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 Energy 121 (2017) 449e465

Contents lists available at ScienceDirect

Energy
journal homepage: www.elsevier.com/locate/energy

Modeling systemic risk of crude oil imports: Case of China’s global oil
supply chain
Xiaolei Sun a, b, *, Chang Liu a, b, Xiuwen Chen a, b, Jianping Li a, b
a
Institute of Policy and Management, Chinese Academy of Sciences, Beijing 100190, China
b
University of Chinese Academy of Sciences, Beijing 100049, China

a r t i c l e i n f o a b s t r a c t

Article history: Ways to accurately identify and measure systemic risk of oil imports continues to be the focus of intense
Received 21 August 2015 research because of the increasing importance of energy security. This study reexamines the risk of oil
Received in revised form imports from the perspective of global oil supply chain (OSC) and designs a standardized framework of
15 December 2016
four risk factors, that is, availability, accessibility, affordability and acceptability risk. The former three
Accepted 4 January 2017
Available online 5 January 2017
factors reveal the internal physical disruption risk of OSC and the last describes the external economic
risk which OSC faces. Then, a two-dimensional matrix is proposed to derive systemic risk of oil imports
from the internal to external risk. Taken China’s OSC for example, the empirical results demonstrate that
Keywords:
Oil supply chain
the method proposed in this study has the advantages of wide applicability and good efficiency. The
Systemic risk results show that, during the period 2003e2013, China’s oil-imports risk has experienced three different
Oil imports evolution stages, which are driven by different risk-dominate factors. On considering that China’s OSC
Risk-dominance has different risk characters in different stages, there is absolutely a need for China to make some im-
Risk matrix provements in the strategy and tactics of oil imports.
© 2017 Elsevier Ltd. All rights reserved.

1. Introduction
Given that oil production and consumption happens in different
regions of the world, the imbalance between oil supply and de-
mand is growing. Naturally, international oil trade has become a
necessity, exhibiting two major patterns: one is the global oil
market, in which the participants are exposed to risk from oil price
fluctuations [1e3]; and the other is global Oil Supply Chain (OSC)
network, in which physical disruption is the most crucial risk faced
by the participants [4,5]. Nowadays, geopolitics is impacted by
energy independence strategy of US [6,7]. This has not only trig-
gered oil price volatility but has also aggravated the instability of oil
production and petroleum transport channel security. As a big oil
consumer, China is facing severe challenges from oil imports. Do-
mestic petroleum production is increasing slowly while oil imports
are growing year by year and the import dependence has almost
reached 60%1 in 2014. Predictably, the high dependence on oil
* Corresponding author. Institute of Policy and Management, Chinese Academy of
Sciences, Beijing 100190, China.
E-mail address: xlsun@casipm.ac.cn (X. Sun).
1
http://www.bp.com/content/dam/bp/pdf/Energy-economics/statistical-review-
2015/bp-statistical-review-of-world-energy-2015-full-report.pdf.
imports will continue in the foreseeable future and this makes
China more susceptible to oil imports risk. Any risk in the global
OSC can cause volatility and even threaten China’s energy security.
In this context, it is urgent for China to identify and monitor the
systemic risk of the global OSC processes, which can possibly pro-
vide more comprehensive information and suggestions to manage
oil imports risk.
As an important strategic resource, oil is the lifeline of a coun-
try’s economy and the primary determiner of a nation’s energy
security and economic safety. China’s oil imports face more com-
plex and variable risk factors and safeguarding the oil supply has
become a serious issue. Previous studies on how to measure oil
imports risk can be classified into two broad categories: one is
based on diversification index and attempts to investigate how to
diversify the suppliers; and the other devotes to identification of
risk factors as far as possible, establish an index list and integration
of different multi-attribute decision making (MADM) approaches.
Specifically, diversifying supply sources can reduce disruption
vulnerability from a particular source in theory and practice, and
this refers to supplier diversification [8e11]. Basically, diversifica-
tion helps reduce specific risk significantly, and the specific risk is
often induced by some events uniquely related to individual sup-
plier nations, which may not have been affected by general trends

http://dx.doi.org/10.1016/j.energy.2017.01.018
0360-5442/© 2017 Elsevier Ltd. All rights reserved.
450 X. Sun et al. / Energy 121 (2017) 449e465
in the international markets. Consequently, much effort has gone
into the study of improving the basic diversification index
[8,10,12e14]. However, as claimed in Ref. [13], supply security can
indeed be enhanced by an overall diversification; but more
importantly, other important determinants of energy security
should be also comprehensively recognized.
As a complementary tool, risk integration based MADM ap-
proaches have been adopted when measuring oil supply security;
and identification and selection of the risk index is the core and key
part. Gupta [15] assessed the relative vulnerability of 26 net oil-
importing countries for the year 2004 on the basis of 8 selected
indicators. Le Coq and Paltseva [16] conducted an index based on 4
indicators to evaluate the risks associated with the external energy
supply of the EU Member States. Sovacool et al. [17] listed 320
simple and 52 complex indicators in order to better understand
energy security issues. Sun et al. [6] identified the major de-
terminants of energy geopolitics using a multiple-attributes anal-
ysis, factor analysis from the perspective of Chinese energy-supply
security. Chuang and Ma [18] applied multi-dimensional energy
security indicators to review the performance of Taiwan’s energy
security related measures. Geng and Ji [19] constructed a multi-
dimensional indicator system which includes seven composite in-
dexes to evaluate China’s energy supply security. As a prerequisite
work, a framework with maturity and integrity is required to
identify risk indicators, and it is difficult to reach a consensus in the
related literature with different points of emphasis.
It can be found from recent research that a fresh perspective of
oil supply chain has been proposed in the context of energy security
and imports risk. Oil industry as a typical supply chain includes the
exploration phase, crude oil procurement, storage logistics, trans-
portation of crude, refinery operations, distribution and trans-
portation of final products [20]. Naturally, all levels of decisions
have to be made in such a supply chain, namely, strategic, tactical
and operational [21]. Improving the oil supply chain not only affects
the performance of oil companies but also has a major impact on
governmental policy-making and strategic planning aiming at en-
ergy security [22].
In particular, Chang and Yong [23] developed a framework of
three A’sdavailability of resource applicability of technology and
acceptability by societydto analyze the major oil firms in terms of
their perception of current energy development and its potential.
Yao and Chang [24] constructed a 4-As evaluation framework of the
availability of energy resources, the applicability of technology, the
acceptability by society, and the affordability of energy resources,
listed and analyzed the indicators incorporated into the 4-As to
examine how China’s energy security has changed over 30 years of
reform and the opening period. Similarly, Zhao and Chen [22]
identified the energy flow, financial and environmental risks to
oil industry in China along the domestic supply chain and exam-
ined the policy aiming at improving oil security. Although these
studies have different concerns, they do help understand and
evaluate energy security, and more importantly, a new perspective
is proposed to identify the risks related to energy security by
introducing the concept of oil supply chain.
Related instructive studies focused on evaluating the oil
importing risks, Zhang et al. [4] identified risks from four di-
mensions and constructed a two-phase DEA-like model to evaluate
oil importing risks from the perspective of supply chain process by
introducing external supply and dependence stage. Additionally,
focusing on improving import portfolio, Li et al. [21] and Li et al. [5]
accomplished a primary construction of global oil supply chain,
attempted to improve the oil-imports portfolio when considering
risk exposure of exporting countries, and then established an
optimization methodology considering risk exposure of exporting
countries and transportation risk. Drawing together these
instructive work, much effort went into the risk identification in
some specific dimensions, and few devoted to the systematic and
comprehensive framework. Inspired by these work, this paper at-
tempts to identify and classify the oil importing risks strictly by
conforming to the supply chain stages, which helps to create a
better representation of the risks.
To sum up, a macro perspective of global OSC is necessary when
investigating the regional-national risks in oil imports. Then, the
risk along the stages of global OSC can be classified into two types:
risks arising from the supply chain network and risks being
external to it from the perspective of supply chain theory [25,26]. In
order to systematize the risks better, a 4A-factors framework is
designed to describe availability risk, accessibility risk, acceptability
risk and affordability risk. Interestingly, this paper is to design a
two-dimensional risk matrix and evaluate the risks incorporated
into the 4A-factors framework. Furthermore, according to actual
features of China’ OSC, quantitative analysis is conducted, policies
aiming at managing the oil importing risks are examined and po-
tential problems are presented.
2. Methodology: 4A-factors framework
The supply chain, sometimes also called the supply network,
comprises an integrated chain in which all entities work together to
supply products (or services) [27]. In particular, the global OSC
refers to the entire process by which oil consumers acquire oil from
external suppliers to meet import demand through trade and the
traded oil is eventually transported to the consumers.
As shown in Fig. 1, there are supply-side, transportation-side,
demand-side and market-side in the Global OSC, and 4 risk factors
are put forward to portray the risks in different stages along the
supply chain, which are the availability of suppliers, accessibility of
transportation, acceptability of infrastructure and affordability of
economy. In specific, the risk of availability of suppliers, which
measures suppliers’ availability for consumer demand by external
oil supply and distribution; the risk of accessibility of trans-
portation reflects the stability of acquisition in the aspect of
transportation; the risk of acceptability of infrastructure refers to
uncertainty of port infrastructure, emergency management and so
on, which emphasizes on the acceptability of oil importing coun-
tries; and the risk of affordability of economy, which measures the
uncertainty of importers’ ability to afford imported oil, occurs in the
process of purchasing through trade.
For importers, when oil arrives and is discharged at the
importing ports, oil is distributed and transported in the domestic
supply chain network. Relatively speaking, the risks of availability
of suppliers, accessibility of transportation and affordability of
economy occurring abroad are uncontrolled. For importers, it is
necessary to evaluate these uncontrolled risks, and this helps to
monitor the risk changing better in the whole oil importing pro-
cess. Therewith, a two-dimensional risk matrix including internal
and external risks is established to evaluate oil-imports risk
comprehensively. Based on the quantitative evaluation, oil-
imports portfolio can be improved more reasonably and
accurately.
2.1. Risk identification in 4A factors
More specifically, the internal disruption risk of OSC can boil
down to three factors, which describe the availability of oil sup-
pliers, accessibility of transportation and acceptability of importing
countries’ infrastructure. And the external economic risk of OSC
refers to affordability of the economy. Each risk factor is described
by using several indicators. As shown in Table 1, availability risk is
decomposed into two indicators, which are country risk and
 X. Sun et al. / Energy 121 (2017) 449e465 451

