Using Satellite Data to Crack the Great Wall of Secrecy Around China's
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REPORT 09.07.18 Using Satellite Data to Crack the Great Wall of Secrecy Around China’s Internal Oil Flows Gabriel Collins, J.D., Baker Botts Fellow in Energy & Environmental Regulatory Affairs, Center for Energy Studies Shih Yu (Elsie) Hung, Research Associate, Center for Energy Studies China’s heft in the global crude oil market flows and refined product usage in China, exerts profound global effects across the albeit with several months of delay and energy, environmental, and human well- without specifying flow data by location, being dimensions. Yet comprehensive, a potentially critical omission. The Global high-frequency, reliable, and publicly Energy Observatory project offers limited available data on China’s domestic oil flows data on part of China’s oil refinery fleet and and inventory movements are essentially the country’s main oil ports.1 TankerTrackers inaccessible. In particular, for on-the- offers insights into various global seaborne ground primary commercial intelligence oil flows.2 collection, such as that performed by However, the specific oil storage data Genscape and other independent analytical and other information that would improve companies in the U.S. market, China’s oil analysts’ ability to ascertain flow patterns sector is effectively a “denied area.” within China are not disclosed by the Chinese This is not because the data themselves government in a regular and comprehensive We propose creating do not exist or aren’t being collected. fashion, leaving analysts to try and piece a forum to more Rather, it is a challenge at its core rooted in: together numerous missing pieces of a very systematically collect 1. the Chinese government’s obsession large and complex oil puzzle. In response to and analyze satellite this globally important omission, we propose with secrecy and maximum control of data capable of information; and creating a forum to more systematically collect and analyze satellite data capable of shedding more light on 2. data costs. The prime purveyors of shedding more light on the inner workings of the inner workings of insights derived from satellite imagery China’s oil sector. Such imagery can be fused are generally startups that must first China’s oil sector. with other data sources and cross-analyzed, answer to investors seeking returns and with the aim of yielding a level of insight are thus often economically constrained into China’s oil inventory and flow dynamics from sharing data at a price point low that would be exponentially deeper than the enough to allow large-scale analysis current general state of knowledge. of China’s energy sector by academic An open-source forum of academic, parties and various NGOs. think tank, and government participants would present an ideal channel for Many of the puzzle pieces already exist aggregating and analyzing the data in a for high-quality public domain analysis of systematic and useful manner. It could oil sector flows in China. For instance, the leverage and build upon the formidable Joint Organisations Data Initiative (JODI) existing experience of the US Energy publishes monthly data for estimated oil Information Administration (EIA) and the BAKER INSTITUTE REPORT // 09.07.18 International Energy Agency (IEA), both volumes, which account for two-thirds of of which already closely track oil sector its total crude supply, can shift significantly activity in China as part of their analytical month-to-month. mandates. Neither entity has a proprietary Better data transparency would interest in the oil markets, which enhances benefit oil producers and consumers both Better data their ability to cooperate with academic within and outside of China. For example, transparency would and other participants whose core interests OPEC producers seeking to achieve a benefit oil producers often center on publishing both analysis certain price range, US shale producers and the underlying data themselves. The contemplating hedging programs, and and consumers both discussion below outlines how such an China-based refiners all would benefit from within and outside approach adds value to analysis of global broader data transparency. Investment of China. flows and also explores the potential costs decisions—especially in a market as large and execution challenges that would need to and complicated as the global oil market— be overcome. are never made with a truly “complete” set of information. That being said, relative improvements to information availability SATELLITE DATA CAN HELP from one of the market’s most important SURMOUNT THE “GREAT WALL participants can have broad positive effects. OF SECRECY” More granular and complete Chinese oil data would help better inform oil producers and Making high-quality satellite imagery processors as to happenings in a marketplace available to the broader global energy that now accounts for roughly 1 out of every research community can help crack open 8 barrels of oil used globally. In turn, this the “Great Wall of Secrecy” and improve would likely have a stabilizing impact on data transparency and insights into the inner crude oil pricing through improved signals to workings of the world’s second-largest crude the market. Both producers and consumers oil market. would ultimately benefit over the long-run. To illustrate the problem at hand, In this respect, improved data availability consider that data reported by Xinhua— also harmonizes well with Beijing’s current China’s sole officially sanctioned oil inventory political priorities. The costs of oil price data source—only track oil stored in spikes arising from the market’s reaction to “commercial tanks.”3 Satellite data from “surprises” in supply and demand fall heavily Even if data gatherers Orbital Insight raise serious doubts about how on Chinese consumers, given the country’s thorough—and thus useful to the market— on the ground in China rising import dependence. Making available this Xinhua data really is. For instance, at can be constrained more regular, accurate, and granular data times in mid- to late 2017, Orbital Insight’s from the world’s second-largest oil consumer by the risk of severe data suggested total crude oil stockpiles and seventh-largest producer stands to physical penalties, in China were more than three times as reduce the frequency and magnitude of such large as the figures reported by Xinhua—a Chinese officials can surprise-driven price volatility.5 potential discrepancy of more than 500 do little to prevent Additionally, China would like to establish million barrels.4 That is enough oil to fill remote sensors in space a local oil trading hub to help bring price more than 250 very large crude carriers (i.e., discovery closer to home. But without better from gathering data on “supertankers”). Furthermore, the Xinhua data transparency, it will be tough to reach energy sector activities. data stream shows relatively little variability liquidity levels sufficient to pull traders away in storage volumes over time. One would from established hubs in New York, London, expect inventory to be the mechanism and Singapore. through which the country’s oil sector balances these shifts, with commensurately large monthly storage movements, such as WHY EMPHASIZE SATELLITE DATA? those that periodically appear in satellite- derived storage data. Thus, the unusually Researchers can now access earth stable Xinhua inventory data trend line raises observation data from satellites that even questions, given that China’s oil import 10 years ago were basically only available to 2 USING SATELLITE DATA TO CRACK THE GREAT WALL OF SECRECY AROUND CHINA’S INTERNAL OIL FLOWS government agencies and a few specialized activities. Such increased data access offers and well-funded corporate actors. real value across the policymaking and Accordingly, China’s draconian restrictions commercial spectrums, as imagery and on detailed oil-sector data collection are derived data become a critical resource for becoming increasingly untenable. Now, tracking oil inventory changes and flow a single rocket launch can place a flock patterns within China. of 88 privately owned earth observation Even for highly motivated, deep- microsatellites in orbit.6 And to boot, these pocketed commercial parties such as “eyes in the sky” are becoming sharper. oil traders and hedge funds, access to Beijing cannot control Computer vision has advanced to the point reliable high-frequency China oil data at a access to such satellite that machines can deduce oil inventory provincewide and nationwide scale is often levels by analyzing the movements of constrained. The restraints on data availability information unless floating oil storage tank roofs over time. are even more acute for the academic, it wishes to launch They can also locate drilling locations in governmental, and policy communities an extraterritorial places as remote as South Sudan, and even outside of (and within) China, whose insights campaign against identify individual frac water storage pits.7 and contributions will be crucial to developing Satellites passing repeatedly over the solutions to China-centric energy challenges satellite image same area can provide a time-lapse image with global impacts. providers and their series that can help identify the construction There is a nearly decade-long history of employees/investors— of roads and pipelines, well completions, non-governmental organizations leveraging which it would drilling rig movement, and other important satellite data to help improve policymaking have no legitimate, energy-related