What RCEP Means for Oil, Gas and Coal Trading

 


INSIGHT


  • RCEP WILL ESTABLISH EAST ASIA AND THE STRAIT OF MALACCA AS THE CENTRAL NODE POINT IN THE GLOBAL ENERGY SYSTEM
  • CHINA WILL BENEFIT FROM IMPROVED ACCESS TO ENERGY RESOURCES FROM WITHIN RCEP AND FROM WITHOUT RCEP,  SOLIDIFYING ITS TRADE LINKS IN THE SOUTHEAST ASIA REGION


1. Regarding the general outline of RCEP


China has decided to join the RCEP. This is quite significant in and of itself. Together with other major players in East Asia and Southeast Asia, China will be able to play a leading role in shaping regional energy policy and exert more political weight in the region. Although RCEP leaves room for additions and deviations from the agreements reached between the countries that have joined the trade agreement, this is a milestone in mutual understanding between the countries and could well secure the trade routes through the Strait of Malacca that China so desperately needs. 


2. The significance of Australia’s and New Zealand’s accession to the RCEP


Two Western countries have also joined RCEP, through the dent of being within the parameters of Southeast Asia. These two countries are Australia and New Zealand. This is an important turning point for relations between Southeast Asia and the West, as Australia and New Zealand may become more economically integrated with Southeast Asian countries.

This makes sense given that both Australia and New Zealand have existing trade relationships with both Southeast Asia and China. In the case of China, both have particularly strong trade relationships that predate RCEP. Australia has for some time been one of China’s major suppliers of energy commodities that drive Chinese industrialization. Australia supplied China mainly with coal, helping China achieve its economic goals

RCEP has further strengthened the Strait of Malacca, as it is now the region’s main artery and RCEP’s main artery. Trade flows through the Strait of Malacca from the outside to the inside. Energy commodities are exchanged and passed on to other countries in East Asia. This benefits not only countries in Southeast Asia, but also nations further north such as China, South Korea, and Japan. 

RCEP will create a huge economic bloc with great growth potential. It will therefore further promote international trade, which will lead to significant energy demand in the region. One can well imagine that most of this energy demand will come from Southeast Asia. Southeast Asia in particular still has significant potential for industrialization, and new opportunities are opening up for Chinese companies to bring in raw materials to build infrastructure in Southeast Asia. 


3. How will RCEP affect European energy markets?


As the Western Pacific market becomes more integrated, countries that have joined RCEP will benefit. These economies will benefit from economies of scale and reduce their costs of procuring energy commodities. The real advantage will be that it will be easier for them to compete for volumes in global energy markets. Since labor and energy costs are the two key components that determine the future of an economy, Europe will undermine its long-term economic prospects relative to RCEP member countries. 


4. Conclusion


RCEP is a milestone because it provides an alternative to the Trans-Pacific Partnership, which was not concluded as originally intended. For energy trade, it means that the Western Pacific will become more economically integrated and become another pole in the international energy system. There will be three poles for maritime energy exchange on a global scale. One will be the North Atlantic oil trade, another will be the Western Pacific oil trade, and then there will be the Gulf oil trade, which will act as an intermediary between the North Atlantic oil trade and the Western Pacific oil trade. The Gulf oil trade will primarily focus on the Indian Ocean and will remain a focal point in international energy trade as it leverages its position as a middleman and number one oil producer in the world. In a way, this brings us closer to the past, when the Indian Ocean played a much larger role in the exchange of goods. 


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Disclaimer:


This article is just meant to inform the reader of recent developments in the energy industry at large and to share knowledge and insights with a wider audience. The author does not put forth investment recommendations. This article should not be taken as investment advice and the author cannot be held to account for investments made. For more information, please refer to the Legal Disclosure and Privacy Policy, which you can click on or find at the top of this page in the menu bar. 


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