Fig. 1. The framework of two-dimensional risk matrix.

potential exports ability of suppliers. Analogously, the other 3 risk volume may be small or its domestic consumption may be very
factors are analyzed into multiple levels. large. As a result, Yang et al. [11] constructed the potential oil ex-
ports index by considering both R/P and a supplier’s share in world
2.1.1. Factor 1: availability risk exports, which reflects the supplier’s oil export volume and export
Availability risk refers to uncertainty of availability of oil. Till policies. According to Ref. [11], the potential oil exports index is
now, there is no universal definition of energy security because it established as follows:
varies with time and the focus is also different for different sup-
 
PEij ¼ Rij Pij 2ij (1)
pliers and consumer countries [22,28]. However, its kernel is the
physical availability of suppliers and uninterrupted energy supply.
where PEij represents the potential oil exports of supplier j in year i.
Therefore, availability risk usually includes two main aspects: the
potential exports ability of suppliers-refers to the physical avail- The oil supplier with a higher PEij is supposed to be an important oil
ability, reliability of suppliers and risk exposure of suppliers- exporter at present or in the future and plays a key role in ensuring
uninterrupted energy supply. oil supply security. Rij =Pij stands for R/P ratio of supplier j in year i. 2ij
One commonly used indicator of resource availability, the indicates the share of supplier j in total world exports in year i.
reserves-to-production ratio (R/P), reflects an oil supplier’s In addition, many studies on energy security have addressed the
resource endowment and production capacity [17,29]. However, risk exposure of oil-imports sources for the purpose of reducing
there is no simple one-to-one correspondence between R/P and the dependence risk [4,11,21,25]. In this context, country risks of oil-
potential exports ability of suppliers. For example, a supplier with a exporting countries are naturally introduced to describe the
high R/P is generally not a large exporter because its production whole risk exposure of oil imports. Specifically, because country
risk is determined by country specific and regional economic,
financial and political risk factors and some other composite fac-
Table 1 tors, its volatility may cause decrease of energy supply and even
The risk dimension and indicators of OSC.
stop oil importers from getting a reliable and stable oil supply
Risk level Risk factors Indicator [6,25,30]. Depending upon availability of oil, the relative stability of
Disrupt risk Availability Country risk of suppliers the sources can be compared in terms of country risk.
The potential exports ability of suppliers In a previous work, Sun et al. [6] gave a brief review of the study
Accessibility The distance from exports to imports of modeling oil-imports risk and found that risk variables of oil
The share of each route in total imports
economies, which reflect the overall risk of a given oil economy, are
The probability of disruption in each route
Annual total imports often substituted by some special risks such as political risk and
Acceptability Port infrastructure some are even based on subjective judgment [10,15,31,32].
Emergency management capability Specially, country risk ratings published by rating agencies provide
Economic risk Affordability The volatility of benchmark oil price a better reference for real country risk than the simple quantitative
GDP
statistical approach [33]. This paper tries to introduce country risk
452 X. Sun et al. / Energy 121 (2017) 449e465

ratings to represent the overall risk status of a given country.
Different rating agencies, including Moody’s, Standard and Poor’s,
Institutional Investors and Political Risk Service (PRS), etc., publish
their own risk rating indices reflecting major risk concerns. Among
them, International Country Risk Guide (ICRG) compiled by PRS is
not limited to credit risk only but also compiles political, economic
and financial aspects that determine the overall concern for
investing in a specific country. Consequently, the ICRG scores2 are
adopted in this paper and the country risk of an oil supplier can be
shown as follows:


CRij ¼ 100  ICRGij
where CRij stands for the overall country risk of oil supplier j in year
i; ICRGij is the composite country risk rating of supplier j in year i,
which is a value between 1 and 100.
Simultaneously, when taking the share of one supplier in total
oil imports into account, the availability risk can be constructed as
follows:
X
N
 
