Friday, June 25, 2004

Energy Politics and China's Future

NEW DELHI - Energy security of nations has become one of the major issues gaining global attention today. Since the Middle East, which has been the synonym for oil and gas, has become a breeding ground of European and US energy politics, most of the imported-energy-dependent Asian countries are worried about their future energy security. In this context a rise in energy geopolitics can be foreseen in the Asian continent.

The politics over accessing Russian oil and gas by both China and Japan has become an important issue. Japan is more likely to gain the majority of Russia's Siberian supply since it can make a better economic offer to Russia than the Chinese. The Chinese government has almost lost all confidence in getting a pipeline built to Daqing. The plan for a pipeline to China from Russia's Siberian region was a decade-long ambition of Beijing. This would have supplied a sizable volume of oil and gas compared with the small quantity exported by rail to China.
China's energy hungerChina imported 100 million tons of crude oil in 2003, an increase of 20 million tons over the previous year. It made China the world's second-largest oil importer and consumer, after the United States. [1] Actual import and consumption has surpassed projections in China for many years. Moreover, the simultaneous shortage of oil, electricity and coal is an indicator that China needs to improve its energy security. [2] Since the pipeline project is still stuck in the pipeline, China will have to think more seriously about its growing energy needs, otherwise the energy shortfall may limit its economic growth.

China's pipeline option from Central Asia has been showing progress, and this might be the priority in Beijing's energy-security planning in the coming years. The Kazakh government issued a decree recently favoring the second stage of pipeline construction. The Sino-Kazakh oil pipeline, from Atyrau, a city on the coast of the Caspian Sea in Kazakhstan, to Dushanzi, Xinjiang, covers a distance of 3,000 kilometers and will transport 20 million tons of oil a year. Its construction is expected to cost US$3 billion. [3] But doubts about the economic viability of the pipeline will continue until the Chinese are sure it would supply around 20 million to 25 million tons of oil per year. This could be done only through connecting Kazakhstan's Uzen oilfield to the proposed pipeline, to which the Kazakhs expressed their disapproval long ago.
SPRs in ChinaA widely believed necessity of a "strategic petroleum reserve" (SPR) in China has to be analyzed in a context where energy supply for everyday activity is at stake. The role of an SPR is important in distributing oil during an emergency - a shortage in the energy supply due to unforeseen internal or external factors. Since the energy network supplying fuel to the growing daily domestic demand has not been effective in China, the four proposed SPRs with the investment of 6 million yuan ($725 million) may take longer than expected to complete.
Concern over the growing dependence on imports has been the main reason for the building of four 75-day-capacity SPRs, expected to be completed by 2010. In the coming years China will have to do an extensive search for energy, and this would surely make way for more investments in areas other than Russia and Central Asia.

New areas of energy exploration
Chinese policy in the coming decade will be more focused on gaining access to the energy-rich countries of the world. This may have similar features to Dale C Copeland's "theory of trade expectations", where the foreign policy of a country is greatly influenced by trade expectations. But here the expectations are much more focused on the energy sector.

For the past many years energy security has been one of the key factors that determined China's political as well as economic relations with other countries, especially with oil-rich countries in Africa and South America. The statistics currently used by China show that the volume of the country's oil resources is 106.9 billion tons, and natural gas 53 trillion cubic meters. Experts have corrected the above figures with various coefficients and determined that China's recoverable oil reserves stand at 13 billion to 16 billion tons and natural gas at 10 trillion to 15 trillion cubic meters. [4] This is a shocking fact showing that China's energy situation is much worse than previously thought. And so China will have to find energy sources from abroad other than in Russian and Central Asia.

Tan Zhuzhou, chairman of the China Petroleum and Chemical Industry Association, said: "Take our technologies and capital to Africa and South America and exploit oil there so as to have diverse supply and avert the risk brought about by concentrated oil imports." China should focus much toward these areas for its energy plans.

The growing energy demands of China necessitate its greater cooperation in the international energy market and in developing its relations with oil-rich countries. The present energy scenario in China shows its alarming demand for energy to support its economic growth.
As part of its search for energy sources, China may be able to focus on the South China Sea. China's energy plans in this area may witness coercion of those Southeast Asian countries with which China has strained relations due to the issue of the Spratly and Parcel island chains. Moreover with the South China Sea being one of the busiest energy-transportation routes to South Korea and Japan, China's energy-exploration plans may open the way for new geopolitical developments in this region.
China's "strategic partnership" with Russia has not been very fruitful in the Siberian pipeline negotiations because of Japan's involvement in the pipeline-construction plans. So if the Siberian pipeline is going to be off the table for the Chinese, that may reflect in the geopolitics of East Asia and more specifically in Sino-Japan relations in the future, including the Diaoyutai-Senkaku Islands dispute. But at present from the Chinese side a more pragmatic calculation will be evident by leaving behind the energy politics in this region and slowly moving away from the regional energy market and looking at Africa and South America for its energy supply to satisfy some of its energy needs.

Notes:[1] Feng Jianhua, "Energy Crisis", Beijing Review, January 15, 2004, p 28.
[2] Ibid, p 29.
[3] "Sino-Kazakhstan oil pipeline construction to start second stage."
[4] "China to establish four coastal strategic oil reserves", People's Daily, December 4, 2003


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