It almost certainly will.

The question is whether Canadian crude fits into an increasingly sophisticated energy-security system designed to reduce China’s vulnerability to imported oil, increase its strategic flexibility, and give Beijing more options during periods of market stress.

That is why proponents of a new one-million-barrel-per-day West Coast pipeline have the burden of proof.

It is not enough to point to China’s current oil imports or its projected economic growth. They must demonstrate that Canadian crude will remain strategically valuable inside a Chinese energy system increasingly organized around resilience, electrification, redundancy, and national security.

Until they can make that case, Canadian governments should be cautious about committing political capital, public resources, and national infrastructure to a vision of China’s energy future that Beijing itself has already left behind.

Endnote: This essay draws on a series of recent publications from the Oxford Institute for Energy Studies examining China’s oil demand, energy security strategy, electrification trends, response to the 2026 Hormuz crisis, and the evolving relationship between energy security and the energy transition. Readers interested in the underlying research can find the source material here:

• Oxford Institute for Energy Studies, China Energy Monthly (January–April 2026)
• Oxford Institute for Energy Studies, “China’s Oil Demand Under a Hormuz Crisis” (2026)
• Oxford Institute for Energy Studies, “The Impact of a Hormuz Closure on China” (2026)
• Oxford Energy Forum, Special Issue: Hormuz Crisis 2026
• Oxford Institute for Energy Studies Podcast, “China’s Energy Economy: Transition Amid Economic Slowdown” (September 2024)

All are available at: https://www.oxfordenergy.org