RðavÞi ¼ CRij PEij  wij
j
where RðavÞi is the composite availability risk in year i; wij repre-
sents the share of one supplier in total oil imports of the importing
P Mandeb strait and so on. The special terrain topography provides
country in year i, which is computed by wij ¼ xij = xij ; xij stands for
j
oil imports of the importing country from supplier j; N is the
number of total oil suppliers of importing country in the year i.
larger oil amount is carried in the selected route, the higher the risk
is taken by the importer; (3) the larger share is imported in the
selected route, the greater uncertainties and potential risks faced;
and (4) the pirate attacks seriously affect the oil-import security,
and the probability of pirate attacks in different routes is taken into
account.
Then, the accessibility risk can be formulated as follows:
X
m
RðacÞn;i ¼ ai  trn;ir (4)
r¼1
(2)
Dn;r
trn;ir ¼ sn;ir dn;ir Pn;ir ; dn;r ¼ ; n ¼ 1; 2 (5)
Dn;max
where n ¼ 1; 2 denote maritime transportation and pipelines
transportation, respectively.4 For instance, RðacÞ1;i stands for the
overall accessibility risk in year i; tr1;ir stands for the transport risk
of route r; s1;ir is the share of route r in total oil imports in year i; d1;r
is the substitution variables of transport distance of route r; ai is the
total oil imports in year i. Pn;ir represents the disruption probability
(3) of different means of transportation.
According to International Maritime Bureau Piracy Reporting
Centre,5 pirate attacks and armed robbery usually occur in narrow
straits and canals, such as the Strait of Hormuz, Malacca and
conducive conditions for the pirates and robbers to attack. In
maritime transportation, the probability of pirate attacks is hence
selected as a proxy variable of disruptions and in this paper, the
probability of pirate attacks is quantified as follows:

2.1.2. Factor 2: accessibility risk
Accessibility risk refers to uncertainty of the transportation
process. Firstly, we considered the risk of oil pipeline apart from the
maritime transportation, and this makes the results more close to
reality. Usually, oil is transported in 3 major types of modes: ships,
pipelines and railways. In the worldwide, about 60% of oil is
transported by sea, less than 40% by pipelines and railways is only a
supplementary mode.
When describing the transportation risk, previous studies have
selected the distance from the supplier to importer as a proxy
variable, which often assumes that a longer distance reflects a
higher level of uncertainty of transportation process. Nevertheless,
it is insufficient to consider distance indicator and because other
indicators such as the chokepoint straits on the sea route, the fre-
quency of pirate attacks and so on should also be considered [4,34].
Therefore, four indicators,3 including transportation distance,
the amount of China’s oil import, the share in each transport route
and the probability of disruptions caused by failure in shipping
routes and pipelines, are taken into account following the criteria:
(1) the longer the distance is, the higher risk confronted; (2) the
2
The ICRG index offers economic, financial, political and composite risk ratings
for 140 countries on a monthly basis. In this study, yearly data computed by the
monthly average level is adopted. This rating method comprises 22 variables in
three subcategories of risk: political, financial and economic. The composite scores,
ranging from 0 to 100, show an inverse relationship with the risk exposure of the
specific supplier. To ensure consistency of ICRG scores and country risk, the sub-
traction in the formula is operated.
3
It is worthy to note that the share of oil transported by domestic tankers in total
imports is a crucial indicator of the security of OSC. Generally, domestic tankers,
foreign tankers and charter market are distributed in the proportion of 4:4:2.
However, in China, a big consumer of oil, 90% of imported oil is transported by
foreign tankers, which significantly increases the risk of oil imports. Considering
that there is little difference between different routes, the domestic tanker share is
not introduced in this study.
X
n
P1;ir ¼ pirj Pnk¼1 ð1  pirk Þ (6)
j¼1 ksj
where P1;ir is the probability of disruptions in route r in the year i;
pirj is the probability of disruptions in j th node of route r in the year
i; 1  pirk is the probability of safety in k th node of route r in the
n
year i; pirj P ð1  pirk Þ is the probability of disruptions in j th node
k¼1
ksj
in route r.
Most of the traded oil is transported by sea, particularly trade
with Middle East and Africa has to traverse the Strait of Malacca.
The dependency on individual straits has also become a matter of
heated debate. In related studies, the probability of pirate attacks is
usually computed by the average number of global attacks over
several years to analyze the risk status, instead of taking the
different risk status of pirate attacks in each year into account
[34,35]. Meanwhile, there are numerous straits and cannels a ship
passes during the voyage. These risk nodes are faced with different
levels of disruptive risk by pirates, which seriously affect the se-
curity of oil imports. Zhang et al. [4] considered the risk of passing
through the Strait of Malacca. However, it is the most appropriate
for measuring the risk of being attacked by pirates by using the
average, because the number of pirate attacks varies significantly in
different risk nodes and different years and therefore its annual
dynamic changes are ignored. What’s more, the incidence of piracy
attacks was the highest in Mandeb and Somali strait, instead of the
Malacca Straits, because importing countries were paying great
4
As an important mode of transport, railway transportation is very limited. So
the railway is not considered in this study.
5
http://www.iccwbo.org/products-and-services/fighting-commercial-crime/
imb-piracy-reporting-centre/.
 X. Sun et al. / Energy 121 (2017) 449e465 453

attention to the Malacca Straits, and there were more frequent Moreover, it is becoming increasingly clear that in addition to oil
maritime patrols, which forced the pirates to transfer their activ- price levels, oil price volatility creates uncertainty that reduces
ities to other areas, such as Mandeb strait and Somali strait and so wealth and stifles investment. According to Ref. [38], the oileGDP
on, according to the International Maritime Bureau statistical data. relationship is characterized by asymmetry, which means that price
So if we consider only individual risk situations, the expectation of increases produce negative consequences while price decreases do
identifying the overall transportation risk will be a failure. not affect GDP. Following Ref. [39], the positive change of oil shock
Different from maritime transportation, pipelines, another can be defined as follows:
mode with its own advantages, are also facing various risk factors 
from both man-made and natural disasters. European Gas pipeline Droili;t ; if Droili;t > 0
Droilþ
i;t ¼ 0; if Droili;t  0
(7)
Incident data Group (EGIG)6 is a cooperative of seventeen oil/gas
transmission system operators in Europe and it provides a broad

 
basis for calculation of safety performance of pipeline systems in Droili;t ¼ ln roili;tþ1 roili;t (8)
Europe, thus providing a reliable picture of frequencies and prob-
abilities of incidents. Therefore, in this paper, frequencies of pipe- where roil is the real price of Brent oil. Based on the study of
lines failures are selected directly as a proxy variable to measure the Ref. [38], affordability risk can be summarized as:
disruption probability of pipelines.
Rðaf Þi ¼ Voilþ  e  GDPi (9)
2.1.3. Factor 3: acceptability risk
m  2
Acceptability risk refers to uncertainty of port infrastructure, 1 X
emergency management capability and so on. Instead of focusing Voilþ ¼ Droilþ  Droilþ (10)
m  1 t¼1 i;t i;t
on acceptability of environment, as past studies have done, this
research emphasizes the acceptability of importer’s facilities.
where Voilþ is the volatility of oil increasing price, which is a
The last segment of global OSC, the oil port, as the end of the
modified index of oil price change in Ref. [39]. The elasticity of oil-
physical oil supply chain, is the central hub that bridges domestic
GDP, denoted as e, is defined as the percentage of change of GDP
and overseas oil suppliers. The modernization of oil port with so-
relative to the change of the crude oil price, which is 7.3% according
phisticated equipment and large capacity are crucial to ensure
to Ref. [38].
safety and stability of imported oil. Besides, while major oil spills
from tankers are rare occurrences, it remains one of the main
2.2. Systemic risk in 2-dimension matrix
concerns for the various stakeholders in marine environmental
protection because of the potentially major impacts of oil spills on
It is assumed that risk measures used in this paper are not aimed
marine ecosystems, important socio-economic impacts on com-
at pursuing specific quantitative values but rather for providing
munities dependent on coastal resources and high costs of clean-up
some managerial implications based on the quantitative outcomes.
operations [36]. Thus, adequate accident prevention measures and
The 3 risk factors of availability, accessibility and affordability are
oil spill preparedness planning are proposed to enhance maritime
quantified in Section 2.1. Moreover, how to describe systemic risk of
safety and for marine environmental protection [37].
global OSC is another challenge, besides risk identification.
Regarding to the acceptability risk, it primarily refers to the
Before modeling, there is a need to pre-process the data by
acceptability of the port in importing countries, and the capacity of
normalization. Based on the studies of Ref. [4] and Ref. [34], an
port handling, storage, security and even emergency of oil spill
improved normalization method is provided as follows:
significantly affect the oil oil imports. In term of risk control, the
acceptability risk is more controllable than other risks occurring

