China: Beijing looks to secure oil supplies. Growing dependence on imports is worrying Chinese planners.
By James Kynge, Financial Times, May 05
Energy security has long been an important, but essentially secondary,
consideration in the mix of issues that influence China's foreign policy.
But the unprecedented recent acknowledgement in an official newspaper that
China will need to import 40 per cent of its oil by 2010 - up from less than 20 per
cent now - ensures that securing a stable supply of oil and gas will become a
central factor in Beijing's foreign relations, diplomats and analysts said.
"China's overseas [oil and gas] exploration policies will increasingly run parallel
to diplomatic policies," said Al Troner, of the Kuala Lumpur-based Asia Pacific
Energy Consulting company.
A foreign diplomat in Beijing said: "The need to secure energy supplies could
intensify China's diplomatic rivalry with the US in areas, such as the Middle East,
which Washington regards as its sphere of influence."
By 2010 China's import needs may be as much as 142m tonnes a year, up from
35m in 1997, according to an article in the official China Economic Times
newspaper.
Several structural factors are behind China's forecast needs for imported oil. The
first is that existing domestic oil fields in the north and north-east have peaked,
are becoming less efficient and are slowly being decommissioned.
Recent discoveries of oil fields in the west and north-west have proved to be a
disappointment, both in the size of recoverable reserves and the high costs of
transporting the oil to China's economically vibrant east coast.
The decline in international oil prices in recent months to less than the costs of
most Chinese producers also diminished some of Beijing's innate reluctance to
import. But neither are they blind to the perils of too heavy an external reliance.
"By 2010, our self-sufficiency in oil will be just 60 per cent and we will account for
5 per cent of world oil trade, with imports costing $20bn a year. For each
increase of $1 in the cost of a barrel, we will have to pay an additional $300m,"
said the China Economic Times article.
The basis of China's energy security strategy is therefore to diversify sources of
supply increasingly toward diplomatic allies such as Russia, the republics of
Central Asia, Africa and Latin America. At the same time Beijing recognises it
must also secure supplies from efficient, high-volume producers so as to keep
costs down, analysts said.
The problem is that almost nowhere do the twin conditions of diplomatic amity
and efficient production co-exist. So China is forced to compromise.
From a geopolitical point of view, the Middle East is not ideal. Nato's display of
assertiveness in Kosovo has reinforced concerns in Beijing that the US-led
military organisation could at some stage in the future be used in a Middle East
conflict that was inimical to China's energy security.
"We must pay careful attention to the fact that the US controls the oil in the
Middle East," said the China Economic Times article.
But the efficiency and volume of Middle East producers mean that China feels it
cannot do without supplies from the region. It has therefore decided to re-double
its diplomatic efforts in the region as a counterweight to US dominance.
Over the past two years, China has reinvigorated its ties with Israel - the main US
ally in the Middle East - and upgraded its long and stable relationship with Egypt
last month to the level of a "strategic partnership". The China National Petroleum
Corp (CNPC) plans to invest in an Iraqi oil field once United Nations sanctions
are lifted. Several co-operation deals are under discussion with Iranian state oil
interests.
Converging energy interests may strengthen Beijing's warming ties with Russia
which, like China, opposes Nato's action in Kosovo and is also eager to dilute
Washington's geopolitical influence. China is co- operating with Russia to exploit
huge gas fields in Siberia and build pipelines to transport the gas to cities in
northern China such as Beijing and Tianjin.
The republics of Central Asia, especially Kazakhstan, also possess a strategic
importance to China beyond the fact that some are rich in oil. They border
China's restive Moslem north-west and Beijing has always been anxious to win
their co-operation in preventing the spread of separatist sentiment. In 1997,
CNPC agreed to invest $4.3bn over 20 years to secure a 60 per cent stake in
Kazakhstan's state-owned Aktyubinsk oil company.
Energy security considerations may also, over time, reinforce China's desire to
control the shipping lanes in the South China Sea - through which many of the oil
tankers supplying its ports must traverse. Beijing already claims the sea as its
territorial waters and has passed laws - which are not enforced - that require
foreign navy ships to seek its permission before crossing.
But any move to control shipping in the South China sea would almost certainly
alarm Japan, which also derives its most of its energy needs from tankers that
cross it every day.
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