Eye on the Market | October 22, 2012 J.P Morgan The most important energy developments of 2012: how countries are planning for Independence Day IV: What geopolitical consequences may result from China’s rising energy needs? As shown below, US reliance on oil imports as a share of consumption is gradually declining. China’s percentage, on the other hand, is rising and now higher than in the US (in dollar terms, US imports are higher but they should converge in a few years). China now has the world’s largest new car market and most extensive network of superhighways. It is making substantial investments in a renewable energy, and is now the largest solar, wind, nuclear and hydropower market. However, given the current lack of a viable, affordable electric car, Chinese fossil fuel consumption is expected to continue to rise. The penetration rate of passenger vehicles in China is considerably lower than in other countries. China’s per capita GDP is lower as well, so the gap will not close overnight. The second chart below gives a good indication of the potential rise in automobile use in China over time. These trends are part of the reason why we do not expect reduced US imports to result in lower oil prices. Net imports of crude and petroleum products as a Auto penetration rates percent of total domestic consumption massengerand commercial vehicles per 1,000 people 65% : China 55% 600 Japan 45% Us _— > 35% 25% 400 Korea 15% 300 Taiwan Q, : 200 aS Thailand 100 = Indonesiz -15% Cr China 25% 0 = - — = India 1990 1995 2000 2005 2010 1980 1987 1994 2001 2008 . . _ . Source: China Association of Automobile Manufacturers, CEIC, J.P. Morgan Source: Energy Information Administration, BP. Securities LLC. Vaclav sees these trends as important, since they affect prospects of China co-operating with the West on containment of Iran’s nuclear ambitions. Unfortunately for the West, the prospects for co-operation on sanctions appear dim. Some things to keep in mi