Xij  min Xij
abroad, and it can be lessened by the port manager with risk Yij ¼ 0:1 þ 0:9 

; j ¼ 1; 2; 3 (11)
management tools and the government with planning, regulation max Xij  min Xij
and even policy. In sum, it is complex to evaluate the port risks,
especially considering the connection between port planning and where Xij is the j th initial indicator in year i; Yij is the value of the j
the layout of the nodes and routes in domestic supply chain th indicator in year i after normalization. And when j ¼ 1; 2; 3, Yij
network. Hereto, considering the complexity of port risk assess- represents the risk factors of availability, accessibility and afford-
ment, acceptability risk is simplified and analyzed qualitatively, and ability, respectively.
of course is our focus in the future work. In our systemic risk of global OSC framework integrated with 3
risk factors, a two-dimensional matrix is obtained, which can be
measured as follows
2.1.4. Factor 4: affordability risk
Affordability risk refers to uncertainty of importers’ ability to Ri ¼ fðRi1 ; Ri2 ÞjR1i ¼ Yi1 þ Yi2 ; Ri2 ¼ Yi3 g (12)
afford imported oil, the essence of which is also named as economic
risk, which describes the external risk of the global OSC. In related where Ri is the systemic risk of global OSC in year i; Ri1 and Ri2
studies, many scholars have pointed out that oil prices and their represent the internal disruption risk and the external economic
fluctuations should be considered for energy security [24].7 Gupta risk of OSC, respectively, in year i.
[15] indicated that high import bills relative to GDP or high oil
consumption per unit of GDP result in larger macroeconomic ad- 3. Case study: China’s OSC
justments in the face of a given increase in international oil price.
3.1. China’s OSC
6
http://www.egig.eu/.
7
In China, the rapidly growing economy has its roots in
Transportation cost is another important determinant of the overall economic
cost of oil imports. However, compared to the oil price, the transportation cost can
tremendous oil consumption. With the limited domestic oil pro-
be neglected. Therefore, it is not measured in this paper out of simplifying the duction, China’s oil import dependency has been increasing sharply
model. over the past few decades. In 2009, China’s crude oil foreign
454 X. Sun et al. / Energy 121 (2017) 449e465
Table 2
The main sources of China’s oil imports.
Mid-East Africa South-East Asia C&S America Eurasia
Saudi Arabia Angola Indonesia Venezuela Russia
Iran Sudan Vietnam Brazil Kazakhstan
Oman Congo Thailand Argentina
Yemen Libya Malaysia Ecuador
UAE Nigeria
Kuwait Algeria
Iraq
Qatar
Note: UAE refers to United Arab Emirates.
dependence degree first surpassed 50% and by the end of 2013, its
crude oil foreign dependence degree had reached 57%8 and it is a
growing trend. Among the sources of China’s imported oil, coun-
tries shown in Table 2 account for 90% of total oil imports. Except
for the oil from Russia and Kazakhstan, which is transported by
pipeline, the rest comes in by sea.
In addition, China’s four major shipping routes are Middle East
Route, South America Route, African Route and Southeast Asia
Route. Transportation chokepoints in each shipping route are
shown in Table 3.
China remained just as reliant on the Middle East in 2013 as it
had been 10 years ago, with 52% of its imports coming from this
region. In addition, because China was still reliant on Africa as well
as the Middle East, it now heavily depends more on a single
chokepoint e the Strait of Malacca, with nearly 75% of its oil im-
ports flowing through the Strait. Therefore, the Strait of Malacca is
of strategic and economic importance to China’s economic and
energy security. Risk associated with the strait has three principal
aspects. First, the crucially strategic strait is relatively shallow, only
23 m deep at most points, and its narrowest navigable channel is
only 1.5 miles wide [40]. Second, the strait is disputed territory and
is cooperatively controlled by Singapore, Malaysia and Indonesia.
Other countries, such as the United States, India and Japan have
used the fight against piracy as an excuse to expand their military
power to this waterway. Thus, once dispute or conflict happens
about the Malacca issue, China’s oil supply route will be threatened.
Finally, increases in piracy and transnational crime in every strait
seriously threaten the security of China’s oil supply. The process of
maritime transportation ends when the ships arrive at the desti-
nation port. The coastal ports in China can be classified into five
major groups9: the Bohai, the Yangtse Delta, the Southeast China
coastal, the Pearl Delta and the Southwest China coastal. A physical
map of the transportation routes is sketched in Fig. 2, where the
major exporting ports, straits and importing port group in China are
marked with different tags.
8
The People’s Republic of China Ministry of Industry and Information Technol-
ogy. http://www.miit.gov.cn/n11293472/n11293832/n11294132/n12858402/
n12858522/16471871.html.
9
Ports around Bohai are composed of the port cluster in Liaoning, Tianjin-Hebei
and Shandong, which are based on Dalian Northeast Asian International Shipping
Centre and Yingkou Port, Tianjin Northern International Shipping Center and
Qinhuangdao Port, and Qingdao-Yantai-Rizhao Ports, respectively. The Yangtse
Delta port group based on Shanghai International Shipping Center, Ningbo and
Lianyun port, services the socio-economic growth of the Yangtze River Delta region.
Southeast China coastal ports, based on the ports of Xiamen and Fuzhou, services
the socio-economic growth of Fujian and Jiangxi province and the three links across
Taiwan and the mainland. The Pearl Delta port group consists of ports in Eastern
Guangdong and Pearl River Delta region, servicing South and Southwest China and
strengthening the coordination and communications with Hong Kong and Macao.
Southwest China coastal ports group is based on the ports around West Guangdong,
Guangxi coastal areas and Hainan province, including major ports of Zhanjiang,
Fangcheng and Haikou.
To extricate itself from the “Malacca dilemma”, which denotes a
delicate situation where China has a high dependence on the Strait
of Malacca in terms of both economic security and geopolitical
security, the Chinese government has taken a series of measures.
Crucial is China’s effort to find alternative pathways bypassing the
Strait of Malacca. Initially, there were six schemes that were
considered for diversification of oil import channels [40], which
include: (a) Sino-Kazakh oil pipeline; (b) China-Russia crude oil
pipeline; (c) a pipeline from Myanmar to Kunming; (d) a channel
through the Kur Strait in Thailand; (e) a pipeline from Gwadar in
Pakistan to Shanghai via Xinjiang; and (f) a pipeline that started
from Iran right across Pakistan and India to China. Now there are
three major pipelines that have been put to use and the routes are
shown in Fig. 3.
Moreover, it should be noted that due to the restrained crude oil
regulatory policies in China, its crude oil imports are negotiated
mainly in cash (i.e., in spot markets) rather than in derivatives like
futures [41]. China has not yet obtained the power of oil pricing in
world oil markets, with weak capability to resist the extreme risks
of international crude oil market [42]. Researchers have investi-
gated the relationship between oil price shock and macroeconomy
in China [41,43e45]. Empirical results have shown that interna-
tional crude oil price has negative effects on China’s real GDP, in-
vestment, consumption, import and export, among a range of
economic indices.
3.2. Data description
As described above, 24 major oil suppliers are selected, that is
N ¼ 24 in equations formulated in Section 2. The data sources of
variables listed in Section 2 are as showed in Table 4. As for the
variables of country risk rating score and Brent spot price, the
monthly and daily data are employed, respectively, while other
variables are all yearly data. The sample period of all the above data
is from 2003 to 2013.
4. Empirical analysis of China’s OSC
Taking China’s OSC as an example, this section provides detailed
measurements and analysis of the risk of each factor and then the
systemic risk is exhibited in a 2-dimensional matrix with
discussion.
4.1. Availability risk
Sources of China’s oil imports are broadly distributed but there
is imbalance in that the largest quantity comes from some politi-
cally unstable regions, such as Middle-East and Africa. The oil
supply is susceptible to emergencies and political sanctions.
Nevertheless, though researchers have turned to promote diversi-
fication of energy imports, there is little potential for further
diversification and the country has to inevitably rely on oil from
unstable areas in the near future [10,11,22,35]. According to Eq. (1),
the potential of export ability of oil import sources is showed in
Fig. 3, which illustrates the data of 2005, 2009 and 2013.
As shown in Fig. 4, Saudi Arabia remains the largest and the
most stable supplier and Kuwait, Libya, Nigeria, Russia and UAE are
also at a relatively high and stable level. In particular, there are
three countries with obvious annual changes in the potential of
export ability: Venezuela experienced a strong growth; Iran
showed a relative increase, while there is a decreasing trend in Iraq.
The causes of these changes are shown in Table 5. It is found that
the strong growth of Venezuela’s potential of export ability is
nested in its increasing R/P ratio, Iran’s is mainly caused by its
growing share in world exports and the decrease in Iraq can be
 X. Sun et al. / Energy 121 (2017) 449e465 455

