Investment and/or force – few governments in recent history have gone to more lengths to ensure its energy future than China. To this end, they have recently signed a natural gas deal with Russia which will cover their needs for the next 30 years. This took place as China was locked in a tense standoff with Vietnam over a drilling rig in the South China Sea, which shows the country’s all-out drive for energy expansion.
Mark J. Finley, BP’s general manager for global energy markets and United States economics says, “The dynamic growth of China’s economy and energy growth is reshaping global energy markets and both the economic and strategic implications are still being developed.”1
In 2013, according to a recent OPEC report, China consumed 10.1 million barrels of oil each day (one-ninth of the world’s total) yet produced only 4.2 million barrels per day. Added to this problem is the fact that the country is experiencing mixed results from offshore drilling and is hitting roadblocks in reaping the benefits of a vast shale gas resource. These deposits lay significantly deeper underground in a geologically complex formation that is thus far poorly understood. Should fracking projects such as this move ahead with any vigour it is feared that untold damage could be done to the land and any fresh water reserves.
This incredible demand has opened the doors for beleaguered coal producers around the world, which would be an absolute blow to clean air and other environmental recovery efforts. On top of this, many sources are to be found in politically unstable areas. China imports some half-million barrels of oil from Iran and large amounts from the rest of the Persian Gulf region with approximately 43 percent of it moving through the Strait of Hormuz, where security is dependent on the U.S. Navy. American sanctions on Iran have made that a less reliable source. Crude shipments from Libya, Sudan, and South Sudan are diminishing, which has prompted China to seek supplies from Oman, Unites Arab Emirates, Angola, Venezuela, Russia, and Iraq.
China is the largest oil consumer and Chinese oil companies are huge investors in some of the most productive oil fields in Iraq. Support ships acrimoniously ramming each other and intervention from the Chinese navy in Vietnam’s waters notwithstanding, China has been scrupulous about staying out of Iraq’s strained sectarian affairs and is loath to confront the U.S.’s influence in the region.
China’s thirst for fossil fuel has driven the country to become a major player in Latin America, which has been historically dominated by the U.S. China is a good fit with the oil-financed governments that promote socialism and who seek to distance themselves from the U.S., particularly Ecuador and Venezuela. In fact, China has become Ecuador’s banker providing about 60 percent of Ecuadorean borrowing needs in return for oil shipments. Chinese firms sell the Ecuadorean oil across the globe – even to the U.S. Venezuela’s state-owned oil company is effectively repaying China for $40 billion in loans secured over the last six years. This repayment schedule comprises a large share of its 600,000 barrels a day in oil shipments.
African countries are proving to be a lot tougher to deal with when it comes to investing. China is finding out the hard way that some objects are virtually immoveable. As of a year ago, Chad indefinitely suspended the activities of China National Petroleum because of oil spills near the capital, N’Djamena. Officials claimed that the Chinese forced local workers to clean up the mess without adequate protection.
A subsidiary of another Chinese oil company, Sinopec, was forced to pay Gabon $400 million in January to settle what the government said was a breach of contract at an offshore oil field. Premier Li Keqiang highlighted China’s enduring interest in Africa by visiting four countries in May, including oil-rich Angola and Nigeria.2
The country’s new gas deal with Moscow should bolster the two countries both economically and politically. Russia could supply 38 billion cubic metres of natural gas – more than 15 percent of current demand – to China beginning in 2018. More importantly for the planet, China’s dependence on coal for electricity generation will drop dramatically. It should also help China ease some of its dependence on insecure transit routes and dealings with unstable nations and will guarantee an energy market for Russia if Europe seeks to replace Russian energy with imports from elsewhere.
“The Chinese public will appreciate being able to industrialize without billows of toxic smog,” said Jim Krane, an energy expert at Rice University in Houston.3
By 2011, the Chinese had constructed or invested in energy products in more than 50 countries. China (with 6.3MMbpd or 58 percent of its needs) officially surpassed the U.S. (at 6.24MMbpd) as the world’s largest importer of oil. This number is very likely to grow as time moves on with conservative estimates projecting nearly two-thirds of its oil will be needed by 2015 and three-quarters by 2030. I cringe at the thought of that much crude rushing through the world’s man-made arteries or transiting over countless kilometres of open ocean. However, a major goal of Beijing’s foreign energy strategy is to alleviate China’s heavy reliance on sea lines of communication (SLOC), particularly in the South China Sea and the Strait of Malacca. In 2011, approximately 85 percent of China’s oil imports transited these bodies of water. Separate crude oil pipelines from Russia, Kazakhstan, and Turkmenistan to China illustrate efforts to increase overland supply. A pipeline that would surpass the Strait of Malacca is under construction with the completion date scheduled for 2014. It would transport crude from Saudi Arabia and other Middle Eastern and African countries from Kyuakpya, Burma to Kunming, China.
Given China’s growing energy demand, new pipelines will only slightly lift the pressure on the country’s maritime dependency on either the Strait of Hormuz or the Strait of Malacca that itself sees movement of 85 percent of China’s imported crude. Besides, shipping China’s required vast amounts of oil and liquefied natural gas from the Middle East and Africa by SLOC is economically feasible.
On the diplomatic side, while the U.S. is unlikely to withdraw from its role of policing and defending global oil production or guarantor of safe shipping routes, an increasing reliance on foreign oil will serve to push Beijing toward a more engaged role within the international community. It is likely that the world will see a change in China’s approach to international intervention and future participation in multilateral counterterrorism initiatives. Global energy stability will become ever-more important and anything that screws up the oil market will be most harmful to Beijing. Some say China’s energy ambitions will continue to be good news for those who currently enjoy the status quo… I seriously hope not.
1 Krauss, C. and Keith Bradsher. “China’s Global Energy Quest.” New York Times International Weekly (June 8, 2014): 1
2 Ibid.
3 Ibid.
