While conceding that a "moderating and transitioning" Chinese economy would add downward pressure on oil and gas prices, KPMG warned in a new report, Unfolding trends in the oil trading industry, that the Asian giant should not be underestimated.
"It is important … to make the distinction that China's economic growth will be slower, not lower," KPMG said in the report penned by its Singapore-based pair, ASEAN commodity and energy risk management associated director Oliver Hsieh and Global Energy Institute director Tim Rockwell.
They said China's third quarter 2015 GDP growth of 6.9%, according to government statistics, was still a level "developed countries can only dream of", yet they conceded that the implications of single-digit growth for an economy used to double-digit growth for nearly three decades were "powerful".
China's economy has been afflicted by a barrage of sedate economic data, and this was felt acutely felt when $50 billion was wiped from the Australian Securities Exchange earlier this month following a stronger-than-expected Chinese currency devaluation and falls in Asian markets.
Adding some context to such frenzied sell-offs, KPMG conceded that it was a bearish sign that China's demand for crude imports had declined as its economy slowed and the US dollar strengthened, particularly considering the Asian giant is the biggest crude and fuels importer in the world.
However, the firm was confident that China's need for secure oil supplies would stay at the top of the government's agenda - so KPMG's analysts have not been surprised to see state-backed traders, banks and companies expanding further into the world's global oil trading hubs and supply regions.
China's crude imports rose 7.9% year to data, year on year in November 2015, as the country has also capitalised on low crude prices to build its own strategic petroleum reserves and thus strengthen its overall energy security.
"China possesses a powerful combination of political and economic will that will likely ensure it remains the world's net importer of crude," KPMG said.
ExxonMobil said in its Outlook for Energy report this week that while China's economy continues to grow at a relatively strong rate - about 2.5 times that of the OECD32 - its economy is "maturing" and energy demand from its industrial sector is expected to peak around 2030.
After that, Exxon says global industrial demand will grow at a "more modest" pace and that leadership in this sector is expected to shift to India.
Meanwhile, regulatory and capital pressures have forced many banks to scale down their involvement in oil trading, which KPMG said has left a potential void in the liquidity of financial commodity markets and reduces the influence of traditional energy financing.
"Though the low and volatile price environment has challenged oil trading companies, the industry make-over has also presented opportunities for new entrants, particularly commodity trading houses, private equity/hedge funds and investment firms, to participate in an industry previously dominated by a handful of major players," KPMG said.
Banks originally entered the oil arena to diversify their activities and capitalise on volatile commodity prices, muscling into the sector by obtaining physical assets and participating in commodity trading.
Yet the introduction of Basel III, the global voluntary regulatory framework on bank capital adequacy, stress testing and market liquidity risk designed to strengthen the regulation, supervision and risk management of the banking sector.
Through the risk-weighted assets approach, Basel III has forced more capital requirements onto commodity-related transactions, which has made commodity financing trades less attractive.
KPMG said banks have also tightened access to commodity financing due to return on risk weighted asset requirements, which have prompted them to charge higher fees to make trade finance transactions profitable.