Table 3
Maritime transportation routes of China’s oil imports.

Major ports Maritime transportation routes

Middle East Route

Khark Strait of Hormuz Indian Ocean Strait of Malacca South China Sea China
Al-Fao
Mina al Ahmadi
Mina Abd Allah
Das Island
Mina Al Fahal
South America Route
Port of Rio De Janeiro Atlantic Ocean Mozambique Indian Ocean Strait of Malacca South China Sea China
La Cruz Caribbean Panama Sea of Japan Bohai bay
Puerto Biovar Atlantic Ocean
African Route
Port Sudan Mandeb Strait Aden Indian Ocean Strait of Malacca South China Sea China
Arzew Mediterranean
Es Sider
Cabinda Port Gulf of guinea Mozambique
Lobito Harbor
Bonny
Southeast Asia Route
Port of Tanjung Priok South Sea South China Sea China

Note: The information is culled from publicly available sources.

ascribed to the drop in its share in world exports.
To better observe the country risk of suppliers, Fig. 5 illustrates
the annual country risk in 2009, 2011 and 2013. Sudan remains the
highest country risk and Venezuela, Yemen, Iran, Iraq and Nigeria
are also at a relatively stable level. In particular, events of political,
economic and finical occur in a country, which have a significant
influence in country risk, affect the availability of oil of a country
indirectly. For example, the country risk of Libya and Iraq rose
rapidly in 2011, which was mainly attributed to the Arab Spring.
After a few days the influence of Arab Spring went off, the com-
posite risk of Libya and Iraq diminished gradually.
As a further study, we attempt to explore the correlations be-
tween suppliers’ country risks and the potential of export ability.
Figure 6(a) displays the results of all suppliers, in which nodes with
blue circles are suppliers with equally close potential of export
ability and detailed in Figure 6(b).
Given that suppliers whose country risks are lower than Nigeria
are classified into low-risk countries and whose potential exports
ability is lower than Kazakhstan are classified into low-PE coun-
tries, then all suppliers can be classified into four categories
(Table 6). The countries in Category 1, such as Saudi Arabia, Kuwait,
UAE, Libya, Kazakhstan and Russia, having higher potential export
abilities and lower country risks, are the best choice for oil imports.
Countries in Category 4, including Sudan and Yemen, with lower
potential export abilities and higher country risks, are the worst
choice for oil imports. As for Category 2 and Category 3, China has
to make trade-offs between them in terms of oil imports.
In fact, the idea of trade-off in China’s import strategy has been
incorporated to some extent. It can be found that about 39.82% of
total imports in 2013 came from suppliers in Category 1, only 1.74%
from the suppliers in Category 4, and suppliers in Category 2 and
Category 3 account for 21.89% and 29.72%, respectively. However,
there is still some space for optimization because oil supplied by
Sudan and Yemen, which are the worst choices for oil imports, is
more than the oil supplied by Libya, the best choice for importing in
2013.
Taken together the overall risk shows a relatively stable trend,
while experiencing slight fluctuations in some years (Fig. 7). The
risk increased sharply and reached the maximum in 2005 and then
moved downwards until 2009. After that, the risk fluctuates within
a remarkably tiny range.
In order to explore the reason of the overall risk changes,
countries with a large range of risk changes are extracted and listed
in Table 7. In the period from 2003 to 2005, the increase is caused
by changes of Thailand, Brazil and Argentina. Specifically, avail-
ability risk from Thailand mainly came from the reduction of po-
tential exports ability, that from Brazil mainly due to the growing
exports to China, while that of Argentina climbed to a higher level
and was originated from both weaker potential exports ability and
increasing export share. During the period from 2005 to 2009, the
overall availability risk shows a downward trend, which mainly
resulted in decreases in imports from four countries, Yemen,
Indonesia, Congo and Angola, because of either country risk or
decrease in the share in total oil imports of China. In the period
from 2009 to 2013, the overall availability risk reached a relatively
steady state.

4.2. Accessibility risk

Different from previous studies [4,34,35], this paper considers

Fig. 2. A physical map of the transport routes.
multiple indicators, besides the transportation distance and ana-
lyzes the dynamics of the risk. One of the most critical influences on
maritime transportation risk is the probability of pirate attacks. As
shown in Fig. 8, probabilities of pirate attacks on four routes of
China’s OSC changed over time. The Middle East and Africa routes
always exhibited a higher risk, while Southeast Asia route faced a
lowest risk from the pirate attacks.
456 X. Sun et al. / Energy 121 (2017) 449e465

Fig. 3. China’s major pipeline transport routes.

Based on Eqs. (4)e(6), risks of different routes (Fig. 9(a)) and the
overall maritime transport risk (Fig. 9(b)) can be obtained. It can be
observed that the increasing risk of Middle East and Africa routes in
2004 exposed maritime transportation to a higher risk level in
2004, caused by the serious pirate attacks. In 2006, maritime
transport risk declined but rebounded to a high level in 2007 and it
remained high until 2011. Then, the sharp decline of risks in Middle
East and Africa routes was caused by the low probabilities of pirate
attacks in 2011. In the process of maritime transportation, there are
a series of uncontrollable risk factors, especially pirate attacks.
Table 4
Data source.
Variables Data source
The share of oil imports from International Trade Center
each supplier (%) http://www.trademap.org/Country_
SelProduct_TS.aspx
Reserves/production ratio BP statistical review of world energy
2014
http://www.bp.com/en/global/
corporate/about-bp/energy-economics/
statistical-review-of-world-energy.
html
The share of oil supplier in the U.S. Energy Information Administration
global oil trade (%) (EIA)
http://www.eia.gov/
Country risk rating score The PRS Group
http://www.prsgroup.com/
The accident rates of global International Maritime Bureau Piracy
pirate attacks (%)12 Reporting Centre
http://www.iccwbo.org/products-and-
services/fighting-commercial-crime/
imb-piracy-reporting-centre/
The failure frequencies of the European Gas pipeline Incident data
pipelines13 Group (EGIG)
http://www.egig.eu/
The Brent spot price (dollars per EIA
barrel) http://www.eia.gov/
GDP(hundred million RMB) China Statistical Yearbook, 2014
http://www.stats.gov.cn/tjsj/ndsj/
However, compared with natural disasters, such as tsunami, the
risk caused by pirate attacks is relatively controllable. The austere
situation that the vital ship routes for China’s oil imports mainly
depended on pirate prone areas, such as Malacca Strait, Gulf of
Aden, Strait Hormuz and so on, calls for China to make more efforts
to increase protection for the region, thus decreasing pirate attacks
[35].
Sino-Kazakh and China-Russia oil pipelines were formally put
into use in July 2006 and January 2011, respectively. Therefore, the
risk of Sino-Kazakh oil pipeline was computed from 2006 onwards
and only half of oil imports from Kazakhstan were considered in
2006, while the risk of China-Russia oil pipeline was computed
from 2011 onwards. Based on Eqs. (4)e(6), the failure frequency of
pipelines (Fig. 10(a)) was provided by EGIG, based on which pipe-
line transport risk (Fig. 10(b)) was computed. The risk of Sino-
Kazakh oil pipeline in 2006 is relatively low because only half of
oil in this year came through this pipeline. The Sino-Kazakh oil
pipeline in 2010 experienced a higher risk, caused by the increased
share of Kazakhstan in total imports.
Fig. 11 shows that the maritime transportation risk plays a
dominant role in the overall accessibility risk. Generally, damage to
pipelines and tankers can both create significant social and envi-
ronmental impacts, as oil spills can result in significant long-lasting
environmental problems [46]. However, pipeline damage may be
caused more by human factors, such as poor maintenance, acci-
dents or deliberate acts of destruction, except for natural disasters
(such as landslides, earthquakes) [47,48]. In this sense, compared
with maritime transportation, oil transported by pipelines may be
safer. So, to find alternative pathways, investing in land-based oil
pipelines has become one of the main strategies of China for alle-
viating transportation risk and diversifying China’s oil imports to-
ward Russia and Central Asia [22,40].
4.3. Acceptability risk
Ports as an important node in a transportation hold great
importance in the modern physical oil transportation system. The
 X. Sun et al. / Energy 121 (2017) 449e465 457

2005 2009 2013

Algeria Algeria Algeria
Angola Angola Angola
Argentina Argentina Argentina
Brazil Brazil Brazil
Congo Congo Congo
Ecuador Ecuador Ecuador
Indonesia Indonesia Indonesia
Iran Iran Iran
Iraq Iraq Iraq
Kazakhstan Kazakhstan Kazakhstan
Kuwait Kuwait Kuwait
Libya Libya Libya
Malaysia Malaysia Malaysia
Nigeria Nigeria Nigeria
Oman Oman Oman
Qatar Qatar Qatar
Russia Russia Russia
Saudi Arabia Saudi Arabia Saudi Arabia
Sudan Sudan Sudan
Thailand Thailand Thailand
UAE UAE UAE
Venezuela Venezuela Venezuela
Vietnam Vietnam Vietnam
Yemen Yemen Yemen

0 4 8 12 16 0 4 8 12 16 0 4 8 12 16

Fig. 4. The potential of export ability of oil import sources.

capacity of a port and number of port berths significantly affect the
acceptability risk of China’s OSC. There are five major groups in
China: the Bohai, the Yangtse Delta , the Southeast China coastal,
the Pearl Delta and the Southwest China coastal, among which,
there are 15 major ports,10 which account for more than 90% of the
total throughput of China’s ports in 2012. Till now, the ports of
China have developed into a modern oil transportation industry
which has more than 30 big ports with large berths (more than 200
thousand tons) and this can serve and satisfy China’s oil imports in
the next few years. Table 8 displays detailed information of the
main ports with large berths capacity of more than 200 thousand
tons.
Besides the facilities of oil ports, storage capacity, security ca-
pacity and emergency management capacity are also vital for
ensuring China’s oil imports. In particular, coastal countries all over
the world have planned and constructed emergency systems to
deal with oil spills in coastal areas and against ocean pollution
[49e51]. However, it is still at the initial stages in China, which is
essential not only for China’s energy security but also for environ-
mental security.
Moreover, it is widely accepted that as a basic instrument for
ensuring energy security and eliminating the effect of oil supply
disruption, a strategic petroleum reserve (SPR) has been proved to
be fairly effective in many countries [52,53]. To ensure energy se-
curity, the Chinese government has been preparing for the estab-
lishment of its SPR since March 2004. Still, while establishing its
strategic oil reserves, China may have to face competition from
other stockpiling countries [52]. And another question is how to
formulate policies for building up and drawing down strategic oil
stockpiles, so as to establish an oil stock at minimum cost and to
eliminate as much as possible the effect of violent oil price in-
creases during a disruption [52,54].
On the basis of the analysis above, it is believed that the
acceptability risk can be avoided effectively by China’s own efforts,
which is also the cause of the quantitative analysis in this part.
4.4. Affordability risk
As shown in Fig. 12, affordability risk moves basically in the
same direction as oil volatility. And at some points such as 2004 and
Table 5
The changes of oil suppliers’ resource endowments.
Country 2005 2009 2013

R=P wij PE R=P wij PE R=P wij PE

10
Including Yingkou Port, Rizhao Port, Tangshan Port, Maoming Port, Yangpu
Iran 91.29 0.06 5.39 89.58 0.06 5.36 122.56 0.03 3.74
Port, Dalian Port, Tianjin Port, Qingdao Port, Ningbo-Zhoushan Port, Quanzhou Port,
Iraq 174.27 0.04 6.33 130.29 0.05 6.18 132.65 0.06 7.96
Zhanjiang Port, Qinhuangdao Port, Nanjing Port, Shanghai Port and Guangzhou
Venezuela 67.19 0.04 2.96 193.38 0.04 7.74 315.95 0.05 15.37
Port.
458 X. Sun et al. / Energy 121 (2017) 449e465

2009 2011
2013
Algeria
Algeria Algeria
Angola Angola
Angola
Argentina Argentina
Argentina
Brazil Brazil
Brazil
Congo Congo
Congo
Ecuador Ecuador Ecuador
Indonesia Indonesia Indonesia
Iran Iran Iran
Iraq Iraq Iraq
Kazakhstan Kazakhstan Kazakhstan
Kuwait Kuwait Kuwait
Libya Libya Libya
Malaysia Malaysia Malaysia
Nigeria Nigeria Nigeria
Oman Oman Oman
Qatar Qatar Qatar
Russia Russia Russia
Saudi Arabia Saudi Arabia Saudi Arabia
Sudan Sudan Sudan
Thailand Thailand Thailand
UAE UAE UAE
Venezuela Venezuela Venezuela
Vietnam Vietnam Vietnam
Yemen Yemen Yemen

0 20 40 60 80 0 20 40 60 80 0 20 40 60 80
country risk country risk country risk

Fig. 5. The country risk of oil import sources.

(a) (b)
Fig. 6. Country risk and the potential of export ability of oil suppliers in 2013.

Table 6
The categories of suppliers.

Categories The potential of export ability Country risk Suppliers

1 higher than Kazakhstan lower than Nigeria Saudi Arabia, Kuwait, UAE, Libya, Kazakhstan, Russia
2 higher than Kazakhstan higher than Nigeria Venezuela, Iraq, Iran, Nigeria
3 lower than Kazakhstan lower than Nigeria Angola, Qatar, Ecuador, Algeria, Oman, Brazil, Malaysia, Indonesia, Vietnam, Congo,
Argentina, Thailand
4 lower than Kazakhstan higher than Nigeria Sudan, Yemen
 X. Sun et al. / Energy 121 (2017) 449e465 459

120.00

100.00

80.00

60.00

40.00

20.00

0.00
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

risk of avaliability

Fig. 7. The changes of availability risk.

Table 7
Countries with a large range of risk changes.

Country Yemen Vietnam Thailand Indonesia Congo Brazil Argentina Angola

2003 RðavÞ 17.75 6.63 8.62 11.86 12.31 0.27 0.79 10.13
PE 0.14 0.17 0.05 0.12 0.13 0.18 0.08 0.49
ICRG 33.29 29.81 24.98 39.48 42.48 35.17 41.02 45.13
wij 0.08 0.04 0.02 0.04 0.04 0.00 0.00 0.11
2005 RðavÞ 12.13 3.78 27.72 11.81 15.05 2.05 6.72 12.69
PE 0.14 0.20 0.01 0.10 0.10 0.16 0.03 0.42
ICRG 31.44 29.94 27.02 36.04 35.29 30.77 29.92 38.54
wij 0.05 0.03 0.01 0.03 0.04 0.01 0.01 0.14
2009 RðavÞ 2.46 0.87 22.89 5.40 5.36 2.18 3.43 7.11
PE 0.18 0.18 0.00 0.10 0.11 0.28 0.03 0.64
ICRG 34.58 31.79 34.44 32.83 29.83 30.29 33.60 29.00
wij 0.01 0.01 0.00 0.02 0.02 0.02 0.00 0.16

2008, affordability risks reached a higher level. In 2004, the fluctuations of oil prices [55]. During 2008 and 2009, the U. S.
devastating effects of attacks on oil facilities of Iraq, political subprime crisis escalated suddenly and ballooned into a global
instability in Nigeria and Venezuela, Russia’s Yukos crisis and financial crisis, and oil price was really badly affected and fluctuated
Hurricane Ivan event pushed oil prices up and resulted in dramatic wildly [56,57]. In brief, affordability risk increased with sharp

0.35

0.3

0.25

0.2

0.15

0.1

0.05

0
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Middle East routes South America routes

Africa routes Southeast Asia routes

Fig. 8. The probability of pirate attacks on four routes.

460 X. Sun et al. / Energy 121 (2017) 449e465

(a) (b)
Fig. 9. The risk of each route and the overall maritime transport risk.

(a) (b)
Fig. 10. Failure frequency of pipelines and pipeline transport risk.

fluctuations of oil price. explored, because affordability risk is affected by both oil price
In addition, affordability risk slightly increased from 2006 to volatility and GDP according to Eq. (9). In order to uncover the
2007 and from 2010 to 2011, but showed opposite movements with underlying reasons, this paper attempts to analyze the changes of
oil price volatility. Obviously, the influence of GDP needs to be GDP and its composition (Fig. 13). Generally, the output values of

1800
1600
1400
1200
1000
800
600
400
200
0
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

the maritime transport risk the risk of oil pipeline transportation

Fig. 11. The overall risk of accessibility.

 X. Sun et al. / Energy 121 (2017) 449e465 461

Table 8
List of the main ports in China’s OSC.

Port Berth capacity and number Discharge capacity Berth length (m) Berth depth (m)
(ten thousand tons)*(count) (ten thousand tons/year)

Ningbo-Beilun 25*2 1520 522 22.5

Ningbo-Daxie 30*2 1500
45*1 1800 490
Ningbo-Daxie 30*1 650 515
Huizhou Port 30*2 2100 490
Qingdao-Huangdao 20*1 1700 498 21
Qingdao-Huangdao 30*3 1800 520 24
Dalian Port 30*2 1768 510 25
45*1 1900 446 27
Zhoushan-Dinghai 25*1 800
Zhoushan Port 30*4 1800 530 24.6
Tianjin Port 30*1 1800 468 25
Quanzhou Port 30*1 1500 485
Zhanjiang-Xiashan 30*2 1550 470 18.6
Rizhao Port 30*2 2000 391 24.5
Yingkou Port 30*1 1800 502
Jinzhou Port 25*1 800
Tangshan-Caofeidian 30*1 2000
Maoming Port 25*1 1000
Yangpu Port 30*1 1750

Note: Data resource: Shanghai 10th International Petroleum Petrochemical Natural Gas Technology Equipment Exhibition, 2015. http://www.sippe.org.cn/newshow.asp?
id¼127.

secondary industry and transportation industry rely on high levels
of oil consumption [58,59]. However, it is worthy to note that the
greater the reliance on oil is, the higher is the risk of affordability. In
the two periods from 2006 to 2007 and from 2010 to 2011, the
proportions of the secondary industry and transportation industry
in China’s GDP are both growing significantly. Hence, the afford-
ability of economy is influenced immediately, once oil price fluc-
tuates. Certainly, this section introduces just a sample and
rudimentary analysis, and how to characterize affordability risk
comprehensively is still an important research object in the future.
4.5. Systemic risk
dominant risk. The combined effects of the country risk, the po-
tential oil exports of suppliers, domestic economic situations, the
floating of international oil price, transportation situation and other
factors which threaten China’s OSC security have switched among
different stages of supply chain in different periods. Specifically, the
changes and features of the risk-dominant structure, which refer to
main risk factors affecting China’s oil import security in different
periods, are illustrated in Fig. 14.
It can be observed that the risk factors for China’s OSC show a
phase-transitioning characteristic from the availibility stage to the
accesibility stage. Furthermore, the evolution of dominant risk for
China’s OSC can be divided into three phases.

(1) The first phase: 2003e2007. China’s OSC security was

The above sections introduced the measures and analysis of
threatened from the internal stage of supply chain, in which
every risk factor. Then, the systemic risk is constructed into a two-
availability risk was the main risk factor. In this period, the
dimensional matrix. Initially, each risk is standardized based on Eq.
overall availability risk showed a relatively stable trend,
(11) and then the maximum risk in a given year is defined as the

1200 0.00045
0.0004
1000
Affordability risk (billion yuan)

Volatility of oil price increase

0.00035
800 0.0003
0.00025
600
0.0002
400 0.00015
0.0001
200
0.00005
0 0
2 0 0 32 0 0 42 0 0 52 0 0 62 0 0 72 0 0 82 0 0 92 0 1 02 0 1 12 0 1 22 0 1 3

R(af) Voil

Fig. 12. The increased volatility of oil price and the affordability risk.
462
60
50
GDP (trillion yuan)
40
30
20
10
0 48
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
GDP
Fig. 13. GDP and the proportion of the second industry and transportation industry.
while experiencing major fluctuations at some points,
caused by changes of some suppliers’ country risk or po-
tential export capacity or the share in total imports, such as
Yemen, Vietnam, Thailand and the like.
(2) The second phase: 2008e2009. The external affordibility
stage - the dramatic fluctuation of the oil price became the
absolute risk factor affecting China’s OSC security. During this
period, effects of the global financial crisis caused extreme
fluctuation in oil prices, which was the largest fluctuation
since 1980 [4]. These large fluctuations brought a huge
impact on smooth functioning of the country’s economy and
increased the affordibility risk of China’s OSC. Consequently,
oil price volatility became the main driver of risk in China’s
OSC, which reflects that China’s OSC security is influenced
greatly by major emergencies like financial crises.
(3) The third stage, 2010e2013. In this period, the world econ-
omy entered a slow recovery phase and oil price returned to
a stable state. Over the period of 2010e2013, the reserves-to-
production ratio of global oil grew by 15.4%, total oil exports
by 1.5% [11]. Due to the increase of China’s oil imports, the
surge in pirate attacks in chokepoints and the frequency of
failures of pipelines, the internal accessibility became the
main risk faced by China’s OSC in this period.
In conclusion, the dominant risk faced at each stage of China’s
OSC, which varies in terms of different levels of suppliers’
discrepancy, transportation conditions and oil trade patterns, pre-
sents phase-transitioning characteristics from availability risk fac-
tor to accessibility risk factor. In previous work, Ref. [4] pointed out
that China’s oil importing security had been threatened by the
external dependence stage during the phase of 2003e2007, while
our results give a more clear explanation, that is, the availability
11
http://www.bp.com/en/global/corporate/about-bp/energy-economics/
statistical-review-of-world-energy.html.
12
International Maritime Bureau Piracy Reporting Centre provides quarterly and
annual piracy and armed robbery reports. And the rates of pirate attacks are
calculated by dividing the number of pirate attacks in one strait by the total number
of pirate attacks.
13
The failure frequencies of the pipelines provided directly by EGIG is calculated
by dividing the number of incidents by the length of a pipeline and its exposed
duration, e.g. failure frequency per 1000 km year.
X. Sun et al. / Energy 121 (2017) 449e465
54
53
The share in the GDP (%)
52
51
50
49
The secondary and transportation industry
risk originating from the exporting countries, was the determinant
risk affecting China’s oil import in 2003e2007. In 2008, the large
fluctuation of oil price increased the affordability risk of China’s oil
import, and this is in line with the result of Ref. [4]. During the
period of 2010e2011, the accessibility risk which is used to
reflecting the transportation stability, became the determinant risk,
while the transportation risk is much less in Ref. [4]. When evalu-
ating the transportation risk, we consider the risk of oil pipeline
apart from the maritime transportation, and also take the proba-
bility of pirate attacks in different routes into account instead of just
considering the military in politics around the Strait of Hormuz.
This makes the results more close to reality.
According to Eq. (12), availability, accessibility and affordability
risks are integrated into a 2-dimensional matrix, which consists of
the internal disruption risk constructed by the availability and
accessibility risk, and the external economic risk. As shown in
Fig. 15, the systemic risk changes significantly in different years.
Specifically, in 2008 and 2009, the economic risk presented the
highest level, which is consistent with analysis in the sections
above. The disruption risk in the whole period oscillates in a range
from 0.6 to 1.4. Comprehensively, China’s OSC risk mainly
concentrated in the aspect of disruption risk to a certain extent.
Considering the risk controllability, China has some ability to
control and alleviate the availability risk in the internal disruption
dimension by reducing imports, optimizing the oil imports port-
folio, etc. However, the external economic risk comes mainly from
the dramatic fluctuations of oil price, though this happens more
rarely and China has weak control over this. Though the accessi-
bility risk in the internal disruption dimension can be controlled by
strengthening transportation management, diversifying transport
channels and so on, it needs a phenomenally long time to realize.
Consequently, China’s OSC security has become more serious and
the pressure and challenge for controlling the various risk factors in
supply chain have increased in recent years.
5. Conclusions and policy implications
This study has reexamined and identified the risk of oil supply
from the perspective of oil supply chain. In order to better identify
risks, a 4A-factors framework is designed to describe availability
risk, accessibility risk, acceptability risk and affordability risk.
 X. Sun et al. / Energy 121 (2017) 449e465 463

1.2000

1.0000
oil import risk index

0.8000
Accessibility
Affordability
0.6000

0.4000 Availability

0.2000

0.0000
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Fig. 14. The change of risk-dominant structure.

Further, based on the measurement of four risk factors from the
supply chain perspective, a two-dimensional risk matrix including
internal disruption and external economic risk factors is estab-
lished. Meanwhile, according to actual features of China’ OSC,
quantitative analysis of systemic risk of oil supply is addressed and
policies aimed at improving the country’s energy security and po-
tential problems are presented.
As for the case study of China, it is found that the dominant risk
factors affecting China’s OSC security vary in different periods and
present the phased characteristics of transition from the availibility
stage to the affordability risk, then to the accesibility risk. In the
initial period from 2003 to 2007, along with the accelerated import
demand in China and the major changes of supplier’s export situ-
ation, the availibility risk factor became the main factor affecting
China’s OSC security. Subsequently, affordability became the main
threat to OSC in the period from 2008 to 2009. Besides, the
accessibility risk factor has become the dominant risk since 2010.
Eventually, in the 2-dimensional risk matrix, the economic risk was
the highest in 2008 and 2009, while the disruption risk in the
whole period oscillated in a range from 0.6 to 1.4.
Above all, any stage of China’s oil import has risks of different
extent and China has limited control over the risks. Therefore, we
need to plan strategies towards risks in different stages of supply
chain accordingly, for strengthening the stability of import supply
chain ability to resist risks. The suggestions we put forward are as
follows:
(1) Since the potential export ability and the level of country risk
of oil suppliers have a significant influence on the availability
of oil. Crude oil demander among the world should cooperate
with each other and consider establishing a monitor mech-
anism for the variation of the potential export ability and the
level of country risk of oil suppliers, including not only
countries such as Saudi Arabia, Kuwait, Iraq and the like, but

1.2

1 2008
2009

0.8
Economic risk

0.6

0.4 2010
2011
2012 2004
2005
0.2 2007
2006
2003 2013
0
0 0.2 0.4 0.6 0.8 1 1.2 1.4 1.6
Disruption risk

Fig. 15. The two-dimensional matrix of the internal disruption and the external economic risk.
464 X. Sun et al. / Energy 121 (2017) 449e465
also Vietnam, Thailand, Indonesia and so on, so as to stabilize
the world oil supply.
(2) Considering the high-risk regions such as the Middle East
and Africa, China as large oil importing country could in-
crease their investment in the areas of the politically stable
regions with rich oil resources like Canada, Russia and South
America. This will not only truly realize the diversification of
the import sources, but also provide a safety supply for their
domestic oil demands.
(3) Different transportation routes have a differ impact on the oil
supply security. To guarantee the safety and stability of
transportation, it is necessary for China to diversify the
transport modes. Promoting the development of crude oil
pipelines such as China-Russian, China-Kazakhstan and
China-Burma Strengthen is a good choice to form a diverse
oil transportation network. Furthermore, it is necessary to
raise the administration level of oil ports and improve the
mechanism of emergency management for China to assure
the acceptability of oil.
(4) The voice in the international oil market plays an important
role in shaping the oil price fluctuations, but China’s voice is
still less compared with growing national strength. To reduce
the negative effects caused by the international oil price
fluctuation, China should build an oil future market as early
as possible and integrate China’s influence into the interna-
tional petroleum price system.
There are still some issues that need to be addressed in future
research, for example: Quantification of acceptability risk is still
untested. In particular, acceptability risk is modeled when consid-
ering the connection between port planning and the layout of the
nodes and routes in domestic supply chain network. Furthermore,
since oil-import risks have been identified and evaluated,
continuing research will yield further insight into how to optimize
oil-import portfolio with the trade-off between economic cost and
disruption risk.
Acknowledgements
This work was supported by National Natural Science Founda-
tion of China (No. 71373009, 71425002 and 71133005), and Youth
Innovation Promotion Association, Chinese Academy of Sciences
(No. 2012138).
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